How HMRC charges late payment interest
In the UK, HM Revenue and Customs (HMRC) charges interest on late tax payments under Sections 101 and 102 of the Finance Act 2009. Interest is calculated on a daily simple interest basis: the unpaid tax amount is multiplied by the annual interest rate and divided by 365 days.
The HMRC late payment interest rate is legally pegged to the Bank of England base rate plus 2.5 percentage points. When the Monetary Policy Committee adjusts the Bank of England base rate, HMRC late payment interest rates automatically change 14 days later.
Worked example of HMRC late payment interest
Suppose a taxpayer owes an overdue Self Assessment tax bill of £2,500.00 that is paid 60 days after the 31 January statutory deadline, under an annual late payment interest rate of 7.50%.
The daily interest charge is £0.51 per day (£2,500.00 multiplied by 7.50% divided by 365). Across 60 overdue days, the accumulated late payment interest is £30.82.
Because the payment is more than 30 days overdue, an initial 5% late payment penalty of £125.00 is added. The total amount payable to HMRC becomes £2,655.82, representing a combined interest and penalty surcharge of 6.23%.
HMRC late payment penalty timetable
In addition to daily interest, HMRC levies statutory penalties under Schedule 56 of the Finance Act 2009 if tax remains unpaid beyond key milestones. For Self Assessment income tax payments due on 31 January:
A 5% penalty of the unpaid tax is charged if the bill is not paid within 30 days of the due date (usually after 2 March). A second 5% penalty applies if tax remains unpaid after 6 months (31 July), and a third 5% penalty is charged after 12 months (the following 31 January), reaching up to 15% in total penalties.
To estimate your balancing payment and payments on account before the deadline, use our tax return calculator.
For commercial invoice and VAT liability calculations, visit our UK VAT calculator.
Time to Pay arrangements and interest
If you cannot pay your tax bill in full, you may be able to set up a 'Time to Pay' payment plan with HMRC to spread the cost over several months. You can often set up an arrangement online if you owe £30,000 or less on Self Assessment.
While an agreed Time to Pay plan protects you from late payment penalties, HMRC will still charge daily interest on the outstanding balance until every penny of the tax bill is paid.
Inputs for the HMRC interest calculator
Overdue tax bill amount
The unpaid UK tax bill amount owed to HMRC (such as Self Assessment, VAT, or Corporation Tax).
Days overdue
Number of days the tax payment is overdue past the statutory HMRC due date.
Annual late payment interest rate
Annual HMRC late payment interest rate percentage (statutory rate is Bank of England base rate plus 2.5%).
Late payment penalties
Whether to calculate statutory 5% late payment penalties in addition to daily interest.
CALCULATOR QUESTIONS
HMRC interest calculator questions
What is the current HMRC late payment interest rate?
The HMRC late payment interest rate is set at the Bank of England base rate plus 2.50%. For example, with a 5.00% base rate, the late payment interest rate is 7.50% per annum.
Does HMRC charge compound interest?
No. HMRC late payment interest is calculated on a simple daily interest basis (days overdue multiplied by daily interest rate). Interest is not compounded onto unpaid interest.
When does HMRC charge the 5% late payment penalty?
For Self Assessment tax, HMRC charges an initial 5% penalty if the tax remains unpaid 30 days after the due date. A second 5% penalty applies after 6 months, and a third 5% penalty applies after 12 months.
Do I pay interest if I set up a Time to Pay arrangement?
Yes. A Time to Pay arrangement stops HMRC from applying 5% late payment penalties, but statutory daily interest continues to accumulate on the outstanding balance until paid.