How much interest does HMRC charge on late tax?

HMRC charges interest on tax paid late, calculated from the date the tax was originally due, not from when an enquiry uncovered the underpayment.

The rate isn't a fixed percentage set once and forgotten. It's linked to the Bank of England base rate and moves whenever that rate changes, so the interest you're charged today may differ from the rate that applied when the tax first fell due.

This interest is separate from any penalty. Even where no penalty applies, because you took reasonable care, interest is still due on tax paid after its due date.

The framework for HMRC interest is set out in tax legislation and HMRC's published rate notices, with the rate itself calculated by formula rather than fixed by Parliament each year.

Because the calculation runs from the original due date, a tax year that's several years old when an enquiry concludes can attract a substantial amount of accrued interest, even where the tax itself wasn't large.

HMRC also pays interest the other way, known as repayment interest, when it owes you money, though that rate is set differently and is typically lower than the late payment rate.

If an enquiry into an earlier accounting period or tax year finds underpaid Corporation Tax or Self Assessment tax, interest has been accruing since the original due date for that year, not since the enquiry began.

This can mean a settlement figure includes several years of accumulated interest on top of the tax and penalty, which sometimes surprises directors who expected the interest clock to start only when HMRC opened its check.

Understanding this in advance helps you budget realistically for a settlement, rather than being caught out by the interest component once the figures are finalised.

Because interest compounds over the years a liability remains unpaid, older enquiries, especially those involving deliberate behaviour with its longer assessment window, can carry a meaningful interest charge alongside the headline tax and penalty.

Settling promptly once the tax figure is agreed stops further interest accruing, so there's a direct financial benefit to resolving matters quickly rather than delaying payment while you consider your options.

Growth plan clients have free tax investigation insurance included, which helps cover the professional costs of getting the underlying tax figure right quickly — see /fees.

Don't assume the interest rate today is the rate that applied throughout the whole period. HMRC recalculates using the rate in force for each period the tax remained unpaid.

Don't delay payment once a figure is agreed, hoping to negotiate further; interest keeps running on the outstanding balance regardless of ongoing discussions.

Don't overlook that interest applies even to careless errors with no penalty. Reasonable care avoids the penalty, not the interest.