Last updated: 16 October 2026
How much does HMRC collect in interest?
A Freedom of Information request revealed that HMRC collected more than £400 million purely from interest charges on late tax in the 2024 calendar year. The figure has grown as interest rates rose and as HMRC increased the late payment rate. From 6 April 2025, late payment interest moved from base rate plus 2.5% to base rate plus 4%.
Current HMRC interest rates
| Rate | Level from 9 January 2026 | How it is set |
| Late payment interest | 7.75% | Bank of England base rate (3.75%) plus 4% |
| Repayment interest | 2.75% | Base rate minus 1%, minimum 0.5% |
The rates change automatically when the Bank of England changes the base rate. HMRC’s late payment rate now costs more than many bank loans.
Which taxes does interest apply to?
Interest applies to almost all late payments: Self Assessment balancing payments and payments on account, corporation tax, PAYE and National Insurance, VAT, capital gains tax and inheritance tax. It runs from the day after the due date until the day the tax is paid, including any time under a Time to Pay arrangement.
Worked example
Sam owes £8,000 of Self Assessment tax due on 31 January 2027. He pays on 30 April 2027, 89 days late.
- Interest: £8,000 x 7.75% x 89/365 = £151
- He also gets a 5% late payment penalty (£400) because the tax is more than 30 days late.
- Total extra cost: about £551.
Interest is not a penalty
Interest compensates HMRC for the delay. It is charged even if you have a reasonable excuse, and it cannot be appealed except on the calculation. Penalties are separate and can be cancelled if you have a reasonable excuse.
Is interest tax deductible?
For companies, interest on late tax is deductible as a loan relationship debit. For individuals, interest on late income tax or CGT is not deductible.
How to keep interest down
- Pay what you can by the deadline, even if you cannot pay in full. Interest only runs on the unpaid amount.
2. Set money aside monthly in a separate savings account.
3. Claim to reduce payments on account if your income has fallen, but only if you are confident.
4. Use Time to Pay if you cannot pay. It stops penalties growing but interest still runs.
5. Consider borrowing at a lower rate to clear an HMRC debt.
Payments on account and interest
Interest on a late first payment on account runs from 31 January, and on the second from 31 July. If you reduce your payments on account and your final bill turns out higher, interest is charged on the shortfall from the original due dates, so only reduce them when you are sure.
Frequently asked questions
Does HMRC pay interest if I overpay?
Yes, at the repayment rate of 2.75% from the date of overpayment.
Is interest charged on penalties?
Yes, if penalties are paid late.
Can I ask HMRC to waive interest?
Only if the delay was caused by HMRC, which is rare.
Does the rate change if the base rate changes?
Yes, usually about two weeks after a Bank of England decision.
Related: late payment interest and penalties, HMRC interest rates and the base rate and Time to Pay.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with tax payments and HMRC debts. See our small business accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 16 October 2026. It is not personal advice, so speak to an accountant about your own situation.
