Written by Oroni Chowdhury · Published: November 2026 · Last reviewed: November 2026 · Applies to the 2026/27 tax year
Miss the 31 January deadline by a few weeks and the bill does not stay the same. Every day the tax is unpaid, HMRC adds a little more, and on a large balance that soon adds up. HMRC interest on late payments is the one charge almost nobody can avoid once a payment is late, and it is also the one most people misunderstand.
This guide explains how HMRC interest on late payments works: the current rate, how the daily calculation works, how interest hits Self Assessment and payments on account, how it differs from penalties, and what you can do to keep it small.
- HMRC interest on late payments is charged at base rate plus 4%, which is 7.75% a year as at 3 November 2026.
- It is simple interest, worked out daily on the unpaid tax. HMRC does not charge interest on interest.
- It runs from the payment due date itself, with no grace period.
- It is not a penalty, so late payment penalties are added separately.
- A Time to Pay arrangement can help with penalties, but interest keeps running until you have paid in full.
- If you overpay, HMRC pays you repayment interest at base rate minus 1%, which is 2.75% as at 3 November 2026.
What Is HMRC Interest on Late Payments?
HMRC interest on late payments is the charge added to any tax, and to many penalties, that reaches HMRC after the due date. It covers the main taxes most people deal with, including Income Tax through Self Assessment, Capital Gains Tax, VAT, Corporation Tax and PAYE.
Interest is not a penalty
HMRC’s Compliance Handbook describes late payment interest as compensation for the time HMRC has been without the money. It is not a punishment. That is why a good reason for paying late does not cancel HMRC interest on late payments, and why it is charged even when no penalty applies.
Simple interest, worked out daily
The interest is simple, not compound. HMRC works it out each day on the tax that is still unpaid, but it never charges interest on the interest already added. Some online guides say otherwise. HMRC’s own manual is clear that the charge is never compounded.
HMRC Late Payment Interest Rates for 2026/27
HMRC sets its rates by adding a fixed margin to the Bank of England base rate. The base rate was held at 3.75% in September 2026, which gives these figures.
| Rate | How it is set | Rate as at 3 November 2026 |
|---|---|---|
| Late payment interest | Base rate + 4% | 7.75% (in force since 9 January 2026) |
| Repayment interest | Base rate − 1%, never below 0.5% | 2.75% (in force since 9 January 2026) |
| Corporation Tax quarterly instalments paid late (large companies) | Base rate + 2.5% | 6.25% |
The 6.25% instalment rate only covers the stretch from each quarterly instalment date to the company’s normal payment date, 9 months and 1 day after its accounting period ends. Any Corporation Tax still unpaid after that normal date is charged at the standard late payment rate.
The margin for late payments rose from 2.5% to 4% on 6 April 2025, as set out in the government’s policy paper. That took the rate to 8.5%. It has fallen in steps since, as the base rate was cut, reaching 7.75% in January 2026.
How HMRC Interest on Late Payments Is Worked Out
The sum itself is simple. HMRC multiplies the unpaid tax by the annual rate and by the number of days it was outstanding, then divides by 365.
When the clock starts and stops
As a general rule, interest runs from the payment due date until the day HMRC receives the money. For a Self Assessment balancing payment, that means the clock starts on 31 January itself, not on 1 February. Allow for bank processing time, because a payment that arrives a few days late is charged for those days too.
If the rate changes partway through
When the base rate moves, the rate used for HMRC interest on late payments moves too. Each stretch of time is charged at the rate in force during it, so a long-overdue bill can be charged at more than one rate.
Period 1, 30 November 2025 to 9 January 2026 (40 days at 8%): £8,000 × 8% × 40 ÷ 365 = £70.14.
Period 2, 9 January to 10 March 2026 (60 days at 7.75%): £8,000 × 7.75% × 60 ÷ 365 = £101.92.
Total interest: about £172.06.
Late Payment Interest Calculator: Fill-In Worksheet
You can estimate HMRC interest on late payments on your own bill with this six-line worksheet. If the rate changed while the tax was unpaid, complete a separate set of lines for each period and add the results.
| Line | What to enter | Your figure |
|---|---|---|
| A | Tax still unpaid | £ |
| B | Payment due date (interest starts here) | |
| C | Date HMRC received (or will receive) the payment | |
| D | Days outstanding (C minus B) | |
| E | Annual rate for the period (for example 0.0775) | |
| F | Interest: A × E × D ÷ 365 | £ |
If you pay in instalments, the balance in line A falls after each payment, so work out each stretch between payments separately.
