TAX FOR THAT
Big tax change for thousands of households from TODAY – check if your bill will go down
Scroll down to see how the change can affect you
A MAJOR change to tax interest has come into effect today – and it could mean lower bills for thousands of households who owe HMRC.
From 28 May 2025, the late payment interest rate has fallen from 8.5% to 8.25%, following a drop in the Bank of England base rate.
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It marks the first fall in tax interest rates since they hit a decades-high in April.
As of April 2025, interest on late payment of tax had been pushed to 8.5%, up from 7.75%, as part of a shake-up by HMRC linking the rate to the base rate plus 4%.
But with the Bank of England base rate dropping slightly to 4.25%, HMRC has confirmed that from today, the late payment interest is now set at 8.25%.
The decision has now resulted in lower mortgage payments for homeowners but could mean reduced returns for savers.
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The base rate influences interest rates that lenders offer on savings and borrowing, including mortgages.
This latest reduction follows a previous cut in February, when rates were lowered from 4.75% to 4.5%.
The MPC then held interest rates steady in March.
The changes to the late payment interest rate now means that if you’ve missed a payment on your tax bill, you’ll now be charged slightly less in interest than you were last month.
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HMRC said: “The late payment interest rate encourages prompt payment. It ensures fairness for those who pay their tax on time.”
Meanwhile, repayment interest – paid when HMRC owes you money – is also changing.
What is the Bank of England base rate and how does it affect me?
From today, it’s set at 3.25%, based on base rate minus 1%, with a minimum floor of 0.5%.
HMRC added: “The repayment interest rate compensates taxpayers fairly, when they overpay, for loss of use of their money.”
What changed in April?
In a big shift from 6 April 2025, HMRC began setting late payment interest at base rate + 4%, instead of the previous +2.5%.
That change – combined with a high base rate – pushed the interest rate on unpaid tax to its highest level in decades.
But the new rate of 8.25% is still steep, so it’s vital to pay your taxes on time to avoid fees mounting up.
Who needs to file a tax return?
You’ll need to submit a tax return if:
- You earn income through self-employment
- You rent out property and earn over £2,500
- You or your partner claim child benefit and one earns over £50,000
- You earn more than £150,000
- You have other untaxed income or claim large expenses
If it’s your first time, register early – it can take time to receive your Unique Taxpayer Reference (UTR) and activation code.
What to do if you can't pay right now
You and let them know you’re having issues making your payments. They may allow you to spread the repayments out over time.
Citizens Advice recommends that you ask to talk about a "time to pay agreement".
This agreement will give you either more time to pay, or a schedule to pay your tax in instalments.
It’s a good idea to do this rather than bury your head in the sand.
You can contact HMRC or by phone on 0300 200 3300.
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You can also write to them at:
Pay As You Earn and Self Assessment
HM Revenue and Customs
BX9 1AS
United Kingdom
How to get free debt help
There are several groups which can help you with your problem debts for free.
- Citizens Advice - 0800 144 8848 (England) / 0800 702 2020 (Wales)
- StepChange - 0800138 1111
- National Debtline - 0808 808 4000
- Debt Advice Foundation - 0800 043 4050
You can also find information about Debt Management Plans (DMP) and Individual Voluntary Agreements (IVA) by visiting MoneyHelper.org.uk or Gov.UK.
Speak to one of these organisations - don't be tempted to use a claims management firm.
They say they can write off lots of your debt in return for a large upfront fee.
But there are other options where you don't need to pay.
Do you have a money problem that needs sorting? Get in touch by emailing money-sm@news.co.uk.
Plus, you can join our Facebook group to share your tips and stories
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