Pay tax late and HMRC charges daily interest from the due date until payment, currently 7.75% a year (set at the Bank of England base rate plus 4 percentage points since April 2025). It applies automatically to late Self Assessment balances, payments on account, VAT and PAYE, and cannot be appealed away; it compensates the Exchequer rather than punishing you.
Interest also stacks on top of separate late payment penalties, and HMRC pays far less (base minus 1%) on money it owes you, so the asymmetry rewards paying on time even by credit if necessary. A Time to Pay arrangement stops penalties but not interest. See the true cost of delay with the Late Payment Interest Calculator.
A £5,000 Self Assessment balance paid 90 days late accrues about £95 of interest at 7.75%, plus a £250 late payment penalty (5%) once it is 30 days overdue: £345 for the delay. A Time to Pay plan agreed before the penalty date would have avoided the £250 entirely, leaving only the interest running.
