HMRC Late Payment Interest: Current Rate and How to Minimise the Charge

HMRC charges interest at 8.5% per annum on tax paid late. The charge accrues from the day after the payment deadline until the date of actual payment, compounding daily. This rate applies to income tax, corporation tax, VAT, PAYE, and most other taxes managed by HMRC. Keeping tax debts small and paying promptly is the most direct way to avoid the charge.

Which taxes attract HMRC late payment interest?

• Self-assessment income tax (late beyond 31 January and 31 July).

• Corporation tax (late beyond nine months and one day after period end).

• VAT (late beyond the return payment deadline).

• PAYE and National Insurance (late beyond the 19th or 22nd of the month).

• CIS deductions not paid on time.

How the daily charge accumulates

The 8.5% rate is applied to the outstanding amount as a daily charge. On a £10,000 overdue self-assessment bill, the daily interest cost is approximately £2.33. After three months the accumulated interest is around £213. After six months it is approximately £427. The charge is not separately notified — it appears on the HMRC online account and is added to the debt balance automatically.

Surcharges and penalties are separate

HMRC late payment interest is distinct from late filing penalties and surcharges. A self-assessment return filed late attracts a fixed £100 penalty, then daily penalties, then percentage surcharges, each separate from the interest on the underlying tax. Reducing the time a payment is overdue helps minimise the interest charge even where a penalty has already been issued.

Time to pay arrangements

If you cannot pay in full by the due date, HMRC may agree a Time to Pay arrangement allowing payment in instalments. Interest continues to accrue during the arrangement at 8.5%, but the arrangement prevents enforcement action. Contacting HMRC before the deadline — or as soon as possible after — gives the best chance of agreeing a realistic plan.

Reducing exposure

• File returns on time to understand the liability early.

• Set aside tax in a separate bank account as profits arise.

• Make payments on account where required to spread the annual bill.

• Contact HMRC proactively if cash-flow difficulties arise.

• Use self-assessment budgeting tools if your accountant provides them.

If you have outstanding HMRC liabilities or need help managing a Time to Pay arrangement, contact Countify's Glasgow tax team for a free initial consultation.