HMRC has announced changes to its interest rates following the Bank of England’s decision to lower the base rate from 4.25% to 4.00% on 7 August 2025.

Because HMRC’s rates are tied directly to the Bank of England base rate, both late payment and repayment interest rates will now drop.

When the changes take effect

18 August 2025 – for quarterly instalment payments

27 August 2025 – for all other payments

Updated rate details will be published shortly.

How HMRC sets its rates

By law, HMRC’s interest rates move in line with the Bank of England base rate:

Late payment interest = base rate + 4%

Repayment interest = base rate – 1% (with a minimum of 0.5%)

This system is designed to strike a balance:

- Higher late payment interest encourages taxpayers to pay on time, keeping things fair for those who do.

- Repayment interest ensures that taxpayers are compensated if they’ve overpaid and are waiting for HMRC to return their money.

HMRC notes that this approach is consistent with tax authorities around the world and compares reasonably well with how banks handle loan or overdraft charges versus savings interest. Photo by Images_of_Money's profile, Wikimedia commons.