Interest rates levied by HMRC for early and late payments are linked to the Bank of England base rate. In May 2025, the Bank of England reduced the base rate to 4.25%.

In the past, the interest on late payments to HMRC was set at 2.5% above the base rate. However, following the Spring Budget announcement, HMRC increased its interest rates for late payments to 4% above base rate.

HMRC late payment and repayment interest rates

From 28 May 2025, HMRC interest rates for all taxes are as follows:

• 8.25% for late payment interest rate.
• 3.25% for repayment interest rate – the rate paid to a taxpayer on overpaid tax.

Late payment interest 2025

Late payment interest is charged on unpaid and overdue taxes. This includes Income Tax, Capital Gains Tax and Corporation Tax. Therefore, these interest rate changes affect both businesses and individuals who pay tax due or payments on account late. Note that interest due on underpaid Corporation Tax due under the quarterly instalment regime does remain at a slightly lower rate of 6.75%.

Repayment interest

For taxpayers who overpay their taxes, repayment interest compensates them for paying early. Repayment interest is now set at the Bank of England base rate minus 1%.

31 July 2025 payments on account

It wasn’t that long ago that we were experiencing a base rate of 0.1% and accordingly late payment interest at a rate of ‘just’ 2.6%.  Now though, with a much higher base rate and a 4% premium over base being charged by HMRC, it becomes very expensive to pay your taxes late.

As well as late payment interest increasing, HMRC is also restarting direct recovery from taxpayers who don’t pay, even if they can pay, and who ignore HMRC correspondence. Direct recovery allows HMRC to directly recover tax owed from banks and building society accounts of the taxpayer.

Remember also that a ‘penalty’ regime applies to tax paid more than 30 days late, over and above late payment interest.  Broadly a 5% penalty is levied on any tax that remains unpaid after 30 days.

With these changes and the next tax payments on account due by 31 July, our advice is to make sure you pay your tax on time by 31 July.

What to do if you can’t make your payments on account

If, for any reason, you can’t pay, then contact HMRC to see if it’s possible to arrange a Time To Pay (TTP) arrangement. Under a Time to Pay arrangement, you can set up a payment plan to spread the cost of your outstanding tax bill and you won’t be charged additional penalties if you have entered and stick to a time to pay arrangement with HMRC.

For help and advice on tax payments and tax planning, contact us today.

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