HM Revenue and Customs (HMRC) has responded to the Bank of England’s recent decision to cut its base interest rate to 4.5% by reducing the interest rate it charges on overdue tax payments. This adjustment aims to ease the financial burden on taxpayers following months of high rates.

New late payment rate for HMRC

Starting 17th February, the interest charged on late payments will drop from 7.25% to 7%. This change will directly affect approximately 1.1 million self-assessment taxpayers who missed the 31st January deadline for submitting their tax returns. The reduction in the interest rate comes as part of HMRC's regular adjustments in line with changes in the Bank of England’s monetary policy.

Continued discrepancy: Late payments vs refunds

Despite this reduction, HMRC’s late payment interest rate remains notably higher than the rate it applies to tax refunds. Late payments will continue to be charged at double the rate of interest offered on refunds, raising concerns about the ongoing disparity between these two rates. This policy means that taxpayers who miss deadlines will face higher costs, while those who are due a refund benefit from a lower rate.