HMRC Late Payment Interest Rate: What 7.75% Costs You
Updated: 6 days ago
If you've paid a tax bill a little late recently, you may have noticed the interest charge on top felt steeper than it used to. That's because HMRC currently charges 7.75% a year in interest on overdue corporation tax, VAT, PAYE and self assessment bills alike. At Jackson Lee Accountants, we're based here in Bury, and we see this catch out otherwise well-organised businesses more often than you'd expect, simply because the rate has moved and the gap between paying on time and paying a little late has grown.
How HMRC Sets The Rate
HMRC's late payment interest is set at the Bank of England base rate plus 4 percentage points. With the base rate currently at 3.75%, that gives the 7.75% figure you'll see added to a late bill. It moves whenever the base rate changes, so it can shift during the year without much warning, and it applies daily from the original due date, not from whenever HMRC gets round to chasing it. Money HMRC owes you works the other way round: repayment interest is base rate minus 1 percentage point, currently 2.75%, with a floor of 0.5%. That leaves a real five-point gap between paying late and being repaid late, which is worth knowing if you're ever tempted to let a repayment sit rather than claim it promptly.
What It Actually Costs
The numbers add up faster than they look on paper. A few examples of how this plays out in practice:
£10,000 of corporation tax paid three months late costs roughly £190 in interest alone, on top of any late filing or late payment penalty that applies separately.
A VAT bill paid just a month late starts accruing interest from the day after the due date, even if the return itself was filed on time and correctly.
PAYE and Class 1 National Insurance that falls behind during a cash flow squeeze accrues interest daily, which can be an unwelcome surprise if a Time to Pay arrangement ends up running for several months.
Self assessment payments on account that are reduced too far, or missed altogether, attract interest back to the original due date, not from whenever HMRC catches up with the shortfall.
Why It Adds Up Faster Than It Used To
Interest isn't a penalty, and HMRC doesn't intend it to be punitive, but it isn't tax-deductible, and it keeps accruing even once you've agreed a Time to Pay arrangement. Set alongside the doubled late filing penalties for corporation tax that landed earlier this year, the overall gap between paying on time and paying a little late is wider than it's been for some time. None of this is a reason to worry if your tax is generally paid on time, and it's certainly not a reason to panic over an occasional slip. It's simply worth building into how you think about cash flow, particularly heading into a busier, more expensive time of year.
What's Worth Doing Now
A few practical habits make the biggest difference:
Diarise payment dates separately from filing deadlines for corporation tax, VAT and PAYE, since the two don't always fall on the same day, and it's the payment date that stops interest building up.
Build tax into regular cash flow forecasting rather than treating each bill as a one-off surprise, so the money is already set aside when it falls due.
If a payment is genuinely going to be late, contact HMRC before the due date rather than after. A Time to Pay arrangement agreed in advance still accrues interest, but it keeps penalties from stacking on top of it.
Review your limited company accounts through the year rather than only at year end, so the final corporation tax figure, and the date it's due, is never a last-minute surprise.
We build payment dates into the regular compliance work we do for clients, precisely so nothing catches anyone out at the wrong moment.
Need a hand with this? We're accountants in Bury, and our limited company accounts service covers it for a fixed fee.
Talk it through with us
If this affects you, book a free, no-obligation 30-minute chat by phone, Teams or at our Bury office, or see your fixed fee online in 2 minutes. Prefer to talk now? Call 0161 327 0047.
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