Late Payment Interest
If you pay tax after the due date, HMRC charges interest from the original due date until payment. Late payment interest is set at the Bank of England base rate plus 2.5%.[1]
This interest is not a penalty — it’s charged in addition to any late payment penalties. Filing your return early with Income Tax filing software tells you what you owe well before the payment due date.
Repayment Interest
If HMRC owes you money (e.g. you overpaid tax), they pay interest at the Bank of England base rate minus 1% (with a minimum of 0.5%).[1]
Note: Late payment interest is always higher than repayment interest. HMRC charges more for late payments than it pays on refunds. Check GOV.UK for the latest rates as they change when the base rate changes.
When Interest Starts
- Self Assessment: Interest runs from the payment due date (31 January / 31 July)
- Payments on account: Interest from the due date of each instalment
- CGT on property: Interest from 60 days after completion if not paid
Interest vs Penalties
Interest and penalties are separate charges:[2]
| Charge | What It Is |
|---|---|
| Interest | Compensation for HMRC not having the money — runs daily |
| Late payment penalty | Fixed surcharge at 30 days, 6 months, 12 months late |
| Late filing penalty | Fixed amounts for filing your return late |
Reducing Interest Charges
To minimise interest:[3]
- Pay on time — even a partial payment reduces the amount interest accrues on
- Set up a Time to Pay arrangement — interest still accrues but penalties may be avoided
- Use a Budget Payment Plan to save up throughout the year
Is HMRC Interest Tax-Deductible?
Late payment interest charged by HMRC is not deductible as a business expense. It’s a personal tax obligation, not a cost of running your business.
Frequently Asked Questions
How much interest does HMRC charge on late tax payments?
HMRC charges late payment interest at the Bank of England base rate plus 2.5%. Interest runs from the original due date until you pay, and is charged in addition to any late payment penalties.
Does HMRC pay interest on tax refunds?
Yes, but at a lower rate. HMRC pays repayment interest at the Bank of England base rate minus 1%, with a minimum of 0.5%. Late payment interest is always higher than repayment interest.
Is HMRC interest tax-deductible?
No. Late payment interest charged by HMRC is not deductible as a business expense. It is a personal tax obligation, not a cost of running your business.
Further Reading
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Sources
- Interest rates for late and early payments — GOV.UK
- Self Assessment penalties — GOV.UK
- Pay your Self Assessment tax bill — GOV.UK