Corporation Tax Interest: Late Payment Rates, Repayment Interest & How to Avoid Charges
HMRC charges interest on every day your corporation tax payment is late. Understanding how it works helps you avoid unnecessary costs — and knowing about repayment interest means you can also benefit when HMRC owes you.
Current Interest Rates
| Type | Rate | Basis |
|---|---|---|
| Late payment interest | 7.75% | Bank of England base rate + 4% |
| Repayment interest | 2.75% | Bank of England base rate - 1% (minimum 0.5%) |
These rates change when the Bank of England base rate changes. The rates above took effect on 9 January 2026. Note that the late payment margin increased from base rate + 2.5% to base rate + 4% on 6 April 2025.
The asymmetry
Notice the gap: HMRC charges you 7.75% when you're late, but only pays you 2.75% when they owe you. That's a five percentage point spread. This asymmetry means it's always better to overpay slightly than to underpay.
How Late Payment Interest Works
When does interest start?
Interest starts from the day after the payment deadline. For most companies, that's 9 months and 1 day after the end of the accounting period.
Example:
- Accounting period ends: 31 March 2025
- Payment due: 1 January 2026
- Interest starts: 2 January 2026
How is it calculated?
Interest accrues daily on the outstanding balance, on a simple (not compound) basis:
Formula: Outstanding tax × annual rate × (number of days late ÷ 365)
Daily rate = 7.75% ÷ 365 = 0.02123% per day
Example (assuming a 7.75% rate throughout):
- Corporation tax due: £20,000
- Payment date: 1 January 2026
- Actual payment: 1 April 2026 (90 days late)
- Interest: £20,000 × 7.75% × (90 ÷ 365) = £382.19
Interest on underpayments
If you paid some but not all of your corporation tax on time, interest only accrues on the unpaid portion.
Example:
- Tax due: £20,000
- Paid £15,000 on time
- Remaining £5,000 paid 60 days late
- Interest: £5,000 × 7.75% × (60 ÷ 365) = £63.70
Repayment Interest: When HMRC Owes You
If HMRC owes your company money — perhaps you overpaid corporation tax, or you've carried back a loss — HMRC pays repayment interest.
When does repayment interest start?
Generally from the later of:
- The date you paid the tax being refunded
- The normal payment due date for the period
- 9 months and 1 day after the end of the accounting period
When does it stop?
The day HMRC issues the repayment.
The rate
Currently 2.75% — significantly less than the late payment rate. Don't rely on HMRC as a savings account.
Example:
- You overpaid £10,000 on 1 January 2026
- HMRC refunds it on 1 May 2026 (120 days later)
- Repayment interest: £10,000 × 2.75% × (120 ÷ 365) = £90.41
Interest vs Penalties: What's the Difference?
Interest and penalties are separate charges:
| Interest | Penalties | |
|---|---|---|
| For | Late payment of tax | Late filing of the return |
| Rate | Variable (currently 7.75%) | Fixed amounts or percentages |
| Can be appealed? | No (it's automatic) | Yes (reasonable excuse) |
| Starts | Day after due date | Filing deadline |
Late filing penalties (for reference)
The fixed penalties doubled for returns with filing dates on or after 1 April 2026:
| Filing date before 1 April 2026 | Filing date on/after 1 April 2026 | |
|---|---|---|
| 1 day late | £100 | £200 |
| 3 months late | +£100 | +£200 |
| 3rd consecutive late return | £500 + £500 instead | £1,000 + £1,000 instead |
On top of the fixed penalties, there are tax-geared penalties:
- 6 months late: 10% of the unpaid tax (HMRC estimates your bill)
- 12 months late: a further 10% of the unpaid tax
There are no fixed minimums on the tax-geared penalties — if no tax is unpaid, they're nil. All of these are on top of any interest on late payment.
Quarterly Instalment Payments (QIPs)
Large companies (profits over £1.5 million) must pay corporation tax in quarterly instalments rather than 9 months after the year-end.
QIP dates
- 6 months and 13 days from the start of the period
- 9 months and 13 days from the start
- 14 days after the period end
- 3 months and 14 days after the period end
Interest on QIPs
If you underpay a quarterly instalment, interest runs from the QIP due date — not the normal 9-month deadline. This means large companies can face interest charges much earlier.
