HMRC Adjusts Interest Rates Following Bank of England's Decision
In the wake of the Bank of England's base rate reduction to 4.25%, HM Revenue & Customs (HMRC) has announced corresponding changes to interest rates applied to late tax payments and repayments. These revisions are part of a standard adjustment process intended to align public finance policies with national monetary strategy.
New HMRC Interest Rates
The late payment interest rate will be reduced to 7.75% from the previous 8%, easing the burden on individuals and businesses managing overdue tax liabilities. Similarly, the repayment interest for those owed money by HMRC will be revised downward, although it will remain above inflation in many cases. These changes take effect from 22 May 2025.
Business Cash Flow Benefits
Tax professionals advise affected parties to review their current arrangements and consider settling liabilities earlier to take advantage of lower rates. For businesses, in particular, this may present an opportunity to improve cash flow and reduce administrative costs.
Rate Changes Summary
- Late Payment Interest: Reduced from 8% to 7.75%
- Repayment Interest: Lowered in line with base rate
- Effective Date: 22 May 2025
- Impact: Lower costs for overdue liabilities
Strategic Considerations
- Review outstanding tax liabilities
- Consider early settlement options
- Update payment plans if necessary
- Reassess cash flow projections
- Consult with tax advisors
Business Impact
The reduction in HMRC interest rates provides some relief for businesses struggling with cash flow issues. Combined with lower commercial borrowing costs, this creates a more favorable environment for business recovery and growth.
Related: Read more on GOV.UK