HMRC to lower interest rates on late payments

How is HMRC interest calculated? 

Since 6th April 2025, the calculations of late payment and repayment interest have been: 

• Late payment interest: the Bank of England base rate plus 4% 
• Repayment interest: the Bank of England base rate minus 1% 

HMRC says that the difference between the two rates is “in line with the policy of other tax authorities worldwide”. 

Why has HMRC dropped the interest rates? 

The Bank of England base rate recently dropped to 4%, and this drop prompted the announcement of the reduction to HMRC’s interest rates. The Bank of England has been set a target of reducing inflation to 2% from its current level of 3.6% and reducing interest rates aims to help them reach this target 

What does this mean for me? 

If you are late paying any tax liability to HMRC you will pay less interest on the tax due (alongside any potential penalty). However, if HMRC owes you money by way of a tax refund you will also get less interest from them.  

Last updated: 15th August 2025