HMRC Late Payment Interest Rate 2026 — What You Owe on Unpaid Tax

How HMRC sets the late payment interest rate

HMRC does not set its interest rate independently. By statute, the late payment interest rate is linked to the Bank of England base rate (Bank Rate), with a fixed surcharge of 2.5 percentage points.

The formula is:

HMRC late payment interest rate = Bank Rate + 2.5%

When the Bank Rate changes, HMRC updates its rate within 13 days. The rate is set under section 101 of the Finance Act 2009.

Current rate (June 2026)

The Bank of England base rate as of June 2026 is approximately 4.5%, giving an HMRC late payment interest rate of approximately 7.0% per annum. Always verify the current rate at HMRC's published rate page as it can change at any Monetary Policy Committee meeting.

How daily interest accrual works

Interest starts accruing from the day after the payment due date. For Self Assessment, the main due dates are:

• 31 January — balancing payment for the previous tax year, plus first payment on account for the current year
• 31 July — second payment on account for the current year

If you miss the 31 January 2026 deadline for your 2024/25 balancing payment, interest starts from 1 February 2026.

Interest calculation example

You owe £5,000 in Self Assessment tax, due 31 January 2026. You pay on 30 April 2026 — 88 days late.

That is just under £85 of interest — modest on its own but it continues to accrue until you pay. Waiting a full year on a £5,000 bill would cost £350 in interest alone.

The difference between interest and penalties

Many taxpayers confuse HMRC interest and late payment penalties. They are entirely separate:

The late payment penalty structure

For Self Assessment, the penalty structure on unpaid tax is:

• 30 days late: 5% of the unpaid tax
• 6 months late (1 August for January deadline): A further 5%
• 12 months late (1 February the following year): A further 5%

So a £5,000 debt unpaid for 12 months would trigger:

• 5% at 30 days = £250
• 5% at 6 months = £250
• 5% at 12 months = £250
• Total penalties = £750

Plus interest of approximately £350 (at 7.0%). Total cost: approximately £1,100 on a £5,000 debt.

The repayment supplement asymmetry

When HMRC owes you a refund, they pay interest on the amount owed. But the rate is dramatically lower:

HMRC repayment interest rate = Bank Rate minus 1% (minimum 0.5%)

At Bank Rate 4.5%, HMRC pays you 3.5% on overpayments. They charge you 7.0% on underpayments. This 3.5 percentage point gap is entirely legal and deliberate — it creates a strong financial incentive to pay on time rather than use HMRC as a low-cost lender.

Practical implications

• Overpaying intentionally is inefficient. You get 3.5% from HMRC on the overpayment; you could get more in a savings account or ISA.
• Underpaying intentionally is expensive. 7.0% is higher than most credit card promotional rates and all current account overdraft buffer rates.
• If HMRC delays your refund, you are entitled to repayment interest automatically — you do not need to claim it.

Payment on account — the mechanism that reduces interest exposure

For Self Assessment taxpayers with a tax bill over £1,000 (and where less than 80% of their income is taxed at source), HMRC requires payments on account — advance payments towards the next year's tax bill.

These are due:

• 31 January (first payment on account = 50% of last year's bill)
• 31 July (second payment on account = 50% of last year's bill)

Payments on account reduce the eventual balancing payment due the following January, which limits the amount on which interest could accrue.

Example: Your 2024/25 tax bill is £8,000. You pay two payments on account of £4,000 each (31 January 2026 and 31 July 2026). When you file your 2025/26 return, your balancing payment may be small — reducing interest risk.

If you overpay via payments on account, HMRC repays the excess with repayment interest (at the lower 3.5% rate).

How to apply for a Time to Pay arrangement

If you genuinely cannot pay your tax bill in full, a Time to Pay (TTP) arrangement allows instalment payments. Key points:

1. Contact HMRC proactively — before the penalty trigger dates. For amounts up to £30,000 you can set up a TTP online via your HMRC online account. For larger amounts, call the Business Payment Support Service.
2. Interest continues — TTP does not waive interest. It accrues throughout the arrangement period.
3. Penalty protection — if you set up a TTP before the 30-day penalty trigger, the 5% penalty is not charged while the arrangement runs.
4. HMRC may request direct debit — for manageable arrangements, HMRC increasingly expects direct debit to be set up.
5. Arrangement broken by missed payment — if you miss an instalment, HMRC can cancel the TTP and the full amount (plus any penalties) becomes immediately due.

How to make a payment and stop the clock

Every day you delay costs money. To stop interest accruing, pay the full outstanding amount using one of these methods:

• Faster Payments (online bank transfer, under £100,000): same day
• CHAPS (same day, high value): reaches HMRC the same day if sent before your bank's cutoff
• Debit card via HMRC online: cleared within 3 working days — interest accrues until HMRC receives the money
• Cheque: allow 5 working days minimum

Always use your Unique Taxpayer Reference (UTR) followed by 'K' as the payment reference. An incorrect reference can delay allocation and interest continues to accrue.

What about Corporation Tax and VAT?

The same Bank Rate + 2.5% formula applies to Corporation Tax late payments. VAT uses a different formula — the HMRC late payment interest rate for VAT is also Bank Rate + 2.5% for the new penalty regime introduced in January 2023 for quarterly VAT returns.

For PAYE, employers who pay late are charged interest under similar rules from the payment deadline.

Related calculators

Use the income tax calculator to work out your annual tax liability and plan payments to avoid arrears.

The take-home pay calculator gives you a clear view of your net earnings so you can budget for upcoming tax payments.