Question to the HM Treasury:

To ask His Majesty's Government what assessment they have made of the effectiveness of increasing the HMRC late-payment interest rate from Bank Rate plus 2.5% to Bank Rate plus 4% from 6 April 2025 in reducing the incidence of late payment of tax; and whether they will publish any analysis or evidence underpinning that assessment.

As announced at the Budget in 2024, HMRC amended legislation to increase the late payment interest rate by 1.5 percentage points (ppts). This changed interest rates from Bank of England base rate + 2.5 ppts to base rate + 4 ppts.

This change took effect as HMRC’s current interest was low when compared to commercially available short-term borrowing. This creates unfairness between those who pay on time and those who choose not to, using HMRC as a form of cheap lending.

The measure aimed to address this by bringing HMRC’s rates closer to those commercially available. The late payment interest rate increase was made to encourage taxpayers to pay on time, help raise vital revenue for public services, and ensure fairness for those who pay on time.

These changes took effect from 6 April 2025 and are applied where interest is charged to existing and new tax debts owed to HMRC.

This measure encourages people to pay the outstanding tax they owe, increasing incentives to engage with HMRC and make payment arrangements, as well as complying to avoid late payment penalties.

There is no proposal to publish any analysis or evidence as HMRC continues to keep its interest rates under review.