HMRC has decided to lower the interest rate on overdue tax payments following the recent reduction in the Bank of England’s base rate. The Bank of England has decreased its base rate from 4% to 3.75%, benefiting numerous borrowers and individuals with outstanding tax liabilities to HMRC.
For self-assessment taxpayers, HMRC applies an 8% interest rate on overdue tax payments, which will now drop to 7.75% starting January 9, 2026. Currently, late payment interest is calculated as the base rate plus 4%. Additionally, HMRC is decreasing the repayment interest rate from 4% to 3.5%, with the repayment interest set at the base rate minus 1% and a minimum limit of 0.5%.
The adjustments coincide with the upcoming deadline for self-assessment tax returns on January 31. Failure to submit your tax return online by this date incurs an immediate £100 penalty, which can escalate to £10 per day, up to a maximum of £900, for delays exceeding three months. Further penalties apply after six and twelve months of non-compliance.
Late interest charges commence if taxes are not settled by January 31, with additional fines of 5% imposed after 30 days of non-payment, escalating at six and twelve months. Individuals facing difficulty in settling tax bills under £30,000 can explore the option of setting up a payment plan with HMRC through the “Time to Pay” scheme.
It is essential to file a self-assessment if you are self-employed, have additional income sources beyond primary employment, earn rental income, or are a high-income earner claiming Child Benefit.