Stretch 1: she pays nothing until 2 March 2027, so £6,000 is outstanding for 30 days: £6,000 × 7.75% × 30 ÷ 365 = £38.22. She then pays £3,000.
Stretch 2: the remaining £3,000 is outstanding from 2 March until she clears it on 1 April 2027, another 30 days: £3,000 × 7.75% × 30 ÷ 365 = £19.11.
Total interest: about £57.33, compared with £76.44 if she had paid the whole £6,000 on 1 April. Paying in stages cuts HMRC interest on late payments because the balance shrinks sooner.
HMRC Interest on Late Payments in Self Assessment
For most of our clients, HMRC interest on late payments comes from Self Assessment. There are three places it usually appears.
The balancing payment on 31 January
Whatever is left to pay for the previous tax year is due by 31 January. Interest is charged from 31 January on anything not paid by then, even if your return was filed on time.
Payments on account and the reduction trap
You will usually make two payments on account, each half of last year’s bill, by 31 January and 31 July.
Payments on account apply when your last Self Assessment bill was £1,000 or more, unless more than 80% of your tax was already collected at source, for example through PAYE. You can ask HMRC to reduce them if you expect lower income. If you cut them too far and your final bill turns out higher, HMRC charges interest on the shortfall from each original payment date.
At 7.75%, interest builds up on the £2,000 shortfall from 31 January, about £155 over a full year, and on the second £2,000 from 31 July, about £78 by the following 31 January. That is roughly £233 he could have avoided by paying the full amounts.
Penalties and amended returns
Interest is also charged on Self Assessment penalties that are not paid on time. If you amend a return and owe more, interest usually runs on the extra tax from the original payment due date, not from the date you made the change.
If you are behind with a return or a payment, our online Self Assessment accountants can work out what you owe and help you pay it before HMRC interest on late payments grows further.
Late Payment Interest on VAT, Corporation Tax, PAYE and CGT
HMRC interest on late payments applies to each of these taxes, but each has its own payment deadline, and the date interest starts depends on the tax and on how you pay it. Use the table as a starting point and check the rules for your own situation.
| Tax | When payment is due | When interest starts | Points to note |
|---|---|---|---|
| Self Assessment | 31 January (balancing payment and first payment on account) and 31 July (second payment on account) | From the payment due date | Interest also applies to unpaid penalties |
| VAT | Usually 1 month and 7 days after the end of the VAT period, but this varies for payments on account and annual accounting | From the date the payment was due, for VAT periods starting on or after 1 January 2023 | Older periods followed the previous default surcharge rules |
| Corporation Tax | 9 months and 1 day after the end of the accounting period | From the normal payment date | Large companies pay quarterly instalments, with the lower instalment rate until the normal date |
| PAYE and Class 1 National Insurance | By the 22nd of the following month (or quarter) if paid electronically, or the 19th by post | From the date the payment was due | Interest applies to in-year payments made late by employers |
| CGT on UK residential property | Within 60 days of completion, through a UK property return | From the payment due date (day 60) | Other gains are usually paid through Self Assessment by 31 January |
Companies should note that late payment interest on Corporation Tax cannot be deducted when working out taxable profits.
Interest vs Late Payment Penalties
HMRC interest on late payments and penalties are two separate charges. Interest builds up from the payment due date. Penalties come later, and the timing depends on which system applies to you. For 2026/27, ICAS explains that most Self Assessment taxpayers stay on the existing rules, while people in Making Tax Digital for Income Tax move to the new points-and-percentages system.
| Charge | Standard rules (not in MTD) | MTD for Income Tax: first year | MTD for Income Tax: later years |
|---|---|---|---|
| Interest | From the payment due date | From the payment due date | From the payment due date |
| Penalty around 30 days | 5% of the tax unpaid at 30 days | No penalty if paid in full within 30 days; 3% of the tax still unpaid at day 30 | 3% of the tax unpaid at day 15, plus a further 3% of the tax unpaid at day 30 |
| Later penalties | A further 5% at around 6 months and again at around 12 months | 10% a year, charged daily from day 31 until paid | 10% a year, charged daily from day 31 until paid |
In the first year someone is under the new MTD rules, HMRC does not charge the day-15 penalty, which in practice gives a 30-day window to pay. For the full penalty rules, including late filing, see our guide to HMRC penalties and our explainer on the late tax return penalty.
