News

HMRC Increases Interest Charged On Late Payments Of Tax

08 - 04 - 2025

HMRC has increased the interest rate charged on late payments of tax from 06 April 2025.

As announced at the Autumn Budget 2024, HMRC’s interest rate increased to the Bank of England base rate plus 4 percentage points from 06 April 2025. It was previously Bank of England base rate plus 2.5%. 

The rate of interest charged by HMRC is 7% from 25 February 2025 and it will increase to 8.5% for most taxes and duties from 6 April 2025. The Bank of England base rate will next be reviewed on 8 May 2025. 

The rates of interest paid by HMRC to taxpayers on overpaid tax remain at 3.5% for most taxes and duties. HMRC have advised that this is part of a ‘package of measures to drive down the debt balance’.

In the Spring Statement on 26 March 2025, the government announced that late-payment penalties will increase for: 

• VAT, from April 2025; and

• taxes paid under Making tax Digital (MTD) for income tax   

The changes could result in considerably higher amount due on unpaid tax payments. If a taxpayer is unable to pay it may be possible to agree a Time To Pay Arrangement which will reduce any penalties, however interest on the underpaid tax will still be charged.