HMRC Interest Rate Cuts: The Small Comfort That Could Cost You More in 2025

The Bank of England’s base rate cut to 4.25% on 8 May 2025 has triggered a corresponding reduction in HMRC’s interest rates. While this might sound like good news for taxpayers, the reality is more complicated — and for many, the real costs will hit harder in 2025 and beyond.

Here’s everything you need to know about the changes, and the hidden trap waiting for late taxpayers.

What's Changing? HMRC Interest Rate Cuts in Detail

✅ Late Payment Interest Rate Drops Slightly — But It's Still at Record Highs

From 28 May 2025, HMRC’s late payment interest rate will decrease from 8.5% to 8.25%.

However, this rate remains aggressively high, sitting 4% above the base rate, compared to 2.5% over base rate before April 2025.

Quick facts:

• Old rate: 8.5%

• New rate: 8.25%

Still the highest in 25 years

✅ Repayment Interest Rate Also Falls

For taxpayers due refunds, the HMRC repayment interest rate will fall from 3.5% to 3.25% from 28 May 2025. But remember, this is still much lower than what taxpayers are charged on overdue taxes.

✅ Corporation Tax Interest Rate Changes

• Underpaid quarterly instalments: 7.0% ➡ 6.75% (from 19 May 2025)

• Overpaid quarterly instalments: 4.25% ➡ 4%

The Hidden Change: HMRC’s New 4% Premium From April 2025

What most taxpayers are missing is the Treasury's decision to lock in a harsher penalty structure from April 2025. From then on, late payment interest will always be 4% over base rate, locking in higher penalties permanently.

This move is designed to raise £255 million annually by deterring tax avoidance and late payments, but it also means no relief even if base rates continue to fall.

Why the Huge Gap Between What HMRC Charges vs Pays?

HMRC argues that this gap mirrors global tax norms and reflects how banks treat loans versus deposits. However, critics see it as another stealth tax, where taxpayers are penalised more heavily for owing money than they are compensated for overpayments.

What Should You Do?

• Businesses and individuals: Check your tax bills and payment plans now.

• Corporations: Adjust cash flow and interest forecasts accordingly.

• Stay informed: Keep an eye on HMRC's official guidance page for up-to-date interest rates.

Final Warning: The Cuts Might Look Sweet, But They're Sour for Late Taxpayers

The headlines might suggest relief, but the true message from HMRC is clear — pay on time or face harsher penalties than ever before. As the government ramps up its clampdown on tax avoidance, taxpayers who delay payments will be hit hardest.

Capital Gains Tax Expertise: The Tax Faculty LLP Managing Partner Charles Tateson Named UK Capital Gains Tax Advisor of the Year 2023

The Finance Monthly Taxation Awards recognises the achievements of tax professionals from around the globe.

Winning such an award is no small feat. It is a reflection of hard work, extensive knowledge, and an ability to navigate the intricacies of the UK tax system.

Read more about Charles and the award here.

Contact Us

Contact us today on freephone 0800 0016 878 for a free consultation on all tax issues, or fill out the handy form below and we'll get back to you as soon as possible.

Alternatively, you can email us at info@thetaxfaculty.co.uk or complete the form below.

(Please note, non-UK callers may need to call 0207 101 3845 if your line cannot connect to our 0800 number)

Feel free to contact us through WhatsApp - we accept calls and messages.

Simply click the WhatsApp button below: