What paying HMRC late really costs, and how to avoid it
HMRC’s late payment interest is now the Bank of England base rate plus 4%. Add penalties, and tax is one of the most expensive debts a business can carry.
Until April 2025, HMRC charged interest at base rate plus 2.5%. It now charges base rate plus 4%, and pays only base rate minus 1% on money it owes you, with a floor of 0.5%. From 9 January 2026, that meant 7.75% on late tax and 2.75% on repayments.
Show the data
| On tax you pay late | 7.8% |
|---|---|
| On tax HMRC repays | 2.8% |
Interest is not a penalty: it simply runs from the day tax was due until it is paid. Penalties are separate. For VAT, and for income tax under Making Tax Digital, late payment penalties start at a percentage of the tax unpaid after 15 days, step up at 30 days, and then accrue daily.
If you cannot pay
Talk to HMRC before the deadline, not after. A Time to Pay arrangement spreads the bill into instalments you can afford. Interest still runs, but penalties are paused or avoided from the date you made contact, as long as you keep to the plan.
Making sure it does not happen
- Move a fixed share of every receipt into a tax account.
- Forecast VAT, PAYE and corporation tax in your cash flow, with dates.
- Use quarterly estimates from your software to set money aside for income tax.
This insight is general information, not advice for your circumstances. Talk to us before acting on it.