HMRC has decided to lower the interest rates for overdue tax payments following a recent reduction in the Bank of England’s base rate. The Bank of England has decreased its base rate from 4% to 3.75%, benefiting numerous borrowers and those with outstanding tax obligations to HMRC.
For self-assessment taxpayers, HMRC currently imposes an 8% interest rate on late tax payments, which will be reduced to 7.75% starting from January 9, 2026. Late payment interest is calculated at the base rate plus 4%, while the repayment interest paid by HMRC for overpaid taxes or refunds is being adjusted to 3.5%.
Furthermore, repayment interest is determined at the base rate minus 1%, with a minimum limit of 0.5%. These adjustments are in response to the recent Bank of England base rate revision.
These changes precede the upcoming 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. Subsequently, after six months, a 5% charge of the tax owed or £300, whichever is higher, is applied. This penalty structure repeats after 12 months.
Late interest begins to accrue if tax payments are not settled by January 31, with an additional 5% charge on the outstanding tax after 30 days. This penalty is repeated at six months and 12 months.
Individuals struggling to pay tax bills under £30,000 may qualify for a payment plan known as “Time to Pay” with HMRC. Self-assessment submissions are required for self-employed individuals, those earning additional income beyond primary employment, property rental income recipients, and high earners claiming Child Benefit.
To access personalized news quickly, designate Daily Mirror as a ‘Preferred Source’ on Google News. Through the use of cookies and other identifiers, Reach and its affiliates collect and analyze device information to enhance site experience and provide tailored advertising. Users can opt-out of data sharing by selecting the “Do Not Sell or Share my Data” option on the webpage. By using the website and services, users consent to the cookie usage and practices outlined in the Privacy Notice and Terms and Conditions.