When QIPs apply
- Company profits exceed £1.5 million (the threshold is divided by one plus the number of associated companies)
- Companies are generally exempt in the first period they become large, provided profits don't exceed £10 million
- The threshold is proportioned for short accounting periods
Strategies to Minimise Interest Charges
1. Pay on time
Obvious, but the most effective. Set a calendar reminder for 9 months after your year-end.
2. File your CT600 early
The earlier you file, the earlier you know your exact tax bill. File with Taxpipe as soon as your accounts are ready — don't wait until near the deadline.
3. Pay on account
If your final tax bill isn't ready, pay an estimated amount on time. You can claim back any overpayment (with repayment interest). This prevents late payment interest on the portion you did pay.
4. Use HMRC's online payment
Same-day payments via:
- Faster Payments (online banking) — same or next day
- CHAPS — same day (your bank may charge a fee)
- Bacs — 3 working days (plan ahead)
Avoid: Cheque by post (5+ working days, risks missing the deadline).
5. Budget quarterly
Set aside 25% of profits each quarter. When the tax bill arrives, the cash is ready.
6. Consider overpaying slightly
If you're unsure of the exact amount, overpay slightly. You'll earn repayment interest at 2.75% on the excess — better than paying 7.75% late payment interest on a shortfall.
How Interest Appears on Your HMRC Account
Interest charges appear in your HMRC business tax account as separate line items:
- Late payment interest: debited to your account
- Repayment interest: credited to your account
HMRC calculates interest automatically — you don't need to compute it on your CT600.
Is interest tax-deductible?
- Late payment interest paid to HMRC: Deductible for corporation tax — it's a non-trading loan relationship debit (CTA 2009 s.482), so it reduces your taxable profits
- Repayment interest received from HMRC: Taxable as a non-trading loan relationship credit — it goes in box 170 of your CT600 alongside bank interest
The deduction softens the blow a little, but at 7.75% the interest is still far more expensive than paying on time.
Interest and Time to Pay Arrangements
If you've agreed a Time to Pay (TTP) arrangement with HMRC:
- Interest continues to accrue on the unpaid balance
- The interest rate doesn't change (still 7.75%)
- But HMRC won't take enforcement action (such as debt collection) while you keep to the agreed schedule
The TTP arrangement doesn't reduce your interest — it just gives you more time to pay while avoiding enforcement action.
Historical Interest Rates
Interest rates have increased significantly in recent years — and the late payment margin jumped from base rate + 2.5% to base rate + 4% on 6 April 2025:
| Effective from | Late Payment Rate | Repayment Rate |
|---|---|---|
| 7 January 2022 | 2.75% | 0.50% |
| 26 November 2024 | 7.25% | 3.75% |
| 25 February 2025 | 7.00% | 3.50% |
| 6 April 2025 (margin change) | 8.50% | 3.50% |
| 28 May 2025 | 8.25% | 3.25% |
| 27 August 2025 | 8.00% | 3.00% |
| 9 January 2026 | 7.75% | 2.75% |
The current rate environment makes late payment much more expensive than it was just a few years ago.
Frequently Asked Questions
Can I claim interest charges as a business expense?
Yes. Interest paid to HMRC on late corporation tax is deductible — it's treated as a non-trading loan relationship debit, so it reduces your taxable profits. The flip side: repayment interest HMRC pays you is taxable.
What if I disagree with the interest calculation?
You can't appeal interest itself, but you can ask HMRC to check their calculation. If the underlying tax amount changes (e.g., after an amendment), the interest is recalculated.
Does interest apply to nil returns?
No. If your CT600 shows zero tax due, there's no amount to charge interest on. However, late filing penalties still apply if you file the nil return late — £200 for 1 day late and a further £200 at 3 months for filing dates on or after 1 April 2026.
What if I pay early?
No interest is charged if you pay before the due date. In fact, for quarterly instalment payers, paying early can earn repayment interest on the overpayment.
How do I check my interest charges?
Log into your HMRC business tax account. Your corporation tax statement shows all charges, payments, and interest.
Avoid interest charges — file your CT600 early with Taxpipe and know your exact tax bill. Just £59 per filing.