HMRC has decided to lower the interest rates applied to overdue tax payments following a recent reduction in the Bank of England’s base rate. The Bank of England recently decreased its base rate from 4% to 3.75%, which is beneficial for borrowers and individuals with outstanding tax obligations to HMRC.
For self-assessment taxpayers, HMRC typically imposes an 8% interest rate on late tax payments. Starting from January 9, 2026, this rate will decrease to 7.75%. Late payment interest is currently calculated at the base rate plus 4%, while the repayment interest paid by HMRC for overpaid taxes is being adjusted to 3.5%.
Repayment interest is usually set at the base rate minus 1%, with a minimum threshold of 0.5%. The changes in interest rates are directly influenced by the Bank of England’s base rate adjustments, as confirmed by a notice on the HMRC website.
These modifications precede the approaching deadline for self-assessment tax returns on January 31. Failure to file online by this date incurs an immediate £100 penalty, escalating to £10 per day up to a maximum of £900 after three months. Further penalties are imposed at the six-month and one-year marks.
Late interest charges commence on any outstanding tax amounts after January 31. Additional fines amounting to 5% of the unpaid tax are imposed after 30 days, with repeated penalties at the six-month and one-year intervals. Individuals struggling to settle tax bills under £30,000 can explore setting up a payment plan known as “Time to Pay” with HMRC.
Self-assessment submissions are required for self-employed individuals, those with supplemental income, property rental earnings, or high-income earners claiming Child Benefit. It is crucial to adhere to tax deadlines and seek assistance if facing financial difficulties to avoid penalties and interest charges.