HMRC has announced it will increase interest rates for late payments and repayments, following the Bank of England's decision to raise the base rate to 4.00% from 3.75%. The change means anyone who owes HMRC money will now pay more for late payments and repayments.
Base Rate Rise and Its Impact
The Bank of England announced on November 5 that the base rate would increase to 4.00% from 3.75%, marking the first interest rate hike in more than three years. Policymakers said the move was warranted because inflation in the UK economy was rising and would continue to rise as the war in Iran goes on. They also indicated that borrowing costs were likely to go up further if there continued to be no resolution to the conflict.
The base rate helps dictate how expensive it is to take out a mortgage or a loan. A higher base rate means homeowners on tracker mortgage rates will see an increase to their monthly payments, while some savers may see their interest rates increase as well.
HMRC Update and Effective Dates
In an update issued on November 6, HMRC said its interest rates are linked to the Bank of England base rate. As a consequence of the change, HMRC interest rates for late payment and repayment will increase. These changes will come into effect on November 16, 2026, for quarterly instalment payments, and November 24, 2026, for non-quarterly instalment payments.
The government department added that information on the interest rates for payments will be updated shortly.
Inflation Outlook and Government Response
The announcement follows speculation that inflation will accelerate in the coming months before peaking at "around 5%" in the second quarter of 2027. This is partly because Ofgem's household energy price cap is forecast to jump by almost 25% in January, pushing average annual bills to £2,150. Higher energy prices could also feed through into companies' supply chains and be passed onto consumers through shop prices. Food inflation is expected to accelerate and rise as high as 4.8% next year, meaning higher food bills for households.
Chancellor John Healey said: "The Iran conflict is reaching deep into the pockets of families and businesses here at home." He said he had "acted to give some breathing space to families and businesses" in his autumn Budget statement last month. "Twenty million households will get a £100 energy payment, I extended the tax cut on electricity bills and froze fuel duty," he said.
