HMRC is adjusting the interest rates applied to overdue tax payments following the recent reduction of 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 individuals with outstanding tax liabilities to HMRC.
For self-assessment taxpayers, HMRC imposes interest charges on late tax payments, with the current rate at 8% set to decrease to 7.75% effective January 9, 2026. Late payment interest is determined as the base rate plus 4%, while the interest paid by HMRC for overpaid taxes or refunds is decreasing to 3.5%.
Furthermore, the repayment interest rate, set at the base rate minus 1% with a minimum of 0.5%, is also being adjusted. These modifications align with the Bank of England’s base rate adjustments, impacting HMRC’s interest rates for both late payment and repayment scenarios.
These changes precede the upcoming deadline for self-assessment tax returns on January 31. Failure to file online by this deadline incurs an immediate £100 penalty, escalating to daily fines of £10 up to a maximum of £900 after three months. Subsequently, after six months, a penalty of 5% of the tax owed or £300 (whichever is greater) is applied, repeating at the 12-month mark.
Late interest charges commence on any outstanding tax amounts from January 31, with additional penalties of 5% of the unpaid tax after 30 days, and repeated at six and 12 months. Taxpayers facing difficulties in settling amounts under £30,000 may explore the option of a payment plan with HMRC through the ‘Time to Pay’ scheme.
Individuals engaged in self-employment, additional income sources beyond primary employment, property rental income, or high earners claiming Child Benefit may be required to submit a self-assessment tax return. Stay informed with the latest news by selecting Daily Mirror as a ‘Preferred Source’ on Google News.