Definition
Late payment interest is the interest HM Revenue and Customs (HMRC) charges when tax is paid after its due date, including Corporation Tax, VAT and Self Assessment. It runs from the day after the due date until the day the tax is paid, at the Bank of England base rate plus 4% (the basis since 6 April 2025). It is separate from any penalty and cannot normally be appealed.
How it is worked out
HMRC charges simple interest on the unpaid amount for each day it is late. At an illustrative rate of 8%, a £10,000 Corporation Tax bill paid 30 days late costs £65.75 (£10,000 × 8% × 30 ÷ 365). The rate moves whenever the base rate changes.
Interest vs penalties
- Penalties punish missed deadlines; interest reflects how long money is outstanding, so both can apply.
- For VAT, late payment penalties start once VAT is more than 15 days overdue.
- Interest keeps running during a Time to Pay arrangement and is also charged on overdue penalties.
- Interest a company pays on late Corporation Tax is deductible for Corporation Tax.
Paying on time avoids the charge; deadlines and references are in SmartFiling’s walkthrough on paying Corporation Tax on time.
Related questions
- What can I do if my company can't pay its Corporation Tax bill? Contact HMRC before the due date to ask for a Time to Pay arrangement; interest still applies.
- What are payments on account? Advance Self Assessment payments due on 31 January and 31 July; they attract interest if paid late.
- What happens if I file my CT600 late? For returns due on or after 1 April 2026, a £200 penalty applies from day one, separate from interest.
Related terms
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Time to Pay arrangement
A Time to Pay arrangement is a payment plan agreed with HM Revenue and Customs (HMRC) that lets a business or individual pay an overdue tax bill…
Read definition -
Corporation Tax
Corporation Tax is the tax UK limited companies pay to HM Revenue and Customs (HMRC) on their taxable profits.
Read definition -
VAT penalty points
VAT penalty points are HMRC's points-based system for late VAT returns, used for accounting periods starting on or after 1 January 2023.
Read definition -
Payments on account
Payments on account are two advance payments towards your next Self Assessment tax bill, due by 31 January and 31 July.
Read definition
