HMRC Slashes Late Payment Interest: The Good News (and The Real Catch)
Great news, tax‑takers! The UK’s tax authority, HMRC, has lowered the interest it charges on overdue payments after the Bank of England dropped its base rate from 5.0% to 4.75% earlier this month.
What the Numbers Really Mean
- HMRC’s interest is set at the Bank of England base rate plus 2.5%. Consequently, it has dropped from 7.5% to 7.25% for:
- New tax debts and quarterly instalment payments (effective from 18th November)
- Non‑quarterly repayment plans (effective from 26th November)
Hold That Celebration Drum!
While a lower interest rate feels like a win‑win, Qdos, a tax‑insurance specialist for the self‑employed, urges folks to keep their cool until the self‑assessment date on 31st January.
If you still miss the deadline, you’ll see a late payment penalty plus the 7.25% interest on the total tax owed.
Why the Interest Gap Matters
- HMRC charges higher interest on late payments than it offers on refunds:
- Refund interest: 4% (soon to drop to 3.75% after the base‑rate change)
- Late payment interest: 7.25%
- That difference effectively means HMRC keeps the extra cost—especially hurting the self‑employed.
Qdos CEO Insights
Seb Maley, CEO of Qdos, leans into the numbers:
“Since HMRC’s interest rates are tied to the Bank of England base rate, it makes sense they’re recalc’d. Seeing the rates drop after years of hikes is a relief. But what’s not so great is the gap between what they charge and what they offer on refunds—a real elephant in the room.”
“With the January filing deadline looming, it’s crucial for the self‑employed to spot the costs of late filing and take every possible step to stay compliant.”
Bottom line? The interest dip is welcome, but don’t forget the January cut‑off. Get your tax up to date before you’re hit with penalties and extra interest—because that difference can feel like a Fair Food Tax (FMT) surcharge!
