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The Bank of England reduced its base rate from 4.25% to 4.00% on 7 August 2025. Because HM Revenue and Customs (HMRC) interest rates are directly linked to the base rate, the interest charged on late tax payments and the interest paid on repayments will also fall.
When the changes take effect
- 18 August 2025 for quarterly instalment payments.
- 27 August 2025 for non-quarterly instalment payments.
How the rates are set
Late payment interest is set at the Bank of England base rate + 4.0%. So, this will decrease to 8.0%.
Repayment interest is based on the Bank of England base rate - 1.0%, with a minimum floor of 0.5% So, the interest payable on tax repayments will reduce to 3.0%.
See: https://www.gov.uk/government/news/hmrc-interest-rates-update
UK businesses are facing a “cost of business crisis”, according to the British Chambers of Commerce (BCC). Its new cost-stack calculator shows government policy alone has pushed up an average firm's expenses by 70% over the past decade, adding roughly £827,000 a year in costs for a typical mid-sized business. About a quarter of the rise stems from the increase in employer National Insurance contributions, with the higher minimum wage and mandatory pension auto-enrolment also major contributors.
Under Making Tax Digital (MTD) for Income Tax, sole traders and landlords with income of more than £50,000 have been required to keep digital records and send quarterly updates to HMRC since 6 April 2026.
