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 | 7.25% | Bank of England base rate + 2.5% |
| Repayment interest | 3.75% | Bank of England base rate - 1% (minimum 0.5%) |
These rates change when the Bank of England base rate changes. The rates above are as of early 2026.
The asymmetry
Notice the gap: HMRC charges you 7.25% when you're late, but only pays you 3.75% when they owe you. 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 compounds daily on the outstanding balance:
Formula: Outstanding tax × (daily rate) × number of days late
Daily rate = 7.25% ÷ 365 = 0.01986% per day
Example:
- Corporation tax due: £20,000
- Payment date: 1 January 2026
- Actual payment: 1 April 2026 (90 days late)
- Interest: £20,000 × 7.25% × (90 ÷ 365) = £357.53
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 × 7.25% × (60 ÷ 365) = £59.59
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 3.75% — 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 × 3.75% × (120 ÷ 365) = £123.29
Interest vs Penalties: What's the Difference?
Interest and penalties are separate charges:
| Interest | Penalties | |
|---|---|---|
| For | Late payment of tax | Late filing OR late payment |
| Rate | Variable (currently 7.25%) | Fixed amounts or percentages |
| Can be appealed? | No (it's automatic) | Yes (reasonable excuse) |
| Starts | Day after due date | Filing/payment deadline |
Late filing penalties (for reference)
- 1 day late: £100
- 3 months late: +£100
- 6 months late: +10% of unpaid tax (min £500)
- 12 months late: +10% of unpaid tax (min £1,000)
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 (divided by the number of associated companies)
- New companies are exempt in their first year (unless profits 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 3.75% on the excess — better than paying 7.25% 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 report it on your CT600.
Is interest tax-deductible?
- Late payment interest paid to HMRC: Not deductible for corporation tax
- Repayment interest received from HMRC: Taxable as income
Yes, this means HMRC charges you non-deductible interest but taxes you on interest they pay you. Another reason to avoid late payment.
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 7.25%)
- But late payment penalties may be suspended
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:
| Period | Late Payment Rate | Repayment Rate |
|---|---|---|
| 2021 | 2.60% | 0.50% |
| 2022 | 2.75%-4.25% | 0.50%-1.00% |
| 2023 | 6.50%-7.75% | 3.00%-4.25% |
| 2024 | 7.75% | 4.25% |
| 2025 | 7.25% | 3.75% |
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?
No. Interest paid to HMRC on late corporation tax is not a deductible expense. It cannot reduce your taxable profit.
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.
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.