You sign in to your HMRC online account and notice an interest figure sitting beside a tax year you believed was finished. HMRC late payment interest is easy to miss because it starts small and creeps up a little every day. This guide covers what the charge is, the rates for 2026/27, how HMRC calculates interest on unpaid tax, why it can appear when you thought you had paid, and when it may be reduced.
- The interest is simple, not compound, and runs only on the amount still unpaid.
- The rate follows the Bank of England base rate, so it changes whenever that rate moves.
- Payments on account count: if one was set too low, interest can run from its original due date.
- There is generally no right of appeal against interest that has been charged correctly.
What Is HMRC Late Payment Interest?
If tax reaches HMRC after the deadline, HMRC adds interest for the days it was outstanding. The purpose is compensation, not punishment. HMRC’s Compliance Handbook (CH141100) frames it as a way of keeping things fair between people who pay on time and people who don’t.
Three points matter most. It is simple interest, so no interest is added to earlier interest. The clock starts on the due date and stops when the payment is received. And it is separate from penalties. A late payment penalty can be charged on top, and an unpaid penalty can attract interest of its own.
A freedom of information request by AJ Bell found HMRC collected more than £137 million of this interest from Self Assessment taxpayers in 2023/24. About 1.3 million people were charged, with an average of just over £100 each.
Where You See It: Reading Your HMRC Statement
The label varies between paper statements, the online account and the HMRC app. You may see the charge described as interest, late payment interest or late paid interest against a particular tax year. The usual Self Assessment lines are below.
| Line on the statement | What it means |
|---|---|
| Balancing payment | Tax still owed for the year once payments on account are deducted. Due 31 January after the tax year ends. |
| 1st payment on account | An advance towards the current year’s tax. Due 31 January. |
| 2nd payment on account | The second advance. Due 31 July. |
| Interest | The daily interest on any of the amounts above that arrived after the due date. |
| Late payment penalty | A separate charge for paying late, which can carry interest too. |
| Repayment interest | Interest HMRC adds when it refunds tax you overpaid. |
While a debt is open, the interest on screen can be a running estimate. HMRC fixes the final figure after the tax is cleared, so a small extra amount often appears later.
HMRC Late Payment Interest Rates for 2026/27
Since 6 April 2025, HMRC late payment interest has been set at the Bank of England base rate plus 4 percentage points. Before then the margin was 2.5 points. The Government widened it to encourage prompt payment, as set out in GOV.UK’s note on changing late payment interest rates. HMRC repayment interest, which it pays on refunds, is base rate minus 1, with a minimum of 0.5%.
The Bank of England raised the base rate from 3.75% to 4% on 5 November 2026. HMRC has announced the knock-on change to its rates. The table separates the rate in force today from the announced rate.
| Status | Effective date | Late payment interest | Repayment interest | Source |
|---|---|---|---|---|
| Current rate | 9 January 2026 to 23 November 2026 | 7.75% | 2.75% | GOV.UK |
| Announced rate | From 24 November 2026 | 8% | 3% | GOV.UK |
Large companies paying Corporation Tax by quarterly instalments use a different rule of base rate plus 2.5. The new figure for those instalments applies from 16 November 2026. The full current list is on the GOV.UK interest rates page.
Rate history for checking an older statement
If a debt has been open for a long time, different rates apply to different periods. These are the official effective dates for the main taxes, including Income Tax, Capital Gains Tax and VAT, since August 2023.
| Effective from | Late payment interest | Repayment interest | Source |
|---|---|---|---|
| 22 August 2023 | 7.75% | 4.25% | GOV.UK |
| 20 August 2024 | 7.5% | 4% | GOV.UK |
| 26 November 2024 | 7.25% | 3.75% | GOV.UK |
| 25 February 2025 | 7% | 3.5% | GOV.UK |
| 6 April 2025 (new base rate + 4 rule) | 8.5% | 3.5% | GOV.UK |
| 28 May 2025 | 8.25% | 3.25% | GOV.UK |
| 27 August 2025 | 8% | 3% | GOV.UK |
| 9 January 2026 | 7.75% | 2.75% | GOV.UK |
| 24 November 2026 (announced) | 8% | 3% | GOV.UK |
How HMRC Calculates Interest on Unpaid Tax
The basic sum is simple once the dates are clear. For each stretch of time at one rate, multiply the unpaid tax by the rate and by the number of days, then divide by 365. When the rate changes while the debt is open, split the time at the change date and add the parts together.
Interest = unpaid tax × annual rate × number of days ÷ 365
This is a simplified illustration. HMRC works out interest using the rate that applied to each period, the dates involved and the rules for that particular tax. Where the rate changes, each period is calculated separately. HMRC’s own figure can differ slightly because of rounding and those tax-specific rules.
Priya already owes £5,000 of Self Assessment tax. This example only looks at the interest from 1 October 2026. She pays the full £5,000 by Faster Payment, and it reaches HMRC on 1 January 2027.
