HMRC Interest Rates at 7.75% — Why Late Payment Costs More Than Ever

The Current Rate and How It Works

HMRC charges interest on late tax payments at the Bank of England base rate plus 4 percentage points. With the base rate at 3.75%, that gives a late payment interest rate of 7.75% per annum, calculated daily from the date the tax was due.

This rate applies across all HMRC taxes: corporation tax, self-assessment income tax, VAT, PAYE, and Capital Gains Tax. It is not a penalty — it is charged in addition to any penalties for late filing or late payment.

For context, this rate was 2.6% as recently as early 2022. A director paying the same tax bill three months late now pays roughly three times as much in interest as they would have four years ago.

What Late Payment Actually Costs

The numbers are straightforward but often underestimated. Here are worked examples for common scenarios:

Corporation tax: £10,000 paid 3 months late

• Daily interest: £10,000 x 7.75% / 365 = £2.12 per day
• 3 months (90 days): £191

Corporation tax: £25,000 paid 6 months late

• Daily interest: £25,000 x 7.75% / 365 = £5.31 per day
• 6 months (180 days): £956

Self-assessment: £5,000 paid 1 month late

• Daily interest: £5,000 x 7.75% / 365 = £1.06 per day
• 1 month (30 days): £32

VAT: £15,000 paid 2 months late

• Daily interest: £15,000 x 7.75% / 365 = £3.18 per day
• 2 months (60 days): £191

These figures are interest only. Late payment penalties are charged separately on top. For corporation tax, there are also doubled late filing penalties from April 2026 to consider.

The Repayment Interest Gap

When HMRC owes you money — for example, if you overpaid tax or are due a refund — they pay interest at a much lower rate. The repayment interest rate is the base rate minus 1%, with a minimum floor of 0.5%.

At today's base rate of 3.75%, the repayment rate is 2.75%.

That creates a significant gap:

This asymmetry means it always costs more to owe HMRC than HMRC pays when they owe you. Overpaying your tax as a safety margin generates a poor return, but underpaying and settling up late is expensive.

Why This Matters Alongside Other April 2026 Changes

The 7.75% interest rate amplifies the cost of every other tax change landing in April 2026. Consider a director navigating multiple obligations:

• Dividend tax rising may increase your self-assessment bill
• MTD for Income Tax introduces quarterly reporting with new payment deadlines
• Corporation tax penalty doubling adds financial consequences for late filers
• Employer NI at 15% raises monthly PAYE obligations
• Frozen income tax thresholds push more income into higher bands

Each of these either increases the amount of tax you owe or introduces new deadlines. Miss any of them, and the 7.75% interest starts running immediately. The combination of higher bills and higher interest rates means that cashflow management is more important than it has been for a decade.

Six Ways to Avoid Late Payment Interest

1. Know your deadlines. Corporation tax is due 9 months and 1 day after your accounting period ends. Self-assessment is due 31 January (and 31 July for payments on account). VAT is due one month and 7 days after the quarter ends. Set calendar reminders for each.

2. Pay on account where possible. Self-assessment payments on account spread your tax bill across two instalments (31 January and 31 July). If you know your bill will be higher than last year, you can voluntarily increase your payments on account to avoid a large balancing payment.

3. Set aside tax monthly. Rather than scrambling to find cash when the bill is due, transfer a fixed percentage of revenue into a separate account each month. A common rule of thumb for directors: set aside 20-25% of dividends taken for the eventual tax bill.

4. File and pay early. There is no advantage to waiting until the deadline. Filing your CT600 or self-assessment early gives you certainty about the amount owed and more time to arrange payment. Corporation tax can be filed up to 12 months after the period end, but the payment is due at 9 months.

5. Use HMRC's Time to Pay. If you genuinely cannot pay on time, contact HMRC before the deadline to arrange a Time to Pay agreement. Interest still accrues, but HMRC may agree to a payment plan and waive late payment penalties. This is significantly better than simply not paying and ignoring correspondence.

6. Check for overpayments. If you have overpaid tax in previous periods, you may be owed a repayment that could offset your current bill. Review your HMRC online account for any credits before making new payments.

Key Dates

• Ongoing — 7.75% late payment interest rate applies to all overdue HMRC tax debts
• Next base rate decision — check the Bank of England schedule for the next Monetary Policy Committee meeting
• Your next payment deadline — varies by tax type and accounting period

Frequently Asked Questions

Is HMRC interest tax-deductible?

Interest on late payment of corporation tax is not deductible against your company's profits. For self-assessment, interest on late tax payments is similarly not deductible. This makes the effective cost even higher — you are paying 7.75% out of post-tax income.

Does the interest rate change automatically with the base rate?

Yes. HMRC's late payment interest rate is formulaic: base rate plus 4 percentage points. When the Bank of England changes the base rate, HMRC's interest rate adjusts shortly afterwards. If the base rate falls, so does the late payment rate — but the 4-point premium remains constant.

Can I negotiate a lower interest rate with HMRC?

No. The interest rate is statutory and applies uniformly. You cannot negotiate it down. However, through a Time to Pay arrangement, you can agree an affordable repayment schedule. Interest continues to accrue during the arrangement, but you avoid escalating penalties.

What is the difference between interest and penalties?

Interest compensates HMRC for late receipt of money you owe — it accrues daily from the due date. Penalties are fixed charges or percentage surcharges imposed for specific failures: late filing, late payment, or inaccurate returns. You can be charged both simultaneously. For example, a corporation tax return filed and paid three months late could attract a £200 filing penalty, a late payment penalty, and daily interest at 7.75%.

AccountsOS tracks all your HMRC deadlines in one place and sends reminders before payment is due, so you never pay a penny more in interest than necessary. Set up deadline alerts in the HMRC Hub to stay ahead.