Her Majesty's Revenue and Customs (HMRC) will lower its late payment and repayment interest rates in early 2026. The move follows the Bank of England's announcement on 18 December 2025 to reduce the base rate to 3.75%.
From 9 January 2026, the interest rate for late tax payments will fall by 0.25 percentage points to 7.75%, while the repayment rate, applicable when HMRC returns overpaid taxes, will drop to 2.75%.
The rates affect most taxes and duties administered by HMRC and reflect ongoing macroeconomic changes and government policy to closely track shifts in official borrowing costs.
Overview of Interest Rate Adjustment
HMRC regularly reviews and adjusts its interest rates for late payments and repayments in line with changes to the Bank of England base rate. The links between the base rate and HMRC rates aim to maintain consistency in the cost of late and early tax payments.
Interest rates directly impact the financial obligations of taxpayers who pay late or are due repayments, providing an incentive for timely compliance.
These rates apply broadly across individual and corporate taxpayers, affecting sectors such as income tax, value-added tax (VAT), and other direct and indirect taxes.
Impact of Bank of England Decision
On 18 December 2025, the Bank of England cut the official base rate to 3.75%, reflecting evolving economic circumstances. This adjustment is part of the central bank's ongoing monetary policy response to inflationary pressures and broader economic indicators.
Such changes typically prompt automatic reviews of HMRC's interest rates. As confirmed by recent official publications, HMRC's rates will decrease by 0.25 percentage points in response, mirroring the base rate shift and maintaining alignment with Treasury rules.
New Late Payment and Repayment Rates
As of 9 January 2026, the interest rate for late payment of most taxes will fall to 7.75%, down from 8%. Taxpayers who are due repayments from HMRC will see the repayment rate reduced to 2.75%, from a previous value of 3%.
These adjustments result from rules introduced on 6 April 2025, setting the late payment rate at four percentage points above the base rate, increased from the prior margin of 2.5 percentage points.
Repayment interest remains calculated at one percentage point below the base rate, subject to a minimum floor of 0.5%.
Corporation Tax Instalments and Other Adjustments
A separate regime applies for companies paying Corporation Tax through quarterly instalments. For these businesses, the interest rate on underpaid instalments will decrease to 6.25% from 6.5%.
The repayment rate will fall to 3.5% from 3.75%. Both changes become effective from 29 December 2025. For all other taxes, the newly reduced rates for both late payments and repayments take effect from 9 January 2026.
Details remain consistent across HMRC's published guidance and are regularly reviewed alongside the quarterly base rate schedules.
The Official Rate of Interest: Employment Loans
In addition to payment and repayment interest, HMRC maintains an official rate of interest, currently set at 3.75%.
This rate is used most often for calculating benefits-in-kind, such as employment-related loans. From April 2025, this official rate is reviewed quarterly, with any changes implemented on 6 July, 6 October, and 6 January. The approach ensures the rate remains responsive to wider economic shifts and monetary policy decisions.
Final Summary
The forthcoming reduction in HMRC’s late payment and repayment interest rates follows the December 2025 cut in the Bank of England base rate. With most revised rates taking effect from early January 2026, taxpayers across the United Kingdom should prepare for updated calculations on late tax obligations and repayments.
Companies using the quarterly instalment regime will see separate adjustments coming into force slightly earlier, at the end of December 2025. Regular reviews of both payment and official interest rates form part of HMRC’s broader framework to ensure that the tax system keeps pace with wider fiscal and monetary changes.
For those managing tax liabilities, staying informed of scheduled changes through trusted sources including Pie remains essential for ongoing planning and compliance.
