HMRC has increased interest rates for late payments to 6.75%, the highest level since January 2008.

The rise follows the Bank of England base rate rise from 4% to 4.25% last week after a surprise hike in yearly inflation figures prompted the central bank into action.

Quarterly late payment and repayment interest rates will increase by 0.25 percentage points to 6.75% and 3.25%, respectively, from 3 April 2023 - 10 days before the changes affect non-quarterly payments.

Late payment and repayment interest are payable on the main UK taxes, including income tax, National Insurance contributions, stamp duty land tax and corporation tax.

HMRC calculates its interest by adding the bank rate to 2.5% for late payments and -1% for repayments, with a ‘minimum floor' of 0.5%.

It said:

"The rate of late payment interest encourages prompt payment and ensures fairness for those who pay their tax on time, while the rate of repayment interest fairly compensates taxpayers for loss of use of their money when they overpay."

Talk to us for advice on how to budget for your tax bill.