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Taxation (UK) · Penalties for non-compliance

Late Payment Penalties for Income Tax and Corporation Tax

Updated 11 October 2026 · Fact-checked

Tax paid late carries interest from the due date at the rate on underpaid tax, 8.50% in your exam, not the official rate (3.75%). For self assessment income tax, a penalty of 5% of the tax still unpaid applies at 30 days, 6 months and 12 months after the due date. Corporation tax paid late carries interest only.

Understand Late Payment Penalties for Income Tax and Corporation Tax

HMRC charges two separate things when tax is paid late: interest and penalties. Interest compensates HMRC for the delay. Penalties punish it. You must keep them apart in every answer.

Interest runs from the date the tax was due until the date it is paid. In your exam the rate on underpaid tax is 8.50%. HMRC pays interest to you on overpaid tax at 3.50%. Interest on late payment applies to income tax (payments on account and balancing payments) and to corporation tax.

Self assessment penalties follow the standard TX rule for tax that is outstanding on the balancing payment. This rule is not in the ACCA tax tables, so you must learn it. The penalties are charged on the tax still unpaid at each point, measured from the due date (normally 31 January following the tax year). There are three points: 30 days after the due date, 6 months after, and 12 months after. Each point adds a penalty of 5% of the tax still unpaid then. If you pay before a point, you avoid that penalty and the later ones.

Corporation tax paid late carries interest from the due date, which is nine months and one day after the end of the accounting period. A large company is one whose profits are over £1,500,000. This limit is divided by the number of associated companies plus one. A large company pays by quarterly instalments, due in months 7, 10, 13 and 16 after the start of the accounting period. Interest on a late instalment runs from that instalment date. In TX you deal with corporation tax late payment as an interest question. Do not apply the self assessment 5% penalties to it.

The VAT late payment penalties in the ACCA tax tables (3% and 6% plus a daily penalty) are a different regime. Do not mix them with income tax.

Key rules to remember

Interest on underpaid tax
Tax unpaid × 8.50% × months late ÷ 12
Use the rate given in the ACCA tax tables. Run from the due date to the payment date. Round to the nearest £.
Self assessment late payment penalty
5% × tax unpaid at 30 days + 5% × tax unpaid at 6 months + 5% × tax unpaid at 12 months
Each point is measured from the due date. Charge only on tax still unpaid at that point. Applies to the balancing payment.
Interest on overpaid tax
Tax overpaid × 3.50% × months ÷ 12
Paid by HMRC to the taxpayer. Do not use 8.50% here.
Corporation tax due date
9 months and 1 day after the end of the accounting period
A large company has profits over £1,500,000, divided by the number of associated companies plus one. It pays instalments in months 7, 10, 13 and 16 after the start of the period. Interest runs from the instalment dates.

How to solve Late Payment Penalties for Income Tax and Corporation Tax questions

Use this order for any question on late payment of income tax or corporation tax.

  1. 1Identify the taxpayer: an individual (self assessment) or a company.
  2. 2Find the due date of each payment. For an individual this is 31 January and 31 July for payments on account, and 31 January after the year for the balancing payment. For a company, nine months and one day after the period end.
  3. 3Find the date the tax was actually paid and how much was paid on each date.
  4. 4Work out interest: tax unpaid × 8.50% × months late ÷ 12. Do it separately for each amount paid at a different time.
  5. 5For an individual with a late balancing payment, check each penalty point: 30 days, 6 months and 12 months after the due date. Add 5% of the tax still unpaid at each point that has passed.
  6. 6For a company, state that interest is due but the 5% self assessment penalties do not apply.
  7. 7Add up the totals and state interest and penalties separately, rounded to the nearest £.

Quickest way: Penalty point check

When to use it: Use for objective test questions on a late self assessment balancing payment.

  1. Write the due date, then mark three dates: due date + 30 days, + 6 months, + 12 months.
  2. Compare the payment date with each mark. Each mark passed gives 5% of the tax unpaid at that mark.
  3. Count the penalties, multiply by 5% and by the unpaid tax.
  4. Add interest separately at 8.50% for the months late. Check which one the question asks for.

Common mistakes in Late Payment Penalties for Income Tax and Corporation Tax

  • Charging the penalty on the total tax liability instead of the unpaid balancing payment.

