HMRC raises late payment interest to 8%

Reacting to: HMRC interest rates update (gov.uk (HMRC), 6 November 2026) →

The Bank of England's Monetary Policy Committee raised the base rate from 3.75% to 4.00% on 5 November 2026, its first increase since August 2023, voting 8-1 on concerns that rising energy prices are feeding through into inflation. HMRC's interest rates move automatically off the back of that decision, under a fixed formula set in law, and it has now confirmed the new figures: late payment interest rises to 8.00% and repayment interest rises to 3.00%. The new rates take effect from 16 November 2026 for quarterly instalment payments and from 24 November 2026 for everything else, which includes VAT, PAYE, ordinary corporation tax and Income Tax.

What changed, and why it happens automatically

HMRC does not set these rates by discretion or announce a policy decision each time they move. Late payment interest and repayment interest are both fixed by formula under sections 101 to 103 of the Finance Act 2009: late payment interest is the Bank of England base rate plus 4 percentage points, and repayment interest is the base rate minus 1 percentage point, subject to a 0.5% minimum floor so it never falls to nothing even if the base rate itself is very low. Whenever the MPC changes the base rate, HMRC's rates change with it within days, as a mechanical consequence rather than a fresh decision. The 4-point late payment margin itself was last changed on 6 April 2025, when it was widened from 2.5% to 4% specifically to keep the cost of being late above what a business could borrow commercially, so this latest move is the formula doing exactly what it was built to do, not a new policy.

The two effective dates reflect a long-standing quirk in how HMRC phases rate changes rather than anything new about this rise. Quarterly instalment payments are the regime that applies only to the UK's largest companies, broadly those with profits over £1.5 million once shared between associated companies, and that group's rate always moves first. Every other taxpayer — which covers the overwhelming majority of VAT-registered limited companies, sole traders and employers — moves eight days later, on 24 November.

Why this reaches VAT specifically

VAT was brought into this same late payment and repayment interest regime for accounting periods starting on or after 1 January 2023, replacing the VAT-only penalty system that ran before then. Since that date there has been no separate "VAT interest rate" to track: whatever HMRC publishes as the general late payment and repayment interest rates is the figure that applies to a VAT account too. A VAT-registered limited company that pays its VAT return late from 24 November 2026 onward is charged interest at exactly 8%, the same rate that applies to a late corporation tax or PAYE bill, and a company owed a VAT repayment earns exactly 3%, the same as everywhere else in the system.

Worked example: a late VAT bill against a slow VAT refund

Take an illustrative case: a VAT-registered limited company with a quarterly VAT bill of £24,000, due on 7 December 2026. A cash flow gap means it is paid 40 days late, on 16 January 2027, by which point the 8% rate has fully applied throughout the delay. The interest cost is straightforward: £24,000 × 8% × (40 ÷ 365) = £210.41. That is roughly £5.25 a day, or around £37 a week, on top of the VAT itself — a real cost, but a modest one next to the penalty exposure that can follow if HMRC concludes the business simply ignored the deadline rather than fell genuinely short on cash.

Now put the same business on the other side of the ledger. Suppose it is also owed a £15,000 VAT repayment that HMRC takes 60 days to pay, 30 days beyond its usual target. Repayment interest on that delay is £15,000 × 3% × (60 ÷ 365) = £73.97. Set the two side by side: being late on a bill costs the company interest at nearly three times the rate it earns when HMRC is the one running late. That asymmetry is not an accident of this particular rate rise — it is built into the formula itself, and it means using a VAT bill as an informal source of short-term cash is consistently one of the more expensive ways to bridge a gap, not a neutral or cheap one.

What to do this week

Three checks are worth doing before the 24 November effective date, not after it:

Check the direct debit will clear comfortably. If your VAT, PAYE or corporation tax payment is collected by direct debit, confirm the account will hold enough on the collection date. A payment that bounces and is re-presented late now accrues interest at 8%, not the 7.75% it would have cost a fortnight ago.

Chase any repayment that is already overdue. If HMRC owes your business a VAT or corporation tax repayment that has run past its normal processing window, it is only earning 3%. Chasing it does not change the rate, but it does shorten how long the money sits earning less than it would cost you to borrow the same amount elsewhere.

Apply a simple decision rule to any bill you are tempted to delay. If a short-term facility — an overdraft, a business credit card, an invoice finance line — costs less than 8% a year, use it to pay HMRC on time rather than letting the bill run late. If nothing is available below 8%, contact HMRC before the due date and agree a Time to Pay arrangement; interest still accrues on an agreed plan, but engaging before the deadline avoids the separate late payment penalties that apply on top of interest when HMRC has had no contact at all. Our VAT returns service reconciles your VAT position to the bookkeeping well ahead of the deadline, so a cash flow gap shows up with enough notice to arrange finance or a Time to Pay plan before interest starts running, and our Business Pulse advisory service tracks cash flow against a plan through the quarter rather than leaving it to surface at the VAT deadline itself.

