How HMRC works out interest
HMRC charges simple interest, day by day, from the day after the deadline until the day you pay. There is no compounding.
Interest = amount unpaid × annual rate ÷ 365 × days late
£10,000 paid 60 days late at 7.75% = £10,000 × 7.75% ÷ 365 × 60.
When the rate changes part way through, each stretch of days is charged at the rate in force at the time. That is why the calculator shows one line per rate.
Current rates
| Rate | Formula | Today |
|---|---|---|
| Late payment interest | Bank Rate + 4% | 7.75% |
| Repayment interest | Bank Rate − 1%, minimum 0.5% | 2.75% |
| Bank of England Bank Rate | set by the Monetary Policy Committee | 3.75% |
The next Bank Rate decision is on 5 November 2026. When Bank Rate moves, HMRC changes its rates a few weeks later and we update this page the day HMRC publishes.
Rate history
| From | Late payment interest | Repayment interest |
|---|---|---|
| 9 January 2026 | 7.75% | 2.75% |
| 27 August 2025 | 8% | 3% |
| 28 May 2025 | 8.25% | 3.25% |
| 6 April 2025 | 8.5% | 3.5% |
| 25 February 2025 | 7% | 3.5% |
| 25 November 2024 | 7.25% | 3.75% |
| 20 August 2024 | 7.5% | 4% |
| 22 August 2023 | 7.75% | 4.25% |
The +4% margin started on 6 April 2025. Before that late payment interest was Bank Rate + 2.5%.
Interest is not a penalty
Interest is charged on top of any late payment penalty, and you cannot appeal it on the grounds of a reasonable excuse. It is HMRC's compensation for having the money late, the same way repayment interest compensates you when HMRC repays VAT late.
One useful difference: late payment interest on VAT is allowed as a deduction for corporation tax and income tax. Penalties are not.
Questions
When does interest start on late VAT?
The day after the payment deadline, even if you pay within the 15 days before penalties start.
Does a Time to Pay arrangement stop interest?
No. A Time to Pay arrangement can stop penalties growing, but interest keeps running on whatever is unpaid until it is cleared.
Does HMRC pay me interest?
Yes, if HMRC repays VAT late. Repayment interest is 2.75% today. It runs from the day after the return was due, or the day HMRC received it if that was later, until HMRC repays you. Choose "Repayment interest" in the calculator to work it out.