Last updated: 16 October 2026
Is interest on late corporation tax tax allowable?
Yes. Interest a company pays to HMRC on late-paid corporation tax is deductible for corporation tax purposes. It is treated as a non-trading loan relationship debit and is allowed in the accounting period in which it accrues. In the same way, interest HMRC pays the company on overpaid or early-paid tax (repayment interest) is taxable as non-trading loan relationship income.
Interest is not the same as penalties
Penalties are never tax deductible. A late filing penalty, a late payment penalty or a penalty for an inaccurate return must be added back in the tax computation. Only the interest element gets relief.
Current HMRC interest rates
| Type | Rate from 9 January 2026 |
| Late payment interest (main rate) | 7.75% (Bank of England base rate plus 4%) |
| Repayment interest (main rate) | 2.75% (base rate minus 1%) |
Companies paying by quarterly instalments have special lower rates on instalments until nine months and one day after the year end, after which the main rates apply.
When is corporation tax due?
- Most small and medium companies pay nine months and one day after the end of the accounting period.
- Large companies, with profits over £1.5 million, pay in quarterly instalments.
- Very large companies, with profits over £20 million, pay earlier instalments.
Worked example
A company’s corporation tax of £40,000 for the year to 31 March 2026 was due on 1 January 2027. It pays on 1 April 2027, 90 days late.
- Interest: £40,000 x 7.75% x 90/365 = £764
- The £764 is a deductible non-trading debit in the company’s tax computation.
- At a 19% tax rate, this saves £145, so the net cost is about £619.
Individuals are treated differently
Interest an individual pays on late Self Assessment tax, or a sole trader pays on late income tax, is not deductible against their income. Repayment interest paid to individuals is not taxable.
Avoiding interest in the first place
Set aside corporation tax every month, pay on account if you expect a large bill, and use HMRC’s Time to Pay service if you cannot pay. Time to Pay stops collection action but interest still runs.
Interest on other company debts to HMRC
The same principle applies to interest on late-paid VAT, PAYE and National Insurance: for a company, the interest is a loan relationship debit and is deductible, while any penalty is not. Keep HMRC statements showing the interest separately so your accountant can treat each item correctly in the tax computation. If interest relates to a period that is later amended, the deduction follows the period in which the interest accrued.
Frequently asked questions
Is interest on late VAT or PAYE deductible?
Yes, for companies interest on late VAT and PAYE is also generally deductible as a loan relationship debit. Penalties are not.
Where does the interest go in the accounts?
Usually in interest payable, then treated as a non-trading debit in the tax computation.
Is repayment interest taxable if the refund came late?
Yes, for companies it is taxable income.
Can I ask HMRC to cancel interest?
Interest is not a penalty and is rarely cancelled, except where HMRC caused the delay.
Related: late payment interest and penalties, company tax refund timing and corporation tax rates.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with corporation tax payments and interest. See our limited company 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.
