HMRC Interest Charges Explained | How to Avoid Them

When Does HMRC Charge Interest?

Interest is charged on any tax or penalty that is paid late. HMRC is legally required to charge this interest from the day the tax or penalty is due to the date HMRC receives full payment.

• Due Date: For Self Assessment, the payment deadline is 31 January. Use our UK Self Assessment Deadline Checker.
• Start Date: Interest starts accruing from 1 February.
• End Date: The day HMRC receives your payment in full.

What Is the Current Interest Rate? (2026)

The interest rate HMRC charges on late payments is set by HMRC and is linked to the Bank of England base rate. The rate is reviewed and can change regularly.

As of January 2026, the rates are:

• Late Payment Interest Rate: 7.75% (Base Rate + 4%)
• Repayment Interest Rate: 2.75% (Base Rate – 1%, with a minimum floor of 0.5%)

These rates were revised following the Bank of England’s base rate cut to 3.75% in December 2025. HMRC sets the late payment rate to encourage prompt payment and ensure fairness for taxpayers who pay on time, while the repayment rate compensates taxpayers for the loss of use of their money when tax has been overpaid.

How Is Interest Calculated?

Interest is calculated on a daily basis from the due date until the date you pay. This means the longer you delay, the more interest you will accrue. For example, if you owe £1,000 and the annual interest rate is 7.75%, the daily interest is approximately £0.21. This might not sound like much, but it quickly adds up over many months.

Can I Object to an Interest Charge?

While you cannot appeal, you can object to an interest charge in very limited circumstances. An objection is only possible if HMRC has made an error or there has been an “unreasonable delay” on their part, which has directly caused or increased the interest charge.

The conditions for a successful objection are strict:

1. You relied on HMRC’s advice and, as a direct result, acted (or didn’t act).
2. Applying the correct legal position would be so unfair to you that it would be an abuse of power.
3. You are financially worse off than if HMRC had given you correct advice.

If you believe your case meets these criteria, your objection must be made to the Interest Review Unit, a specialist team in HMRC that reviews these cases fairly. Your caseworker (if you have one) or the phone helpline should be able to refer your objection.

The Difference Between Interest and Penalties

It’s important to understand that interest is different from a penalty:

• Interest: A compensation charge for late payment.
• Penalty: A fine for failing to meet a filing or payment obligation.

You will typically be charged both interest and penalties if you pay late. Read our guide on How to Avoid HMRC Penalties in UK for tips.

How to Avoid Interest Charges

The only sure way to avoid interest charges is to pay your tax bill in full by the due date. Here are some tips:

1. Plan Ahead: Work out your tax liability well in advance. Use our calculators: UK Income Tax Calculator, Rental Income Tax Calculator, Dividend Calculator, and Capital Gains Calculator.
2. Set Aside Money: Put money aside each month so you have the funds available.
3. Pay Early: If you can, pay your bill before the deadline.
4. Set Up a Direct Debit: This ensures your payment is made on time. See our HMRC Payment Methods guide.
5. Contact HMRC Early: If you are struggling to pay, contact HMRC immediately to try and arrange a ‘Time to Pay’ arrangement before the deadline. This can sometimes prevent or reduce interest and penalties.

Let Us Help You Manage Your Tax Bill

One of the best ways to avoid interest and penalties is to have a clear view of your tax liability well in advance. We help our clients calculate their tax bill throughout the year and plan for their payments. We can also help if you receive a letter about interest, as detailed in our HMRC Letters Explained guide.

This guide is intended for informational purposes and is based on UK tax regulations as of June 2026. Tax laws and government systems are subject to change. Always consult with a qualified professional regarding your specific financial situation. Right Tax Returns is an ACCA-registered firm.