HMRC will reduce late payment and repayment interest rates from 27 August following the 0.25% cut in the base rate earlier in the month.

The Bank of England cut the base rate to 4% on 7 August, triggering a 0.25% cut in HMRC interest rates which are pegged to the base rate.

From 27 August, the late payment interest rate will be cut to 8.0% from 8.25%.

The repayment interest rate will be cut to 3% from 3.25% from 27 August.

HMRC late payment interest is set at base rate plus 4%. Repayment interest is set at base rate minus 1%, with a lower limit - or ‘minimum floor’ - of 0.5%.

Following the cut to the base rate, Tina McKenzie, Policy Chair at the Federation of Small Businesses (FSB), said:

‘The small business community will now look to lenders to reflect this rapidly across their offering, cutting the cost of finance. They will also want to see the Bank of England set out a clear path for the rest of the year, with a further easing in the base rate badly needed to reduce the financial strain they are under.

‘There will be no growth in the economy overall unless small firms are able to expand and fulfil their potential, but their confidence is still firmly in negative territory, according to our research.

‘Lower borrowing costs will encourage small businesses to invest, giving the wider economy a much-needed fillip.’