HMRC late payment interest is 7.75% and repayment interest is 2.75%, both since 9 January 2026. The gap between them is deliberate and it is wide: you pay base rate plus four points, and you receive base rate minus one. Interest is not a penalty, it runs automatically, and it is not negotiable.
The current rates
With the Bank of England Bank Rate held at 3.75% on 17 September 2026, the rates in force are:
- Late payment interest — 7.75%, calculated as base rate plus 4%, a formula that has applied since 6 April 2025;
- Repayment interest — 2.75%, calculated as base rate minus 1%, with a lower limit of 0.5%;
- Corporation tax instalments, underpaid — 6.25%, in force since 29 December 2025;
- Corporation tax instalments, overpaid — 3.50%, also since 29 December 2025.
Note the quarterly instalment rates sit inside the main ones on both sides. That is intentional: instalments are estimates paid before the liability is known, so the regime is gentler in both directions until the normal due date passes, after which the standard 7.75% and 2.75% apply.
The repayment floor is worth knowing in a falling-rate environment. Repayment interest will be paid at 0.5% until the Bank of England raises the base rate above 1.5%, so there is a level below which overpaying HMRC earns you almost nothing.
What the 2025 change did
The late payment formula moved from base plus 2.5% to base plus 4% with effect from 6 April 2025. On a £100,000 liability outstanding for a year, that is £1,500 a year of additional cost for exactly the same lateness.
The commercial consequence is the one to absorb. At 7.75%, HMRC is no longer a cheap source of working capital, and for a business with committed facilities at a lower rate, deliberately running a tax balance is now usually the more expensive option rather than the cheaper one.
Interest is not the penalty
The two are separate regimes and they stack. Under the VAT late payment rules, the position is:
- Days 1 to 15. No first late payment penalty is charged;
- Days 16 to 30. The first late payment penalty is calculated at 3% on the VAT owed at day 15;
- Day 31 onwards. A further 3% is calculated on the amount owed at day 30, and a second late payment penalty accrues at a daily rate equivalent to 10% per year on the outstanding balance.
Those values were increased on 10 July 2025. The regime applies to VAT accounting periods starting on or after 1 January 2023.
Late submission is a third, separate regime running on points. Each late return earns a point, and on reaching the threshold you get a £200 penalty plus a further £200 for each subsequent late submission while at the threshold. The thresholds are 2 points for annual filers, 4 for quarterly and 5 for monthly.
So a quarterly VAT registration that files late and pays late can be carrying points, a £200 penalty, a 3% penalty at day 15, another 3% at day 30, a 10% annualised penalty thereafter and 7.75% interest, all at once. Our VAT compliance checklist covers the filing discipline that prevents this.
Practical consequences
File on time even if you cannot pay. The submission penalty and the payment penalty are independent. Filing late when you could have filed costs points for no benefit, and it removes the option of a time to pay arrangement negotiated from a position of compliance.
Day 15 is the real deadline. Not the due date. If cash is tight, clearing the liability inside 15 days avoids the first penalty entirely, and interest for a fortnight at 7.75% on most balances is trivial against 3%.
Do not overpay to be safe. Repayment interest at 2.75% is well below what the money earns on deposit, and the instalment rate of 3.50% is not much better. Paying the right amount on the right day beats paying early.
Check the instalment threshold before assuming it. Companies moving into quarterly instalment payments for the first time often miss the first instalment because the obligation arises during the period rather than after it, and interest runs from that date.
Reconcile the interest HMRC charges. Interest is computed automatically on the account as it stands, and a misallocated payment or an unprocessed amendment produces interest on a liability you have already settled. It is recoverable, but only if someone looks.
When rates move
Because both formulas track the Bank Rate, every Monetary Policy Committee decision changes the cost of being late, with a short lag before HMRC's rates follow. Any model that hard-codes an interest rate for provisioning will drift. Build it from the base rate plus the statutory margin instead.
Acumon helps businesses stay current with HMRC through tax compliance, VAT returns and Making Tax Digital work, with HMRC enquiry support where a balance is disputed. If you are carrying a tax liability as working capital, reprice it at 7.75% and the decision usually makes itself.