How to Stop HMRC Interest Growing
Because correctly charged HMRC interest on late payments generally cannot be appealed, the practical goal is to shrink the unpaid balance as quickly as possible.
- Pay what you can now: interest only runs on the balance still owed, so even a part payment cuts the daily charge.
- Set up Time to Pay early: an agreed Time to Pay arrangement agreed before a penalty date can prevent that late payment penalty. It does not remove penalties already charged, and interest keeps running until the debt is cleared.
- Don’t rely on an appeal: postponing payment while you dispute a bill does not stop interest. If you lose, interest is due for the whole period.
- Save ahead for January: setting money aside through the year, or paying early through your online account, avoids the January shortfall that causes most interest.
Repayment Interest: When HMRC Pays You
Repayment interest is the mirror image of HMRC interest on late payments. If you overpay and HMRC repays you, it adds interest at base rate minus 1%, which is 2.75% as at 3 November 2026. How that interest is taxed depends on who receives it and on which tax.
| Repayment interest on | Who receives it | Tax treatment |
|---|---|---|
| Income Tax or Capital Gains Tax | Individuals | Not taxable |
| Corporation Tax | Companies | Taxable as part of the company’s profits |
| VAT | VAT-registered businesses | Taxable as business income |
Common Mistakes With Late Payment Interest
| Mistake | What happens | Do this instead |
|---|---|---|
| Treating interest as a penalty to appeal | Time lost while the balance grows | Pay the tax; query only errors in how it was worked out |
| Using an out-of-date rate | Wrong estimate | Check the current rate on GOV.UK |
| Reducing payments on account too far | Interest from 31 January and 31 July | Reduce only with a realistic estimate |
| Assuming Time to Pay stops interest | A larger final bill than expected | Pay extra when you can to clear it sooner |
| Paying with the wrong reference | Tax shows as unpaid | Copy the reference from your bill exactly |
FAQs: HMRC Interest on Late Payments
What is HMRC’s late payment interest rate now?
It is the Bank of England base rate plus 4%. With the base rate at 3.75%, that is 7.75% a year as at 3 November 2026. Check GOV.UK after each Bank of England decision.
Is HMRC interest compound?
No. HMRC charges simple interest on the unpaid tax and never adds interest on the interest.
Can I appeal HMRC interest on late payments?
There is usually no formal appeal against interest that has been charged correctly, because it is compensation rather than a penalty. If HMRC has used the wrong balance, payment date or rate, you can query it and ask for it to be corrected. If the tax itself is reduced, the interest falls too.
Does interest stop on a Time to Pay arrangement?
No. Interest keeps running on the unpaid balance until the debt is fully paid. An arrangement agreed in time can prevent a late payment penalty, but it does not cancel penalties already charged.
Do I pay interest on payments on account?
Yes, if you pay them late, or if you reduce them and your final bill shows they should have been higher.
Is HMRC interest tax deductible?
Interest on late Income Tax or Corporation Tax cannot be deducted from your profits.
Is there a late payment interest calculator?
You can estimate it with the worksheet in this guide. Your HMRC online account shows the exact amount charged.
How do I see how much interest I owe?
Sign in to your HMRC online account and open your Self Assessment statement, or check the latest statement HMRC has sent you.
Final Verdict: HMRC Interest on Late Payments in 2026/27
HMRC interest on late payments is simple interest at base rate plus 4%, which is 7.75% as at 3 November 2026. It is charged daily from the payment due date with no grace period, and penalties come on top. Correctly charged interest generally cannot be appealed, so the only reliable way to keep it small is to pay as much as you can, as soon as you can, and to set realistic payments on account.
- Check your HMRC online account for any unpaid balance and interest.
- Pay what you can now, and contact HMRC about Time to Pay if you cannot clear the rest.
- Get a fixed-fee quote for your tax return at Get a Quote, call 0116 403 0595 or email info@taxreturnaccountants.uk.
Why trust this guide
- Rates checked against the Bank of England’s latest decision and GOV.UK’s published rules.
- How the interest works is taken from HMRC’s own Compliance Handbook.
- Worked examples and a worksheet you can use with your own figures.
- Last reviewed: November 2026.