HMRC is reducing the interest it charges on late tax payments after the Bank of England cut its base rate last week. As of February 17, the interest charges to taxpayers with outstanding debts to HMRC is dropping from 7.25% to 7%. This means the roughly 1.1m self-assessment taxpayers who missed the recent January 31 tax deadline will have to pay less in interest on the amount of money they owe. The repayment interest paid by HMRC is being reduced to 3.5%.
A notice on the HMRC website states: "The Bank of England Monetary Policy Committee announced on 6 February 2025 to reduce the Bank of England base rate to 4.5% from 4.75%. HMRC interest rates are linked to the Bank of England base rate. As a consequence of the change in the base rate, HMRC interest rates for late payment and repayment will reduce.". Seb Maley, CEO of tax insurance firm Qdos, said: "Good news on one hand – that those who weren’t able to pay their tax bill on time last month will pay less interest on the amount they owe in tax. With 1.1m said to have missed the recent deadline, the revised Bank of England interest rate may offer them some respite.
"But it’s a small reprieve, in reality. The story here is that HMRC still charges double the amount of interest than it pays on money owed to taxpayers in the form of refunds and rebates. It’s a huge mismatch and one that taxpayers are bearing the brunt of. Along with being hit by interest rates as high as 7% on outstanding tax bills, the longer a tax bill remains unpaid, the higher the chances are that HMRC will take a closer look and potentially investigate.".
You may need to submit a self-assessment if you're self-employed, if you earned extra income outside of your main employment, if you earn income from renting out a property, or if you're a high earner and you claim Child Benefit. If you missed the January 31 deadline to file your tax return, you would have been slapped with a £100 fine. This increases to fines of £10 a day, up to a maximum of £900, if you still haven’t filed after three months - then after six months, you’re charged 5% of tax owed or £300, whichever is greater. This is then repeated again after 12 months.
You must also pay any tax due by January 31 - or you’ll accrue 7.25% interest, reducing to 7% from February 17, on any late tax payments. After 30 days you'll then also be fined an extra 5% of the unpaid tax, with this being repeated at six months and 12 months. If you're struggling to pay your tax bill and you owe less than £30,000, you may be able to set up a payment plan with HMRC, known as Time to Pay.
