HMRC is set to lower the interest rates on overdue tax payments following the 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 individuals with outstanding tax obligations to HMRC.
HMRC imposes interest charges on late tax payments for self-assessment taxpayers. Presently, the interest rate on overdue payments stands at 8%, but it will decrease to 7.75% effective January 9, 2026. Late payment interest is calculated at the base rate plus 4%, while the repayment interest paid by HMRC for overpaid taxes is being reduced to 3.5%.
Repayment interest is determined as the base rate minus 1%, with a minimum threshold of 0.5%. These adjustments align with the recent base rate cut by the Bank of England, as HMRC interest rates are tied to the base rate fluctuations.
The revised rates come ahead of the looming self-assessment tax return deadline on January 31. Failure to submit tax returns online by this date incurs an immediate £100 penalty, escalating to £10 per day up to £900 after three months of non-filing. Subsequently, non-compliance after six months results in a fine of 5% of the outstanding tax or £300, whichever is higher, and repeats at the 12-month mark.
Late interest charges commence if taxes remain unpaid after the January 31 deadline, with additional penalties of 5% of the outstanding tax imposed after 30 days, repeating at six and 12 months. Taxpayers facing difficulties in settling bills under £30,000 can explore setting up a Time to Pay arrangement with HMRC.
Individuals falling under categories like self-employment, additional income sources, property rentals, or high-earning Child Benefit claimants may be required to file a self-assessment tax return. Stay updated on valuable news content by selecting Daily Mirror as a ‘Preferred Source’ on Google News.