How to stay ahead of HMRC interest rate changes and avoid late payments 

The Bank of England’s decision to reduce the base rate to 4.75 per cent has triggered changes to HM Revenue & Customs’ (HMRC’s) interest rates, with late payment and repayment rates due to adjust on 18 and 26 November 2024.  

For quarterly instalment payments: 

• Changes to interest rates will take effect on 18 November 2024 

For non-quarterly instalment payments: 

• The new rates will apply from 26 November 2024 

Why HMRC interest rates change 

The new rates have yet to be announced by HMRC, but they are directly linked to the Bank of England base rate: 

• Late payment interest: Base rate plus 2.5 per cent 

• Repayment interest: Base rate minus one per cent (with a minimum floor of 0.5 per cent) 

Please note that from 6 April 2025, the late payment interest will increase to the base rate plus four per cent.  

These rates aim to encourage timely tax payments and compensate taxpayers for overpayments.  

However, they also mean that late payments can become costly, especially during periods of higher base rates. 

How to stay compliant 

While it is important to know the dates for HMRC’s interest rate adjustments, the best approach is to focus on avoiding late payments altogether. 

Keep accurate records 

Ensure your records are up to date and reflect your financial position. Errors in bookkeeping can lead to incorrect tax filings and unexpected liabilities, potentially incurring late payment interest. 

Understand your payment deadlines 

HMRC operates on strict timelines. Familiarise yourself with quarterly instalment payment dates (if applicable) and ensure you meet all deadlines. Missing these could trigger interest charges. 

Set up a tax payment plan 

If cash flow is a concern, consider setting up a payment plan with HMRC.  

While interest will still apply, this can help you avoid harsher penalties or legal action. 

Use automated reminders 

Technology can make compliance easier. Set up reminders for key deadlines or use accounting software to help manage tax payments and filings. 

Review and adjust your cash flow 

Late payments often arise from cash flow issues. Regular forecasting can help you identify periods of potential shortfall and prepare accordingly. 

Avoiding repayment interest issues 

Overpayments can tie up your capital unnecessarily, and while repayment interest compensates for this, the rate is typically lower than commercial returns on savings.  

Here are tips for how to avoid overpaying: 

• Submit accurate tax returns to avoid paying more than you owe. 

• Ensure you are making full use of tax reliefs and allowances to minimise overpayments. 

• Changes in legislation or your business circumstances could alter your tax liabilities. Keeping on top of these ensures you pay the correct amount. 

Proactive tax management saves time and money 

While the upcoming changes to HMRC’s interest rates may seem minor, they highlight the importance of staying on top of your tax affairs.  

If you would like further advice about the best way to avoid late tax payments or assistance with making late payments to HMRC, please contact us today.