HMRC has decided to lower the interest rates for late 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%, which is beneficial for numerous borrowers and individuals with outstanding tax liabilities to HMRC.
For self-assessment taxpayers, HMRC currently imposes an interest rate of 8% on late tax payments, but this rate will decrease to 7.75% starting January 9, 2026. The late payment interest is calculated as the base rate plus 4%. Additionally, HMRC is reducing the repayment interest rate to 3.5%, which is calculated as the base rate minus 1%, with a minimum limit of 0.5%.
HMRC’s website notes that the change in the Bank of England base rate to 3.75% from 4.00% will lead to corresponding adjustments in HMRC’s interest rates for late payment and repayment. These modifications precede the upcoming self-assessment tax return deadline on January 31. Failure to file tax returns online by this deadline incurs an instant £100 fine, escalating to £10 per day up to a maximum of £900 after three months, and further penalties after six and twelve months.
Late interest charges commence on unpaid taxes after January 31, with an additional 5% fine after 30 days, repeated at six and twelve months for outstanding amounts. Taxpayers owing less than £30,000 can arrange a payment plan called “Time to Pay” with HMRC if facing difficulties in settling their tax bills. It is essential to submit a self-assessment if you are self-employed, have additional income sources, earn rental income, or are a high earner claiming Child Benefit.