HMRC Interest on Late Payment: What Does It Mean?

HMRC interest on late payment is the interest charged when you pay your tax bill after the deadline.

If you miss a tax deadline, even by a day, HMRC will typically charge you interest on the amount you owe. It doesn't matter whether it's a simple oversight or a cash flow crunch: the interest clock starts ticking automatically.

Here's everything you need to know about interest on late payment and how to avoid it.

Key points

• Interest rates can change throughout the year 📈
  HMRC's late payment interest rate is tied to the Bank of England base rate. The current rate for late payments is 7.75% per year, which means borrowing from HMRC is intentionally expensive.
• Interest and penalties are separate charges ⚠️
  Paying late can trigger both interest and penalties. Interest starts automatically, while penalties are added at specific stages, such as 30 days, 6 months, and 12 months after the deadline.
• Payments on account can catch people off guard 🧾
  If you reduce your payments on account too aggressively and end up underpaying, HMRC can charge interest retroactively from the original January and July due dates. Filing early and checking your estimates can help you stay on track.
• ANNA helps you stay ahead of tax deadlines 🚀
  ANNA helps freelancers and small businesses eliminate late payment stress with automatic tax pots, expense tracking, invoicing tools, and 24/7 UK-based support. Keeping your tax money organised throughout the year makes it much easier to avoid HMRC interest charges in the first place.

How HMRC late payment interest is calculated

HMRC late payment interest builds up daily until your debt is cleared.

The maths works like this: take the amount you owe, multiply it by the annual interest rate (currently 7.75%), then divide by 365 to get a daily figure.

Here's a real example:

Say you owe £5,000 in Self Assessment Income Tax for the 2025/26 tax year. That bill will be due on 31 January 2027. If you pay it 60 days late, you'd typically owe around £64 in interest on top of the original £5,000.

That might not sound like much, but the longer the tax remains unpaid, the more interest builds up, and penalties can stack on top of each other after 30 days.

🧠 Good to know:

HMRC's late payment interest rate isn't fixed. It changes whenever the Bank of England changes its base rate, which is reviewed roughly every six weeks.

What the current rates look like (2025/26)

These figures reflect the rates in effect from 9 January 2026, and they apply to most taxes collected by HMRC:

Since 6 April 2025, the late payment premium increased from base rate + 2.5% to base rate + 4%, so the cost of being late is higher now than it was a year ago.

Which taxes does the late payment interest apply to?

Late payment interest applies across most of the taxes HMRC collects, such as:

• Self Assessment Income Tax: This is the tax system used by sole traders, freelancers, and anyone with income outside of regular PAYE employment. Your main bill is due on 31 January each year, and there's a second advance payment due on 31 July.
• Corporation Tax: If you run a limited company, the company pays Corporation Tax on its profits. For most small companies, this bill is due nine months and one day after the end of your financial year. So if your year ends on 31 March, your Corporation Tax is due on 1 January the following year.
• VAT: If your business is VAT-registered, you collect VAT from customers and pay it to HMRC, usually every quarter. If you pay late or less than you owe, interest applies from the day after the deadline.
• PAYE and National Insurance: If you employ anyone, including yourself as a director, you deduct Income Tax and National Insurance from wages each month and pay it to HMRC. Late or short payments attract interest in the same way.

💡 Did you know?

As money comes into your account, ANNA's built-in tax pots automatically set aside the right amount for your next tax bill. This way, you're never caught short when the deadline arrives.

How late payment interest differs from penalties

Interest and penalties are separate systems. You can face both at the same time, and they're calculated independently.

Here's how it works:

Interest is automatic. It starts the day after your payment is due, and HMRC doesn't need to send you a notice for it to begin.

You can't appeal the late payment interest.

Penalties are a separate financial charge that kicks in at specific points after you miss a deadline. For Self Assessment, a penalty typically applies if the tax remains unpaid after 30 days, then again at six months, and again at twelve months.