- Start date: 1 October 2026, the first day counted in this example.
- Last day of interest: 31 December 2026, the day before the money is received. Interest stops once HMRC has the payment.
- Rate split: 7.75% applies up to and including 23 November 2026, and 8% from 24 November 2026.
- Rounding: each period is rounded to the nearest penny, then the periods are added.
| Period | Days | Rate | Sum | Interest |
|---|---|---|---|---|
| 1 Oct – 23 Nov 2026 | 54 | 7.75% | £5,000 × 7.75% × 54 ÷ 365 | £57.33 |
| 24 Nov – 31 Dec 2026 | 38 | 8% | £5,000 × 8% × 38 ÷ 365 | £41.64 |
| Total | 92 | £98.97 |
If Priya had paid half the bill on 1 October, the interest for this period would have halved, because it only runs on the balance still owed.
A fill-in worksheet
Use this as a simple HMRC tax interest calculator: one row per rate period, then total the last column.
| Unpaid amount (£) | Rate | From date | To date | Days | Interest (£) |
|---|---|---|---|---|---|
| Total |
When Does a Payment Count as Made?
The day you give your bank an instruction is not always the day HMRC treats the tax as paid. What matters is when the money actually reaches HMRC, so slower methods can add days of interest. GOV.UK’s Self Assessment payment page sets out the timings.
| Payment method | Typical time to reach HMRC |
|---|---|
| Faster Payments (online or telephone banking) | Usually the same or next day |
| CHAPS | Usually the same working day |
| Bacs | Usually 3 working days |
| Direct Debit set up for the first time | Allow 5 working days |
Why You Were Charged When You Thought You’d Paid
Interest often appears even when people paid what they believed was due by the deadline. These are the usual causes.
| Cause | What happened | What to check |
|---|---|---|
| Payments on account reduced too far | You asked HMRC to lower your payments on account, and the final bill turned out higher. | Your reduction claim and the final tax for that year. |
| Amended return | You corrected a return and the tax went up. | Interest normally runs from the original due date, not the date you amended. |
| HMRC enquiry or adjustment | HMRC increased the tax after checking your return. | When the extra tax was originally due. |
| Payment arrived late | A slower method or a weekend meant the money reached HMRC after the deadline. | The date the payment reached HMRC, using the table above. |
| Wrong reference | The payment was not matched to your record. | Self Assessment payments use your 10-digit UTR followed by the letter K. |
| Unpaid penalty | A late payment penalty was left outstanding. | Penalties can carry interest once they are due. |
If you think a reference is wrong, our guide on where to find your UTR number shows where the correct number appears on HMRC letters and in your online account.
Worked example: payments on account set too low
You can lower your payments on account if you expect your income to fall. If you lower them too much, HMRC charges interest on the shortfall from each original due date, as if the right amount should have been paid then.
Tom’s payments on account for 2025/26 were each £1,500 below the correct amount. He pays the shortfall with his balancing payment, which reaches HMRC on 31 January 2027. The days are counted from each original due date to 30 January 2027, split at 24 November 2026, with each part rounded to the penny.
| Payment | Original due date | At 7.75% | At 8% | Interest |
|---|---|---|---|---|
| 1st payment on account | 31 January 2026 | 297 days: £94.59 | 68 days: £22.36 | £116.95 |
| 2nd payment on account | 31 July 2026 | 116 days: £36.95 | 68 days: £22.36 | £59.31 |
| Total | £176.26 |
Tom paid what HMRC’s statements asked for at the time, yet he still owes interest because the payments on account he chose were too small.
How to Check Whether HMRC Has Calculated Your Interest Correctly
If the interest looks too high, go through these five points before contacting HMRC.
- The original due date. Confirm the deadline for each amount, such as 31 January or 31 July for Self Assessment, or the due date of an amended or adjusted figure.
- The date your payment took effect. Use the date the money reached HMRC, not the date you sent it.
- The rate for each period. Match each stretch of time to the correct rate in the history table above.
- Payments already credited. Check that every payment, including part payments and credits from other years, has been applied to the right tax year.
- Any tax-specific rules. Make sure the rules for that tax have been used, for example payments on account, VAT periods or Corporation Tax instalments.
Late Payment Interest on Other Taxes
The base rate plus 4 rule now applies to most taxes HMRC collects. What differs is the due date that starts the clock.
| Tax | When interest usually starts |
|---|---|
| Self Assessment (Income Tax) | After 31 January for the balancing payment and 1st payment on account, and after 31 July for the 2nd payment on account. |
| Capital Gains Tax (general) | Usually reported and paid through Self Assessment, so interest runs from 31 January after the tax year. |
| UK residential property CGT (UK residents) | When there is CGT to pay on a UK residential property sale, it is usually reported and paid within 60 days of completion. Interest runs after that deadline. Non-residents follow wider 60-day rules. See GOV.UK’s CGT reporting guide. |
| VAT | For accounting periods starting on or after 1 January 2023, from the day after the payment deadline. |
| PAYE and employer NICs | From the date each monthly or quarterly payment was due. |
| Corporation Tax | Usually after 9 months and 1 day from the end of the accounting period. Large companies paying by quarterly instalments use the lower instalment rate. |
These are general rules, and exceptions apply, so check the guidance for your own tax.
