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, has sat at 3.75% since December, held again at its July meeting. The HMRC late payment interest rate is now more than double the central bank’s own rate—and for anyone who let the 31 July second payment on account slip pass this week, that gap 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 feeds 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%, currently 2.75%. A taxpayer who owes HMRC pays 7.75%; a taxpayer HMRC owes receives 2.75%. The five-point spread is the widest since the current formula took effect.

Late Tax Payment Penalties UK Taxpayers Should Understand 

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 and simply rather than compounding, until the balance clears:

• A £800 payment left unpaid for a full year at 7.75% grows by roughly £62 in interest alone
• Payments on account attract interest only — the 5% late payment penalties on the 31 January balancing payment don’t apply here
• The balancing payment itself carries interest and a tiered penalty: 5% of unpaid tax at 30 days, a further 5% at 6 months, another 5% at 12 months

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 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 rather than falling through 2026 so far, 7.75% has stayed higher for longer than many advisers expected. Corporation tax interest is deductible against profits, softening the blow for companies; self-assessment interest carries no such offset for individuals.

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. The rules around late tax payment penalties UK businesses face can be difficult to manage, as some overdue amounts attract penalties while others carry interest only.  Businesses must also provide clear evidence when reducing payments on account.

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 negotiate a time to pay arrangement on your behalf 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, calculated as 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 base rate minus 1%, with a 0.5% floor — currently 2.75%, well below the late payment rate.

Is interest the same as a penalty?

 No. Interest compensates HMRC for late receipt of tax and applies from the day after the deadline. Penalties are separate charges layered on top once tax remains unpaid at 30 days, 6 months, and 12 months—though payments on account only attract interest.

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

Contacting HMRC to arrange a Time to Pay agreement won’t stop interest accruing, but it can prevent the situation escalating to enforcement action and keeps penalties under control.

Is late payment interest tax deductible?

 For corporation tax, yes. For Self Assessment income tax, no — interest on personal tax debts cannot be offset against your bill.