Each penalty is calculated as a percentage of the original tax owed, and the amounts can be significantly larger than the interest you've already accumulated. So if you're 60 days late, you'll owe interest for all 60 days plus a 30-day penalty on top.

The rules for calculating penalties are specific and can vary depending on the tax involved, so if you've missed a deadline by more than a week or two, consider speaking to an accountant about it.

🧠 Good to know

HMRC allows you to appeal certain penalties if you have a reasonable excuse, such as a serious illness, a bereavement, or unexpected technical problems with HMRC's own systems.

If you think you have grounds to appeal a penalty, do it in writing as soon as possible.

However, keep in mind that a reasonable excuse won't remove the interest.

Payments on account and interest

If you pay Self Assessment tax, you'll usually make two payments on account each year, one by 31 January and one by 31 July. These are advance payments towards your next tax bill, based on the previous year's tax position.

If you miss either of these, or underpay them, interest starts from the relevant due date, not from the 31 January balancing payment date. This catches a lot of people off guard, particularly if they've applied to reduce their payments on account.

If you reduce them too aggressively and your actual bill ends up higher, HMRC will charge interest on the shortfall going all the way back to the original July and January due dates, as if the reduction had never been applied.

What happens if you can't pay

If you can't pay on time, the worst thing you can do is ignore the situation. HMRC offers a Time to Pay arrangement, an agreed schedule that lets you spread payments over several months.

Interest still accrues during the arrangement, but you avoid further penalty escalation as long as you stick to the agreed terms.

You can typically set up your Time to Pay online via your HMRC account if you owe less than £30,000 and are within 60 days of the payment deadline. For larger debts, you'll need to call HMRC's Business Payment Support Service.

💡 Did you know?

ANNA's business bank account gives you a clear picture of your cash position before tax deadlines hit. That makes it easier to spot potential shortfalls early and take action before interest and penalties start building up, including contacting HMRC about a Time to Pay arrangement if you genuinely can't pay in full.

How to avoid HMRC interest on late payment

The single most effective thing you can do is know your deadlines and take them seriously. Most late-payment interest isn't due to people not being able to pay.

In many cases, late payment interest happens because people underestimate what they owe, miss a deadline, or fail to set aside enough money for their tax bill.

Here's what to pay attention to:

• Note every due date at the start of the tax year, including both payments on account for Self Assessment and your balancing payment
• Set funds aside regularly so the full tax bill doesn't hit all at once when the deadline arrives
• File your return early, so you know your exact bill well before it's due, rather than scrambling in January
• Check your HMRC online account regularly for any notices or updated figures, particularly if HMRC has amended your payments on account

Open an ANNA account and stay ahead of your tax bills

Avoiding HMRC interest charges is much easier when you can see your income, expenses, and upcoming tax obligations in one place.

ANNA helps you stay organised year-round, set money aside automatically, and keep on top of deadlines before they become expensive problems.

Here's what you get with ANNA:

• Free Self Assessment filing: For a limited time, users can file their 2026/27 Self Assessment tax return through ANNA at no extra cost, with guided steps and automatic calculations to simplify the process. If you've already paid another provider, ANNA will refund the filing fee when you switch.
• Auto Accountant: ANNA's Auto Accountant tracks your income and expenses in real time, estimates how much tax you're likely to owe, and helps keep your bookkeeping organised.
• Smart tax pots: ANNA automatically sets aside a portion of your income for future tax bills, helping you avoid last-minute panic when payment deadlines arrive.
• Expense tracking: You can snap a photo of a receipt, and ANNA categorises it for you, so your records stay organised throughout the year.
• Invoice management: ANNA allows you to create invoices, send payment reminders, and automatically chase overdue payments to help keep your cash flow healthy.
• 24/7 UK-based support: Get help from a real person through in-app chat whenever you need it.

Open an ANNA account today and make tax deadlines much easier to manage.