HMRC cuts late payment interest rate to 8.25%

Sara White, Editor, Business & Accountancy Daily

Following 0.25% cut in the base rate last week, HMRC will reduce late payment and repayment interest rates from 28 May

The latest cut offers a small comfort to anyone having to pay late payment interest after HMRC hiked the percentage rate earlier this month, meaning HMRC interest rates are 4% above base rate now, rather than 2.5%.

The Bank of England cut the base rate to 4.25% on 8 May, triggering a 0.25% cut in HMRC interest rates which are pegged to the base rate.

From 28 May, the late payment interest rate will be cut to 8.25% from 8.5%, which was the highest rate charged since February 2000.

The repayment interest rate will be cut to 3.25% from 3.5% from 28 May.

HMRC has updated the official rates on the rates and allowances guidance page on the gov.uk website, which were last updated from 6 April 2025. 

HMRC late payment interest is set at base rate plus 4%. Repayment interest is set at base rate minus 1%, with a lower limit - or ‘minimum floor’ - of 0.5%. 

It is important to note that from 6 April 2025, HMRC charges an even higher premium on its repayment interest rates, increasing the current 2.5% rate surcharge to 4% over base rate. The Treasury announced the move at last October's Budget, saying it made the decision to help with the wider clampdown on tax avoidance and non-payment of taxes. This is expected to raise £255m a year from 2025-26, as recalcitrant taxpayers are penalised for late and non-payment.

Corporation tax self assessment interest rates relating to interest charged on underpaid quarterly instalment payments drops to 6.75% from 7.0% from 19 May 2025. HMRC interest paid on overpaid quarterly instalment payments of corporation tax not due by instalments is cut to 4% from 4.25%.

With late payment interest now 4% above the Bank of England base rate, HMRC continues to pay lower interest to taxpayers affected by overpayments of tax at 3.25% from 28 May, down from 3.5%.

On the low overpayment interest rate, HMRC said ‘the difference between rates is in line with the policy of other tax authorities worldwide. It compares favourably with commercial practice for interest charged on loans or overdrafts and interest paid on deposits’.