On 6 February 2025, the Bank of England’s Monetary Policy Committee announced a reduction in the base rate from 4.75% to 4.5%. In response, HM Revenue & Customs (HMRC) has adjusted its interest rates for late payments and repayments accordingly. These changes will take effect on 17 February 2025 for quarterly instalment payments and on 25 February 2025 for non-quarterly instalment payments.

HMRC’s interest rates are directly linked to the Bank of England base rate. Specifically, late payment interest is set at the base rate plus 2.5%, while repayment interest is set at the base rate minus 1%, with a minimum floor of 0.5%.

For small and medium-sized enterprises (SMEs), this reduction in the base rate and the corresponding decrease in HMRC’s interest rates offer several benefits:

1. Reduced Financial Burden: Lower late payment interest rates mean that SMEs facing cash flow challenges will incur less interest on overdue tax payments, easing financial strain.

2. Encouragement for Prompt Payment: The decrease in interest rates can motivate SMEs to settle their tax liabilities more promptly, knowing that the cost of borrowing to make these payments is now lower.

3. Improved Cash Flow Management: With reduced interest expenses, SMEs can allocate more resources to essential business operations, supporting growth and stability.

It’s essential for SMEs to stay informed about these changes and adjust their financial planning accordingly to maximise the benefits of the reduced interest rates.