HMRC late payment interest rates to be revised after Bank of England lowers base rate

The Bank of England Monetary Policy Committee announced on 7 November 2024 it is to reduce the Bank of England base rate to 4.75% from 5.0%. This was due to inflationary pressures easing in recent weeks.

HMRC interest rates are linked to the Bank of England base rate. The Bank expects inflation to increase slightly again over the next year to around 2.75% and then fall back to the 2% target after that.

In their quarterly report, the Bank outlined that they will be taking a cautious approach, and so will not be cutting rates too quickly or too much. It seems unlikely there will be a further cut when the Bank next meet on 19 December.

However, the Bank have said that “if things evolve as expected, it is likely that interest rates will continue to fall gradually.”

Obviously, a rate cut can be a mixed blessing depending on whether your business is investing or borrowing. However, if inflation is stabilising, this may mean a more stable economy and more certainty for businesses in the year ahead.

As a consequence of the change in the base rate, HMRC interest rates for late payment and repayment will reduce.

These changes will come into effect on:

• 18 November 2024 for quarterly instalment payments
• 26 November 2024 for non-quarterly instalments payments

Information on the interest rates of payments will be updated shortly.

How HMRC interest rates are set 

HMRC interest rates are set in legislation and are linked to the Bank of England base rate.

Late payment interest is currently set at base rate plus 2.5%. Repayment interest is set at base rate minus 1%, with a lower limit – or ‘minimum floor’ – of 0.5%.

The differential between late payment interest and repayment interest is in line with the policy of other tax authorities worldwide and compares favourably with commercial practice for interest charged on loans or overdrafts and interest paid on deposits.

The rate of late payment interest, encourages prompt payment and ensures fairness for those who pay their tax on time, while the rate of repayment interest fairly compensates taxpayers for loss of use of their money when they overpay.

See: https://www.bankofengland.co.uk/monetary-policy-report/2024/november-2024

If you would like further guidance, please feel free to get in touch with Michaela Johns on 023 8046 1237 or email Michaela Johns.