HMRC Interest Rate Increase to 8.5% from April 2025 for Late Tax Payments
From 6 April 2025, there will be an HMRC interest rate increase on most late-paid taxes. Duties will rise significantly, from 7% to 8.5%. HMRC first announced this change in the Autumn Budget 2024, and it will affect businesses and individuals who miss tax payment deadlines.
This HMRC interest rate increase in 2025 marks a notable shift in how late tax payments are penalised, and it’s essential to understand how it might affect your business.
What’s Changing?
HMRC charges interest on most late-paid taxes at the Bank of England (BOE) base rate plus 2.5 percentage points. From 6 April 2025, this will rise to the BOE base rate plus 4 percentage points, bringing the total interest charge to 8.5%.
| Date | Late Payment Interest Rate |
| From 25 February 2025 | 7% |
| From 6 April 2025 | 8.5% |
The Bank of England’s next base rate review has been scheduled for 8 May 2025, so the rate may be subject to further change.
What About Other Taxes?
The increase doesn’t stop at general tax payments. HMRC is also raising interest on other types of late payments:
- Corporation Tax Quarterly Instalment Payments (QIPs):
- Now: BOE base rate + 1%
- From April 2025: BOE base rate + 2.5%
- Customs Duty:
- Now: BOE base rate + 2%
- From April 2025: BOE base rate + 3.5%
There are no changes to the rates of interest paid by HMRC when you’ve overpaid tax. From 25 February 2025, the repayment interest rate remains at 3.5% for most taxes and duties.
Why the HMRC Interest Rate Increase?
HMRC states this change is part of a broader initiative to reduce the national tax debt. In their words, it’s part of “a package of measures to drive down the debt balance.”
Penalties Are Rising Too
It’s not just interest rates that are going up. The Spring Statement on 26 March 2025 confirmed that late-payment penalties will also be increasing:
- VAT: New penalty structure from April 2025
- Making Tax Digital (MTD) for Income Tax: Penalties will apply from the tax year in which a taxpayer signs up to MTD.
From April 2025, if a business underpays VAT, it could face:
- Interest at 8.5%
- Daily penalties calculated at 10% per annum
That’s a significant cost — but there are ways to avoid it.
How Can You Avoid Interest and Penalties?
If you’re concerned about meeting your tax obligations on time, a Time to Pay arrangement with HMRC may help. This formal agreement allows businesses and individuals to spread their payments over an agreed period, potentially avoiding penalty charges.
We strongly recommend reviewing your tax payment plans ahead of April 2025 to avoid unnecessary costs.
Need Help with the HMRC Interest Rate Increase?
At Maynard Johns, we help businesses stay compliant and ahead of regulatory changes. If you’re concerned about how the HMRC interest rate increase from April 2025 will impact your business, get in touch with our expert team today.
We can help you assess your cash flow, set up time-to-pay arrangements where appropriate, and ensure your tax affairs are in order to avoid costly interest and penalties.