Following the November reduction in the Bank of England base rate, HMRC is adjusting its late payment and repayment interest rates accordingly.

The base rate was cut to 4.75% on 7 November 2024, marking the second reduction this year. These changes to HMRC rates will take effect from 18 November.

Key Changes to HMRC Interest Rates

Late Payment Interest

From 18 November, the late payment interest rate will decrease to 7.25%, down from 7.5%.

This rate is calculated as the base rate plus 2.5%.

Repayment Interest

From 26 November, repayment interest will fall to 3.5%, down from 3.75%.

This rate is pegged at the base rate minus 1%, with a minimum floor of 0.5%.

Corporation Tax Interest

• For underpaid quarterly instalments, the interest rate will reduce to 5.75%, down from 6%, from 18 November.
• For overpaid quarterly instalments and early payments of corporation tax not due by instalments, the rate will decrease to 4.5%, down from 4.75%, from 18 November.

Although these adjustments have been triggered by the recent base rate cut, HMRC has yet to update the official rates on its Rates and Allowances guidance page on Gov.uk, noting only that updates are forthcoming.

Future Changes in 2025

From 6 April 2025, HMRC will implement a higher surcharge on late payment interest.

The premium, currently set at 2.5% above the base rate, will increase to 4%. This measure is part of a broader initiative to combat tax avoidance and late payments, aiming to raise an additional £255 million annually from 2025-26.

Despite this, HMRC will continue to pay significantly lower interest on overpayments, highlighting the disparity between its charges and repayments.

These rate changes reflect ongoing adjustments to align with the Bank of England’s monetary policy, while also signalling HMRC’s focus on strengthening tax compliance measures.