Corporation Tax Interest Charges on Late Payments

Introduction

If your company pays its Corporation Tax late or doesn't pay enough, HMRC will automatically charge interest on the outstanding amount. This interest accrues daily from the day after your payment deadline until you settle the bill. Understanding how these charges work can help you avoid unnecessary costs and plan your cash flow more effectively.

When does HMRC charge interest?

HMRC charges interest automatically if you:

• Pay your Corporation Tax late
• Don't pay enough
• Don't pay at all

The interest starts accruing from the day after your Corporation Tax payment deadline. For most companies, this deadline is 9 months and one day after the end of your accounting period.

For example, if your accounting period ended on 31 December 2024, your Corporation Tax payment would be due by 1 October 2025. If you don't pay until 30 November 2025, HMRC would charge interest for the period from 2 October to 30 November 2025.

Interest is charged on a daily basis until you pay the full amount you owe. Importantly, HMRC does not charge interest on interest itself – the interest only applies to the original tax debt.

How interest charges work

Once you miss your payment deadline, the interest charges are automatic. You don't receive a warning or separate invoice – the interest simply accrues on your account and will be included in any statements or demands HMRC sends you.

The interest is known officially as "late payment interest" and continues to build up every day until you clear the outstanding balance.

Interest on instalment payments

Large companies that pay Corporation Tax in quarterly instalments face slightly different rules. If you're required to pay in instalments and miss any payment, HMRC charges interest on the late payment.

However, the way this interest is calculated is more complex:

• Lower rate period: From each instalment due date up to the normal payment deadline (9 months and one day after the end of your accounting period), HMRC charges interest at a lower rate called "debit interest"
• Higher rate period: After the normal payment deadline passes, interest is charged at a higher rate

The interest on instalment payments isn't actually calculated until after the normal payment deadline has passed and either you've submitted your Company Tax Return or HMRC has determined your tax liability (if you didn't submit your return on time).

You can find the current and historical rates for underpaid quarterly instalments on the HMRC rates and allowances pages.

The tax treatment of interest charges

There is one piece of good news about Corporation Tax late payment interest: it's tax deductible.

This means you can include the interest you pay to HMRC as an allowable expense when calculating your company's taxable profit. The deduction applies in the accounting period (or periods) when the interest was actually incurred.

For instance, using the earlier example, if your accounting period ended on 31 December 2009 and you paid late payment interest during the period ending 31 December 2010, you could deduct that interest as an expense when calculating your taxable profit for the 2010 accounting period.

While this doesn't eliminate the cost entirely, it does reduce the net impact on your business.

How to minimise interest charges

The most straightforward way to avoid interest charges is to pay your Corporation Tax on time and in full. Here are some practical steps:

• Know your deadline: Mark your calendar for 9 months and one day after your accounting period ends
• Plan your cash flow: Set aside funds throughout the year so you're not caught short when the payment is due
• Pay early if possible: There's no penalty for early payment, and it removes the risk of missing the deadline
• Set up reminders: Use accounting software or calendar alerts to warn you several weeks before the deadline
• If you can't pay in full: Contact HMRC as soon as possible to discuss payment arrangements – interest will still apply, but early communication can prevent additional penalties

What if you disagree with an interest charge?

You cannot formally appeal against a Corporation Tax interest charge. However, if you believe HMRC has made a mistake in calculating the interest, you can make an "interest objection."

To do this, write to Corporation Tax Services explaining:

• What you disagree with
• Your reasons for disagreeing
• As much background information as possible about your company's circumstances

Corporation Tax Services will forward your objection to a specialist team in the HMRC Accounts Office who will review your case. Provide detailed information and any supporting documents to help them consider your situation fully.

Key takeaways

Late payment interest on Corporation Tax is automatic, daily, and continues until you pay what you owe. While the interest is tax deductible, it's far better to avoid these charges altogether by paying on time. If cash flow is tight, plan ahead and speak to HMRC early – they may be able to help you arrange a payment plan, though interest will still apply to any outstanding balance.

Sources

• Corporation Tax: interest charges
• Rates and allowances: HMRC interest rates
• Corporation Tax: paying in instalments
• Contact HMRC: Corporation Tax enquiries

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.