Can You Challenge HMRC Late Payment Interest?
There is generally no statutory right of appeal against late payment interest that has been charged correctly, and a reasonable excuse such as illness does not cancel it. You can still contact HMRC if you think the interest has been worked out wrongly, or if it arose because of HMRC’s own error or an unreasonable delay on its part.
Explain what happened and include evidence such as dates and letters. In suitable cases, HMRC’s Interest Review Unit can decide to give up some or all of the interest. You can’t approach that unit directly; requests reach it through the HMRC office dealing with your tax. LITRG explains the conditions in more detail.
| May be considered | Not normally considered |
|---|---|
| You relied on clear, wrong advice from HMRC and paid late because of it | Illness, bereavement or other personal circumstances |
| HMRC controlled your case and delayed it unreasonably, and that delay alone stopped you paying | Cash-flow problems or a fall in business income |
| The interest has been worked out using the wrong dates, rate or amount | Not knowing the deadline or the rules |
If the tax itself is later reduced or cancelled, for example after a successful appeal, the interest linked to it may need to be recalculated as well.
How to Stop HMRC Late Payment Interest Growing
You can’t switch off interest already charged, but you can limit what comes next.
- Pay what you can now. Interest only runs on the balance still owed, so each part payment lowers the daily cost.
- Ask about a payment plan if you need one. A Time to Pay arrangement spreads the bill. Interest continues on the unpaid amount, but the plan can help you avoid further penalties and collection action.
- Clear penalties as well. A penalty left unpaid can build up interest of its own.
- Don’t count on an appeal to stop the clock. If you appeal and postpone tax that turns out to be due, interest still runs from the original date.
Is HMRC Late Payment Interest Tax-Deductible?
For individuals and sole traders, interest on late paid Income Tax or Capital Gains Tax is generally not a deductible expense. HMRC’s Business Income Manual (BIM45740) says it cannot be deducted from trading profits.
Companies are treated differently. HMRC’s Company Taxation Manual (CTM92190) says interest on late paid Corporation Tax is allowable as a non-trading debit under the loan relationship rules. The exact result depends on those rules and the company’s accounting treatment, and interest on other late taxes may be treated differently.
Is HMRC repayment interest taxable?
For individuals, HMRC’s Savings and Investment Manual (SAIM2320) says repayment supplement paid on a refund of Income Tax is exempt and is not treated as income. This is different from interest your bank pays on money you set aside for a tax bill, which is ordinary savings income and may be taxable above your allowances. For companies, interest received on a Corporation Tax repayment is generally taxable.
HMRC Late Payment Interest FAQs
What does late payment interest mean on my HMRC statement?
It is the interest HMRC has added because some of your tax arrived after its due date. It is worked out daily from the due date until the payment reached HMRC.
What is the HMRC late payment interest rate now?
It is 7.75% up to 23 November 2026. HMRC has announced that it rises to 8% from 24 November 2026, after the Bank of England base rate increase on 5 November 2026.
Is HMRC interest simple or compound?
It is simple interest. HMRC charges interest on unpaid tax and unpaid penalties, but not on interest that has already built up.
Why was I charged interest when I paid on time?
Common reasons include payments on account that were reduced too far, an amended return, an HMRC adjustment, a payment that reached HMRC after the deadline, or a payment with the wrong reference.
Can I challenge HMRC late payment interest?
There is generally no right of appeal against correctly charged interest. You can contact HMRC if you think it has been calculated wrongly or arose from HMRC’s error or unreasonable delay.
Does interest stop on a Time to Pay arrangement?
No. Interest continues on the unpaid balance while the arrangement runs, although the plan can help you avoid further penalties.
What is HMRC repayment interest?
It is interest HMRC adds when it refunds overpaid tax. The rate is base rate minus 1%, with a minimum of 0.5%: 2.75% up to 23 November 2026 and 3% from 24 November 2026.
Is HMRC late payment interest tax-deductible?
Not generally for individuals or sole traders. Companies can usually deduct interest on late paid Corporation Tax as a non-trading loan relationship debit, subject to those rules.
Final Verdict
HMRC late payment interest isn’t a fine, but it adds up quickly on larger bills now the rate sits at base rate plus 4%. Most surprises come from payments on account, amended returns or payment timing, so check those first. Beyond HMRC error or delay, paying as much as you can, as early as you can, is the only reliable way to keep the cost down. Our sister site Tax Return Accountants has a further guide to HMRC interest on late payments.
- Open your HMRC online account and note which tax year and payment the interest relates to.
- Recheck the figure with the five-point check and the rate history table.
- Look at your payments on account, any amendments and your payment references.
- Pay what you can now, or look into Time to Pay if you can’t pay in full.