HMRC ‘revises’ penalties for UK households and new rules kick in tomorrowHMRC interest rates for late payments “will be revised”, the Labour Party government tax arm has announced. HMRC made the decision following the Bank of England interest rate cut to 4.25 per cent.
The Bank of England Monetary Policy Committee announced on 8 May 2025 to reduce the Bank of England base rate to 4.25 per cent from 4.50 per cent. In the wake of the decision from the Bank, HMRC interest rates for late payment and repayment will be slashed.
These changes will come into effect on 19 May 2025 for quarterly instalment payments, which is tomorrow. Other rates kick in on 28 May 2025 for non-quarterly instalments payments.
READ MORE UK faces 320-mile wall of rain with ‘half’ of England hit including 16 counties
HMRC interest rates are in UK law – and are linked to the Bank of England base rate – which changes every month. Late payment interest is currently set at base rate plus 4.00 per cent. Repayment interest is set at base rate minus 1 per cent, with a lower limit – or ‘minimum floor’ – of 0.5 per cent.
Tax experts at AJ Bell advised: “The Bank now expects the CPI rate of inflation to peak at 3.5% later this year, down from its previous forecast of 3.75%. It believes the rise in inflation will be temporary, but it’s worth noting it also believed transitory inflation would dissipate in 2022, before it then turned into the cost-of-living crisis.
“The Bank believes tariffs will dampen prices in the UK, rather than increase them, and there are some warning signs in the forecasts of what may be to come. In particular, economic growth expectations have been pared back, and UK unemployment is now forecast to hit 5% at the back end of 2026.”
“Changing that language would have heavily implied the Bank was prepared to cut rates again in June, something we suspect it’s reluctant to do – or at least, pre-commit to at this stage,” said James Smith, developed markets economist at financial institution ING.
“That lack of change, combined with the fact that two out of the nine committee members voted for no change in rates today, saw roughly 10 basis points of easing priced out over the coming year.”
Swap rates “actually rose a touch on the back of the announcement, probably due to the split vote,” said Laith Khalaf, head of investment analysis at AJ Bell.
This could put the brakes on mortgage rate cuts in the short term. He said: “Lenders may also be looking at the economic picture, in particular the potential for unemployment to rise, and think this is no time to be heroic by slashing rates.”