HMRC to Raise Interest on Overdue Tax Payment from April 2025

As addressed in the Autumn Budget 2024, HMRC will introduce an increase in the interest on overdue tax payments.

With effect from 6 April 2025, the interest on the majority of tax late payments will be raised to 8.5% from 7%.

New Pattern of the Rate of Interest

Currently, HMRC charges interest on overdue tax at the Bank of England (BOE) base rate with an add-on of 2.5 percentage points. From 6 April 2025, however, this will increase to BOE base rate and 4 percentage points.

With the rate currently at 7% since 25 February 2025, the next rise will increase it to 8.5%. The next review of the BOE base rate is on 8 May 2025.

Adjustments to Individual Tax Categories

Some tax categories will see other changes:

• Corporation Tax Quarterly Instalment Payments (QIPs): Late QIP interest will rise from BOE base rate plus 1 percentage point to BOE base rate plus 2.5 percentage points.
• In Customs Duty, late payment interest rate will rise from BOE base rate plus 2 percentage points to BOE base rate plus 3.5 percentage points.

Despite these hikes, interest rates on paid-up taxes and duties will remain the same. As of 2 April 2025 , the repayment interest rate remains at 3.5% for most tax and duties.

Government's Reasoning and Additional Penalty Hikes

HMRC reasoned that these hikes form part of a broader plan to reduce outstanding tax debt. As reported in the 26 March 2025 Spring Statement, additional penalty measures will be introduced, including:

• Higher late payment charges for VAT from April 2025.
• New Making Tax Digital (MTD) penalty regimes for Income Tax, effective from the tax year when a taxpayer enters the system.

With all these changes, businesses with outstanding VAT can be charged an 8.5% interest rate and daily penalties of up to 10% per year. However, businesses can avoid penalty charges by entering into a time-to-pay arrangement in advance.

Conclusion

The interest rate and penalty adjustments reflect HMRC's determination to tackle tax arrears and encourage compliance with deadlines.

Businesses and individuals are required to get used to the new interest on overdue tax by examining payment plans and studying available aid options to limit the effects on budgets.