HM Revenue & Customs (HMRC) is set to revise its interest rates for late payments and repayments following the Bank of England’s decision to reduce the base rate from 4.25% to 4.00% on August 7, 2025.
This change will take effect on August 18, 2025, for quarterly instalment payments and August 27, 2025, for non-quarterly payments, impacting both individuals and businesses across the UK.
Understanding the Changes
The recent adjustment in HMRC interest rates is a direct response to the Bank of England’s base rate cut.
Late payment interest will now be calculated at the base rate plus 4%, while repayment interest will be set at the base rate minus 1%, with a minimum floor of 0.5%.
These changes aim to balance encouraging timely tax payments with providing fair compensation for overpayments.
Implications for Taxpayers
- Reduced late payment interest rates may ease cash flow pressures for businesses.
- Individuals awaiting tax refunds might receive slightly lower interest compensation.
- The changes align with international tax authority practices, maintaining competitiveness.
- Affects major taxes including Income Tax, VAT, and Corporation Tax.
The Rates Update Explained
This update follows a period of rising inflation and subsequent increases in HMRC’s late payment interest rates earlier in April 2025.
The Bank of England’s decision marks its first rate cut after several hikes throughout 2024 and early 2025. These adjustments reflect ongoing efforts to balance inflation control with economic growth within the UK economy.
Broader Economics
The linkage between HMRC interest rates and the Bank of England base rate ensures that tax-related financial obligations reflect broader economic conditions.
This alignment can influence foreign investment decisions as multinational companies consider tax costs and cash flow management when operating in the UK market.
Additional Reading
To Sum Up
The adjustment in HMRC’s interest rates reflects an effort to align with broader economic policies while considering taxpayer impacts.
As these changes take effect later this month, individuals and businesses should prepare for how these revised rates might influence their financial planning and tax obligations moving forward.
More of Todays Top Breaking Government News Stories!
Sources: UK Government, Bank of England, HM Revenue & Customs, and Orbitax.
Prepared by Ivan Alexander Golden, Founder of THX News™, an independent news organization delivering timely insights from global official sources. Combines AI-analyzed research with human-edited accuracy and context.
