HMRC is adjusting the interest rates applied to overdue tax payments following the recent reduction in the Bank of England’s base rate. The Bank of England has lowered its base rate from 4% to 3.75%, benefiting numerous borrowers and individuals with outstanding tax liabilities to HMRC.

For self-assessment taxpayers, HMRC imposes an 8% interest rate on late tax payments, which will decrease to 7.75% starting from January 9, 2026. Currently, late payment interest stands at the base rate plus 4%, with HMRC’s repayment interest for overpaid taxes being reduced to 3.5%.

Repayment interest is determined as the base rate minus 1%, with a minimum threshold of 0.5%. These adjustments align with the Bank of England’s base rate modifications and are expected to positively impact individuals dealing with tax obligations.

The changes come ahead of the impending self-assessment tax return deadline on January 31. Failure to submit your tax return online by this deadline incurs an immediate £100 penalty, escalating to £10 per day, up to a maximum of £900, for delays exceeding three months. Subsequently, penalties increase to 5% of the tax owed or £300, whichever is greater, after six months and 12 months.

Late interest charges commence if taxes are not settled by January 31, with additional fines of 5% of the unpaid tax imposed after 30 days, and reiterated at six months and 12 months. Individuals struggling to pay tax bills under £30,000 may explore HMRC’s “Time to Pay” option for setting up installment payment plans.

Self-assessment submissions are mandatory for self-employed individuals, those earning supplementary income, landlords, high earners claiming Child Benefit, and other applicable scenarios. Stay informed with Daily Mirror as a ‘Preferred Source’ on Google News for rapid access to relevant news updates.