Currently, HMRC charges interest on most taxes and duties paid late at the Bank of England (BOE) base rate plus 2.5 percentage points. This will increase to BOE base rate plus 4 percentage points from 6 April 2025. The rate of interest charged by HMRC is 7% from 25 February 2025 and it will increase to 8.5% from 6 April 2025. The BOE base rate will next be reviewed on 8 May 2025. 

Interest is charged at a lower rate on: 

• late paid corporation tax quarterly instalment payments (QIPs): currently, BOE base rate plus 1 percentage point, increasing to BOE base rate plus 2.5 percentage points from 6 April 2025; and
• late paid customs duty: currently, BOE base rate plus 2 percentage points, increasing to BOE base rate plus 3.5 percentage points from 6 April 2025. 

No changes have been made to the rates of interest paid by HMRC on overpaid tax and duties. From 25 February 2025, the repayment interest rate is 3.5% for most taxes and duties.  

HMRC says that the decision to increase the rates of interest for tax paid late is part of “a package of measures to drive down the debt balance”.  

At the Spring Statement on 26 March 2025, the government announced that late-payment penalties will increase for: 

• VAT, from April 2025; and
• taxes paid under Making tax Digital (MTD) for income tax, from the tax year in which the taxpayer signs up to MTD income tax.   

As a result of the changes to interest rates and penalties, a business could pay interest at 8.5% and daily penalties calculated at the rate of 10% per annum on underpaid VAT from April 2025. The penalty element may be avoided if a time to pay arrangement is put in place in time.   

Further information 

• The Taxes and Duties, etc (Interest Rate) (Amendment) Regulations 2025 (SI 2025/386) 
• HMRC guidance: HMRC interest rates for late and early payment 
• HMRC policy paper: Changing late payment interest rates on unpaid tax liabilities
• HMRC press release: HMRC late payments interest rates to increase from 6 April 2025