HMRC Late Payment Interest Rates 2025: A Key Change Taxpayers Can’t Afford to Ignore
From April 6, 2025, HMRC late payment interest rates will increase, marking a significant change that could impact millions of UK taxpayers and businesses. Announced as part of the government’s ongoing efforts to strengthen tax compliance and encourage timely payments, this change affects anyone who may find themselves paying tax after the due date.
In this blog post, we’ll break down everything you need to know about the HMRC late payment interest rates 2025 update, who it affects, and how to prepare for the change effectively.
Why Are HMRC Late Payment Interest Rates Increasing in 2025?
The UK government confirmed that HMRC will increase late payment interest rates by 1.5% starting April 6, 2025. This change applies to most tax categories, including income tax, VAT, and corporation tax. The decision follows a policy to align HMRC interest rates more closely with commercial interest rates and the Bank of England base rate.
Historically, HMRC has charged interest on late payments at the Bank of England base rate plus 2.5%. From April 2025, the new formula will be the base rate plus 4.0%, effectively making late tax payments more expensive for individuals and businesses alike.
What Will the New HMRC Late Payment Interest Rates Be?
To put the change into perspective, here’s how the rates would look with a hypothetical Bank of England base rate of 5.0%:
| Scenario | Interest Rate (Old) | Interest Rate (New) |
|---|---|---|
| Base Rate | 5.0% | 5.0% |
| HMRC Late Payment Interest | 7.5% | 9.0% |
That 1.5% difference can add up quickly, especially for businesses with larger tax liabilities or individuals with delayed payments.
Who Will Be Affected by the Interest Rate Hike?
The HMRC late payment interest rates 2025 change will affect:
- Self-employed individuals
- Landlords with property income over £50,000
- Small and medium-sized enterprises (SMEs)
- Corporations
- Anyone on Time to Pay arrangements with HMRC
- VAT-registered businesses
- Taxpayers using Making Tax Digital (MTD)
In short, anyone who misses a tax deadline or falls behind on payments could feel the effects.
What About Repayment Interest Rates?
While late payment interest is increasing, repayment interest—what HMRC pays you if they owe you money—will remain the same. This interest is currently set at the Bank of England base rate minus 1%, with a minimum floor of 0.5%.
This means the gap between what HMRC charges you and what it pays you is widening—another reason why timely payment is crucial.
How Can Taxpayers Prepare for HMRC Late Payment Interest Rates 2025?
Now that we know the rates are increasing, let’s look at how individuals and businesses can prepare:
1. Review Your Tax Calendar
Ensure you are fully aware of key HMRC deadlines for 2025. Mark them in your calendar and set up reminders. Late submissions can be costly under the new rate.
2. Budget for Higher Costs
With higher interest rates on late payments, being even a few days late could cost you more than before. Factor in potential interest charges when budgeting for tax bills.
3. Embrace Digital Tools
HMRC’s push toward Making Tax Digital (MTD) means more online tools are available than ever. Use them to file returns and make payments on time.
4. Set Aside Funds Early
Don’t wait until the last minute to pay your tax bill. Start setting aside funds as soon as you know your liability.
5. Speak to a Tax Advisor
At AG Accounting Solutions LTD, we specialise in supporting clients through HMRC changes such as the 2025 interest rate increase. Our experienced team of accountants can help you plan ahead, reduce risk, avoid penalties, and potentially save money on unnecessary interest. Don’t leave it to chance—get in touch today and let us help you stay compliant and in control of your tax obligations.
Why Is HMRC Making This Change?
The UK government says the increase is part of its strategy to ensure fairness across the tax system. By increasing the cost of late payments, they aim to:
- Encourage timely tax compliance
- Offset the cost of late receipts
- Align HMRC’s policies with commercial standards
While this may sound fair in principle, the reality is that taxpayers who are already struggling to pay may be hit hardest.
Final Thoughts: Don’t Let Late Payments Cost You More in 2025
The upcoming HMRC late payment interest rates 2025 increase is more than just a small adjustment—it’s a signal that HMRC is tightening its approach to tax compliance. Whether you’re an individual taxpayer, freelancer, or business owner, now is the time to get your tax affairs in order.
By planning ahead, staying informed, and making timely payments, you can avoid unnecessary costs and stay on the right side of the taxman.