Following the Bank of England’s decision to reduce the base rate to 4.25% on 8 May, HMRC has announced corresponding changes to its interest rates, effective from 28 May. The 0.25% base rate cut has triggered a reduction in both late payment and repayment interest rates, which are directly linked to the base rate.
As a result, the late payment interest rate will drop from 8.5% to 8.25%, easing slightly from its highest level since February 2000. Meanwhile, the repayment interest rate will decrease from 3.5% to 3.25%.
HMRC sets its late payment interest at the base rate plus 4%, while repayment interest is calculated as the base rate minus 1%, with a minimum floor of 0.5%. These adjustments reflect the government’s policy to align tax-related interest rates with changes in the wider economic environment.
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