HMRC updates late payment interest rates after Bank of England base rate rise

HMRC has updated its late payment interest rates following the Bank of England’s decision to raise its base rate to 1.75%.

As HMRC late payment rates are linked to the Bank of England base rate, its interest rates will also increase to 0.75%. The repayment rate, set in legislation, is set at Bank Rate minus 1%, with a 0.5% lower limit.

Changes will come into effect from 15th August for quarterly instalment payments, and 23rd August for other payments.

Late payment interest is 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.

Information on the interest rates for payments on the gov.uk website will be updated shortly in accordance with the new rates.

Economists at the Bank of England voted 8-1 in favour of the 0.5 percentage point increase on 4th August, bringing the base interest rate to 1.75%, its highest level since 2009. The increase is the highest single uplift in the Bank of England’s base interest rate in 27 years, and the sixth consecutive increase since December 2021.

The move to continue to push up interest rates aims to combat the impact of rising inflation on the economy: the CPI is expected to hit 13% by the end of the year.