Permanent increase to penalty interest rates

The new tax year saw a change to the way interest on late paid taxes is calculated. What’s changed and what are the new charges?

Permanent increase to penalty interest rates

Prior to 2025/26, interest was charged at the Bank of England base rate plus 2.5% on most underpaid taxes. In a push for unpaid tax bills to be settled, it was announced at the 2024 Autumn Budget that this would change to the base rate plus 4% from 6 April 2025. The government says the rate of late payment interest encourages prompt payment and ensures fairness for those who pay their tax on time.

From 6 April 2025 the following rates apply:

  • Late corporation tax paid quarterly - 7%
  • Late payment interest on other taxes - 8.5%

There is no corresponding change to the way repayment interest rates are calculated, i.e. the base rate minus 1%, with a lower limit of 0.5%.

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