HMRC Late Payment Interest Rate: What 7.75% Costs You

Miss a tax deadline today, and HMRC charges 7.75% a year on the outstanding balance. The Bank of England’s base rate, by contrast, remains at 3.75% following its July 2026 meeting. The HMRC late payment interest rate is now more than double the central bank’s own rate, and for anyone who missed the 31 July second payment on account deadline, interest is already accruing.

How the HMRC Late Payment Interest Rate Is Calculated

HMRC’s rate isn’t set in isolation. It tracks the Bank of England base rate plus a fixed margin, and that margin changed materially from 6 April 2025, rising from base rate plus 2.5% to base rate plus 4%. With the base rate at 3.75%, the formula lands on 7.75%, applied from 9 January 2026 once the December base rate cut fed through.

The margin the other way is far less generous. Repayment interest, what HMRC pays when it owes you money, is the base rate minus 1%, floored at 0.5%, and is currently 2.75%. A taxpayer who owes HMRC pays 7.75%; a taxpayer HMRC owes receives 2.75%.

Worked Examples at the Current 7.75% Rate

HMRC calculates late-payment interest daily using simple interest. At the current rate, approximate costs are:

Unpaid Tax	Approx. Average Monthly Interest	Interest Over One Year
£1,000	£6.46	£77.50
£10,000	£64.58	£775
£50,000	£322.92	£3,875

The actual amount for an individual month varies with the number of days the tax remains unpaid. Interest starts from the relevant late-payment date and continues until the outstanding amount is paid.

Late Tax Payment Penalties UK Taxpayers Should Understand

For late tax payment penalties UK, taxpayers need to distinguish penalties from the separate interest charge, as both can increase the total cost of an overdue liability.

The most immediate exposure sits with Self Assessment taxpayers who missed the 31 July second payment on account for 2025/26. Interest starts accruing automatically from 1 August, charged daily using simple interest, until the balance clears:

• A £800 payment left unpaid for a full year at 7.75% attracts roughly £62 in interest alone.
• Payments on account attract interest only. The standard late-payment penalties apply to qualifying unpaid balancing payments.
• A balancing payment left unpaid can attract interest and a penalty of 5% of the unpaid tax at 30 days, a further 5% at six months and another 5% at 12 months.

If the underlying debt relates to an individual’s tax position, our personal tax services team can help review the liability and deal with HMRC where necessary.

The rules on HMRC late payment interest for businesses apply across most taxes the department collects, including Corporation Tax and VAT, not just Self Assessment.

HMRC Late Payment Interest for Businesses: Why It Remains High

HMRC has long argued that its rates should discourage taxpayers from treating the department as cheap borrowing compared with commercial lending. The widened margin introduced in April 2025 pushed that further, and with the base rate holding at 3.75%, the 7.75% rate remains in force.

Corporation Tax late-payment interest is deductible when calculating a company’s taxable profits, which can soften the overall cost for companies. Interest on late-paid personal Income Tax and Capital Gains Tax is not deductible.

For companies concerned about missed deadlines or overdue liabilities, our Corporation Tax services can help manage filing and payment obligations before additional interest builds up.

Reducing Payments on Account Comes With Its Own Trap

Taxpayers expecting a lower bill can apply to reduce their payments on account via form SA303 or their online account. Cut them too aggressively, though, and any shortfall attracts interest backdated to the original January and July due dates, an easy way to turn a cash-flow fix into an unexpected bill months later.

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How Apex Accountants Can Help

The HMRC late payment interest rate can quickly become expensive, especially on larger tax liabilities. Managing late tax payment penalties UK liabilities can also be difficult because penalties and interest are calculated separately and may apply at different stages.

Understanding HMRC late payment interest for businesses is particularly important where Corporation Tax or VAT liabilities are substantial, as interest continues to build until the outstanding tax is paid.

Apex Accountants & Tax Advisors can review your Self Assessment, Corporation Tax and VAT position, identify payments at risk of becoming overdue and help you approach HMRC before further charges arise.

We can also help negotiate a time-to-pay arrangement where appropriate and assess whether reducing your payments on account is genuinely justified before you submit an SA303.

Contact Apex Accountants today to arrange a free consultation and take control of your outstanding tax payments.

Frequently Asked Questions

What is HMRC’s current late payment interest rate?

7.75% a year, in effect since 9 January 2026. For most relevant taxes, it is calculated using the Bank of England base rate plus 4%.

Why is the rate so much higher than the base rate?

HMRC’s late-payment margin increased from base rate plus 2.5% to base rate plus 4% from 6 April 2025, widening the gap independently of any base-rate change.

Does HMRC pay the same rate on refunds?

No. Repayment interest is currently 2.75%, compared with the 7.75% late-payment rate.

Is interest the same as a penalty?

No. Interest compensates HMRC for receiving tax late and accrues while an amount remains unpaid. Penalties are separate charges that may apply depending on the tax and how long the liability remains outstanding.

Can I avoid the interest if I can’t pay on time?

A Time to Pay arrangement does not normally stop late-payment interest from accruing, but agreeing an arrangement promptly can help manage the debt and reduce the risk of further recovery action.

Is late payment interest tax deductible?

For Corporation Tax, late-payment interest is generally deductible when calculating company profits. Interest on late-paid personal Income Tax and Capital Gains Tax is not deductible.

How much interest does HMRC charge on a £10,000 late tax bill?

At the current 7.75% HMRC late payment interest rate, £10,000 left unpaid for a full year would attract approximately £775 in interest. The average monthly equivalent is around £64.58, although the actual charge depends on how many days the liability remains unpaid.

Can HMRC late payment interest be cancelled?

Late-payment interest is automatic and a reasonable excuse that may support an appeal against a penalty does not normally remove the interest itself. HMRC may consider giving up interest where its own mistake or unreasonable delay caused the interest to build up.