Following the Bank of England’s base rate cut to 4.5% on 6 February, HMRC will lower its late payment and repayment interest rates from 25 February.
The late payment interest rate will drop from 7.25% to 7.0%, while the repayment interest rate will decrease from 3.75% to 3.5%. These changes reflect HMRC’s standard approach, where late payment interest is set at the base rate plus 2.5%, and repayment interest is set at the base rate minus 1%, with a minimum floor of 0.5%.
For corporation tax, self assessment interest on underpaid quarterly instalments will fall to 5.5% from 5.75% on 17 February – one week earlier than the main rate change. Similarly, interest on overpaid quarterly instalments and early corporation tax payments will drop from 4.75% to 4.5%.
Looking ahead, from 6 April 2025, HMRC will increase its premium on late payment interest, raising the surcharge from 2.5% to 4% over the base rate. Announced in last October’s Budget, this move will generate £255 million a year from 2025/26, targeting tax avoidance and late payments.
Despite these adjustments, HMRC continues to pay lower interest on overpayments than on late payments. It has defended this policy by citing international tax authority practices and comparing commercial loan and deposit rates.
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