    Students forget that payments on account already made reduce the amount outstanding.

    Fix: Start with the balancing payment only, and use the amount still unpaid at each penalty point.

  • Applying all three 5% penalties whenever the tax is late.

    Students memorise 5%, 5%, 5% without checking dates.

    Fix: Test the payment date against each of the three points. Only the points already passed count.

  • Adding 5% penalties to a late corporation tax payment.

    The self assessment rule is carried over to companies.

    Fix: For corporation tax in TX, calculate interest only unless the question says otherwise.

  • Using 3.50% or the official rate of 3.75% for late payment interest.

    Several rates sit together in the tax tables.

    Fix: Late payment of tax uses the rate on underpaid tax, 8.50%.

  • Confusing the income tax penalty with the VAT late payment penalty.

    Both tables show percentages tied to lateness.

    Fix: VAT has its own 15-day, 30-day and daily penalty rules. Income tax uses the 30 day, 6 month and 12 month points.

  • Counting interest from the payment date or from the end of the tax year.

    The due date is not read carefully.

    Fix: Interest runs from the due date of each payment to the date it is paid.

Worked examples

Example 1

Maria's balancing payment of £8,000 for 2025–26 was due on 31 January 2027. She paid it in full on 30 September 2027. Calculate the late payment penalties and interest. Assume interest is calculated to the nearest whole month.

Show the solution
  1. Due date: 31 January 2027. Payment date: 30 September 2027. This is just under 8 months late, which is 8 months to the nearest month.
  2. 30 day point (2 March 2027): tax unpaid, so 5% × £8,000 = £400.
  3. 6 month point (31 July 2027): tax still unpaid, so 5% × £8,000 = £400.
  4. 12 month point (31 January 2028): not reached, as she paid on 30 September 2027, so no penalty.
  5. Total penalties = £400 + £400 = £800.
  6. Interest = £8,000 × 8.50% × 8 ÷ 12 = £453.33, which is £453 to the nearest £.

Answer: Penalties £800 and interest £453.

Example 2

Ridge Ltd is not a large company. Its corporation tax liability for the year ended 31 December 2025 is £120,000. It paid the whole amount three months after the due date. Calculate the interest and state whether a penalty applies.

Show the solution
  1. Due date: nine months and one day after 31 December 2025, which is 1 October 2026.
  2. The company is not large, as its profits are not over the £1,500,000 limit (assuming no associated companies). So there are no quarterly instalments. The whole amount is due on 1 October 2026.
  3. Interest = £120,000 × 8.50% × 3 ÷ 12 = £2,550.
  4. The 5% self assessment penalties are an individual rule, so no such penalty arises here.

Answer: Interest of £2,550. No 5% late payment penalty applies in this question.

Exam tips

  • Read whether the question asks for interest, penalties or both, and show each on its own line.
  • Write the three penalty dates in your working before you calculate. It shows the marker your method.
  • Use the rates in the tax tables given in the exam. You do not need to memorise 8.50% and 3.50%, but you must pick the correct one.
  • In Section C, state your assumption on months late, because calculations and apportionments are to the nearest month.
  • For corporation tax, check whether the company is large. Large companies pay by quarterly instalments and interest runs from each instalment date.

Practice questions from Penalties for non-compliance

Late Payment Penalties for Income Tax and Corporation Tax in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Late Payment Penalties for Income Tax and Corporation Tax: frequently asked questions

What are the self assessment late payment penalties?

A penalty of 5% of the tax unpaid applies at 30 days after the due date. A further 5% applies on tax still unpaid at 6 months, and another 5% at 12 months. Each is measured on the tax still outstanding at that point.

What rate of interest applies to late paid tax in TX-UK?

The tax tables give 8.50% on underpaid tax. It runs from the due date to the date of payment. The rate on overpaid tax is 3.50%.

Is there a late payment penalty for corporation tax?

In TX you treat late paid corporation tax as an interest question. Interest runs from the due date, which is nine months and one day after the period end. The 5% penalties are the self assessment rule for individuals.

Do payments on account attract the 5% penalties?

In TX the standard 5% penalties are applied to the tax outstanding on the balancing payment. This rule is not in the tax tables, so learn it. Late payments on account still attract interest from their due dates. If a question asks about penalties on them, follow its instructions.