HMRC interest on late VAT stays at 7.75% after the Bank of England held Bank Rate at 3.75% on 17 September 2026. Repayment interest stays at 2.75%. Both rates have applied since 9 January 2026, and the next decision is on 5 November 2026.
What happened?
The Bank of England's Monetary Policy Committee (MPC) held Bank Rate at 3.75% on 17 September 2026. It also held on 18 June and 30 July. The last change was a cut from 4% to 3.75% on 18 December 2025. Because HMRC's rates follow Bank Rate, nothing changes for VAT.
- Bank Rate: set by the MPC, now 3.75%.
- HMRC late payment interest: Bank Rate plus 4%, now 7.75%.
- HMRC repayment interest: Bank Rate minus 1%, with a floor of 0.5%, now 2.75%.
What does late VAT cost in interest?
Late VAT costs 7.75% a year in interest, charged daily. It runs from the day after the payment deadline until the day you pay. On £10,000 paid 30 days late, that is £63.70. The sum is: amount owed × 7.75% ÷ 365 × days late.
30 days late£10,000 × 7.75% ÷ 365 × 30 = £63.70
60 days late£10,000 × 7.75% ÷ 365 × 60 = £127.40
90 days late£10,000 × 7.75% ÷ 365 × 90 = £191.10
That is interest only.
Late payment penalties are charged on top. You pay 3% of the unpaid VAT at day 15 and a further 3% of what is still unpaid at day 30. From day 31 a daily penalty runs at 10% a year. On £10,000 left unpaid past day 30, that is £600 in penalties before the daily charge starts.
Work out your own figures with our HMRC interest calculator and VAT penalty calculator.
Does Time to Pay stop interest?
No. A Time to Pay arrangement stops late payment penalties growing from the day you proposed it, as long as you keep to it. Interest keeps running at 7.75% on the unpaid balance until it is cleared. Only paying off the balance stops it.
A longer arrangement means more interest, so pay it off as fast as you reasonably can.
If you cannot pay in full, setting up Time to Pay early is still worth doing for the penalty saving.
What about repayment interest?
If HMRC owes you money and pays late, it pays repayment interest at 2.75%. That is Bank Rate minus 1%, with a floor of 0.5%. The floor only matters if Bank Rate falls below 1.5%, so at 3.75% it has no effect.
The gap between the two rates is 5 percentage points. Owing HMRC costs far more than HMRC owing you.
Who this affects
Any VAT-registered business that pays late, has a Time to Pay arrangement running, or is waiting on a delayed repayment. If none of those apply, there is nothing to do.
What to do now
- Pay on time if you can. Your deadline is normally 1 month and 7 days after the end of the VAT period.
- If you cannot pay, contact HMRC before day 15 to propose Time to Pay and stop penalties building.
- Budget for interest at 7.75% on any balance you carry, at least until the 5 November decision.
What has not changed
- The interest formula. Late payment interest is still Bank Rate plus 4%, as it has been since 6 April 2025.
- The rates. 7.75% and 2.75% have applied since 9 January 2026.
- Penalties. Still 3% at day 15, 3% at day 30 and 10% a year from day 31.
- Time to Pay. It still stops penalties growing, but not interest.
Source
See the Bank of England's Bank Rate page and HMRC's interest rates for late and early payments on gov.uk. Our VAT penalties guide covers the points system and late payment rules in full.
Questions
What is HMRC's late payment interest rate in September 2026?
7.75%. It is Bank Rate (3.75%) plus 4%, and has applied since 9 January 2026.
How much interest is £10,000 of VAT paid 30 days late?
£63.70: £10,000 × 7.75% ÷ 365 × 30. Penalties are on top.
Does Time to Pay stop interest?
No. It stops late payment penalties growing if you keep to it, but interest runs until the debt is paid.
When is the next Bank Rate decision?
The MPC's next decision is on 5 November 2026.
