REFERENCE · INTEREST RATES
HMRC and Bank of England rates, now and in pounds.
Current rates, what the formula is, when they change, and what they mean for a real bill rather than an academic one.
Current rates
HMRC late payment
7.75%
Base rate + 4 percentage points
HMRC repayment
2.75%
Base rate − 1, floor 0.5%
Bank of England base
3.75%
Bank Rate, set by the MPC
The formula
HMRC's late-payment interest is base rate + 4.
The 4-point spread above base is set in legislation and applies to most direct taxes. Corporation Tax, Income Tax, Self Assessment, VAT, and PAYE. The rate updates within 4 weeks of any change to the Bank of England base rate.
Repayment interest (what HMRC pays you on overpayments and refunded credits) is base rate minus 1, with a floor of 0.5%. The asymmetry is real: HMRC charges 5 percentage points more on what you owe than it pays on what it owes you.
Interest accrues daily on a 365-day year basis (366 in leap years). It runs from the day after the due date until the day of payment, with no compounding within the year.
In pounds
What 7.75% actually costs on a real bill.
| Bill size | Daily interest | 30 days late | 90 days late | 180 days late |
|---|---|---|---|---|
| £10,000 | £2.12 | £64 | £191 | £382 |
| £25,000 | £5.31 | £159 | £478 | £955 |
| £50,000 | £10.62 | £318 | £955 | £1911 |
| £100,000 | £21.23 | £637 | £1911 | £3822 |
| £250,000 | £53.08 | £1592 | £4777 | £9555 |
Interest only. Excludes day-15 and day-30 percentage penalties on VAT, and excludes the daily annualised penalty that runs from day 31. See the penalty regime page.
When rates change
MPC meets eight times a year and HMRC follows within four weeks.
The Bank of England's Monetary Policy Committee meets roughly every six weeks. When base rate moves, HMRC's late-payment and repayment rates follow with a publication lag of around 4 weeks. There's a statutory consultation requirement that delays the new rate.
For a bill that's accruing interest across a rate change, both rates apply: the old rate up to the day before the change date, the new rate from the change date onward. HMRC's online interest calculator handles this if you enter dates spanning a transition.
HMRC's interest rate changes are announced in the regular HMRC interest rate publications. We update this page when they shift.
Common questions
- Is HMRC interest tax deductible?
- No. Interest charged by HMRC on late-paid tax is specifically disallowed for Corporation Tax purposes. This is a hidden cost . A £1,000 interest charge actually costs you the full £1,000, not £750.
- Does interest still run if I'm on a Time to Pay arrangement?
- Yes. Interest accrues on the unpaid balance throughout the TTP period. The arrangement removes the late-payment penalties (if you stick to it) but doesn't pause interest. This is one reason shorter arrangements often work out cheaper than longer ones.
- Can I appeal HMRC interest?
- Generally no. Interest is treated as commercial restitution rather than a penalty, so the normal appeal grounds (reasonable excuse, special reduction) don't apply. The exceptions are narrow: HMRC error, official delay in raising an assessment, or interest charged for a period after payment was actually made.
- How does this compare to commercial finance?
- 7.75% per year on the unpaid balance is less than most commercial loan rates on a headline basis, but excludes the percentage penalties. A typical tax-bill loan at 1.3% per month over 6 months works out around 16% APR. But it stops the penalty regime escalating, the interest stops accruing on HMRC, and the cost is tax-deductible.
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