What is still uncertain

The rates, the formula and both effective dates are confirmed directly by HMRC's published update. What is not yet known is whether the base rate moves again: the MPC's next scheduled decision is 17 December 2026, and the Bank staff forecast referenced alongside this month's rise expects inflation to keep climbing into 2027, which is the kind of backdrop that has historically kept the MPC inclined to act rather than hold. If the base rate changes in December, HMRC's late payment and repayment rates will move again on the same short lag as this time, with no separate announcement beyond the Bank's own decision and HMRC's routine follow-up notice.

AJ

Andy Jackson

Straight Talk. Real Solutions. Better Business. I'm here to make your business more efficient and client-focused — no fluff, just honest advice and real results. I'm not here to waste your time with fancy buzzwords or unrealistic promises. I work with businesses that want straightforward, practical advice on how to improve. I'm passionate about creating real impact through digital transformation, improved processes, and a laser-focus on client experience. andyjackson.com

Business Pulse

Business Pulse is our advisory service for planning the year, tracking performance and making better decisions. Every month or quarter you see where the business stands against the plan, and you leave the review knowing what to do next.

From £375 + VAT a month, on top of your accounts fee.

About Business Pulse

Tax and rule changes by email

We email when a tax rule, rate or deadline changes, with who it affects and what it costs. Unsubscribe in one click.

Common questions

Does this change what I owe on a VAT bill I've already paid late?

No. HMRC calculates late payment interest day by day at whatever rate applied on each day the debt was outstanding, so a bill that was already paid before 24 November accrued interest at the old 7.75% rate for every day it was late, and nothing is recalculated retrospectively. The new 8% rate only applies to days of lateness from the effective date onward: 16 November 2026 for quarterly instalment payments, and 24 November 2026 for everything else, including VAT, PAYE and ordinary corporation tax. If you have a VAT bill that is currently outstanding and running late past 24 November, the portion of the debt still unpaid from that date starts accruing at 8% rather than 7.75%, on top of whatever it already owed at the earlier rate.

Why does HMRC pay me less interest than it charges me?

Because the two rates are set by different formulas in the same legislation, not matched to be equal. Late payment interest is the Bank of England base rate plus 4 percentage points, and repayment interest is the base rate minus 1 percentage point, subject to a 0.5% floor, under sections 101 to 103 of the Finance Act 2009. At a 4% base rate that produces 8% against you and 3% in your favour, a five-point gap that exists by design rather than oversight. HMRC's stated reasoning, when the late payment margin was last widened in April 2025, was that the rate needs to sit meaningfully above commercial borrowing costs so that delaying a tax bill is never a cheaper source of short-term finance than a bank loan or overdraft.

Does this affect my VAT the same way it affects corporation tax?

Yes, in exactly the same way. VAT was brought into the same late payment and repayment interest regime as income tax and corporation tax for accounting periods starting on or after 1 January 2023, so a VAT-registered limited company pays the same 8% late payment rate and earns the same 3% repayment rate as it would on a corporation tax or PAYE debt. Before that date VAT ran its own separate penalty regime with different mechanics. Since January 2023 there is no separate VAT interest rate to track: whatever HMRC publishes for late payment and repayment interest generally is the figure that applies to your VAT account as well, on the 24 November effective date that covers ordinary (non-quarterly-instalment) taxpayers.

Will the rate rise again, and when would I know?

It will rise again only if the Bank of England's Monetary Policy Committee raises the base rate again, and HMRC's rates move automatically off the back of that decision rather than through a separate announcement of their own. The MPC's next scheduled decision is 17 December 2026. If the base rate changes then, HMRC publishes updated late payment and repayment figures within days, with the same short lag before they take effect that applied this time: a few days for quarterly instalment payments, around three weeks for everything else. There is no fixed timetable beyond tracking the MPC's own calendar, which the Bank of England publishes a year or more in advance.

I can't pay a VAT bill on time. Does the higher interest rate change what I should do?

It raises the cost of doing nothing, but the right response is the same as before: contact HMRC and agree a Time to Pay arrangement rather than letting the debt sit and accrue interest by default. Interest keeps running even on a debt covered by an agreed Time to Pay plan, so a plan does not stop the 8% clock, but agreeing one avoids the separate late payment penalties that non-engagement can trigger on top of interest. At 8% a year, a £24,000 VAT bill left unpaid costs roughly £53 a week in interest alone, which is a real but modest figure next to the penalty exposure of simply not responding. Ringing HMRC before the due date, not after, is what keeps the cost to interest only.

Or get in touch and we will reply the same working day.

HMRC raises late payment interest to 8% after the Bank of England's November rate rise