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Taxation (UK) · The time limits for the submission of information, claims and payment of tax, including payments on account

Interest and Penalties for Late Payment and Filing

Updated 11 October 2026 · Fact-checked

Interest compensates HMRC for tax paid late and runs daily from the due date at the assumed rate of 8.5% on underpaid tax. Penalties punish lateness. Late filing penalties are fixed or daily amounts, then 5% of tax. Late payment penalties are 5% of unpaid tax at 30 days, 6 months and 12 months.

Understand Interest and Penalties for Late Payment and Filing

Two different things happen when you are late: interest and penalties. Interest is not a punishment. It is the cost of using HMRC's money. It runs day by day from the due date until the tax is paid. Penalties are charged on top, for missing a deadline.

In the exam the rates are given. Interest on underpaid tax is 8.50% and interest on overpaid tax is 3.50%. Interest on underpaid tax is not an allowable deduction for tax. Interest HMRC pays you on overpaid tax is taxable.

There are two separate sets of penalties. Late filing penalties apply when the self-assessment return is late. Late payment penalties apply when the balancing payment is late. You can suffer both on the same return, so treat them separately and add them.

Late payment penalties apply to the balancing payment only. A late payment on account carries interest but no late payment penalty. Class 4 NIC and CGT are collected through the same self-assessment system, so they are treated just like income tax here. The tax outstanding on which you calculate penalties includes them.

HMRC can also charge penalties for errors in a return. Those are separate. The rates are in the standard penalties table: careless 30% maximum, deliberate but not concealed 70%, deliberate and concealed 100%.

Key rules to remember

Interest on underpaid tax
Tax paid late × 8.50% × days late ÷ 365
Runs from the due date to the date of payment. Applies to payments on account and balancing payments. Not tax deductible.
Interest on overpaid tax
Tax overpaid × 3.50% × days ÷ 365
The rate is given in the tax rates and allowances. The interest received is taxable.
Late filing penalty (individual)
£100 once late; then £10 per day for up to 90 days after 3 months late (maximum £900); then the greater of 5% of tax due and £300 at 6 months late; and again at 12 months late
The 5% is of the tax that would have been shown on the return. Fixed amounts and percentages are cumulative.
Late payment penalty
5% of tax unpaid 30 days after due date, plus 5% of tax still unpaid at 6 months, plus 5% of tax still unpaid at 12 months
Applies to the balancing payment. No penalty on payments on account. Use the tax still unpaid at each date.
Error penalties (maximum)
Careless 30%; deliberate but not concealed 70%; deliberate and concealed 100%
Minimum percentages depend on disclosure. Unprompted: 0%, 20%, 30%. Prompted: 15%, 35%, 50%.

How to solve Interest and Penalties for Late Payment and Filing questions

Work through filing, payment and interest as three separate calculations, then add them as the question requires.

  1. 1Identify the tax year and write down the filing deadline and the payment due dates. Normally these are 31 January and 31 July for payments on account, and 31 January after the year end for the balancing payment and the return.
  2. 2Find out the actual filing date and payment date. Work out how late each is in days and months.
  3. 3Calculate late filing penalties. Start with £100, add the daily £10 if more than 3 months late, then 5% (minimum £300) at 6 months and again at 12 months.
  4. 4Calculate late payment penalties on the balancing payment only. Add 5% at 30 days, 6 months and 12 months, using the tax still unpaid on each date.
  5. 5Calculate interest separately. Use tax × 8.50% × days ÷ 365 for each late payment from its own due date.
  6. 6Show each figure on its own line, add the penalties, and state clearly that interest is separate and not deductible.

Quickest way: Date ladder method

When to use it: Use this when you have a return and payment both late and you need to find every penalty quickly.

  1. Write the due date. Under it write four marks: +30 days, +3 months, +6 months, +12 months.
  2. Place the actual filing and payment dates on the ladder.
  3. Tick the filing penalties reached: £100, daily £10, then 5% or £300 at 6 months, again at 12 months.
  4. Tick the payment penalties reached: 5% at 30 days, 6 months, 12 months.
  5. Calculate interest last, from due date to payment date, and keep it apart from penalties.

Common mistakes in Interest and Penalties for Late Payment and Filing

  • Treating interest as a penalty, or the reverse.

    Both arise from lateness and are often mentioned together.

    Fix: Interest is calculated daily at 8.50% and is never a penalty. Penalties are fixed amounts or percentages. State both separately.

  • Charging a late payment penalty on a late payment on account.

    Students apply the 5% rule to every late payment.

    Fix: The 5% penalties apply to the balancing payment only. A late payment on account carries interest only.

  • Charging 5% at 30 days when payment is only a few days late.

    Students forget that the first penalty only arises when tax is still unpaid 30 days after the due date.

    Fix: Check the date. If payment is within 30 days, the penalty is nil. Interest still runs.

  • Using the wrong base for the 5% late filing penalty.

    Students use total income or the tax already paid.

    Fix: Use the tax due that should have been shown on the return. If 5% is less than £300, use £300.

  • Deducting interest or penalties from profits.

    They feel like business costs.

    Fix: Interest on underpaid tax and penalties are not allowable deductions.

  • Using the interest rate for overpaid tax on underpaid tax.

    The two rates sit together in the tax tables.

    Fix: Underpaid tax is 8.50%. Overpaid tax is 3.50%. Underline which direction the money is moving.

Worked examples

Example 1

Anna's 2025-26 self-assessment return was due online by 31 January 2027. She filed it on 20 August 2027. Her balancing payment was £8,000, due 31 January 2027, and she paid it on 20 August 2027. Calculate the late filing penalties, late payment penalties and interest. Assume the 8.50% rate and round to the nearest pound for interest.

Show the solution
  1. Filing is more than 6 months late but less than 12 months late.
  2. Fixed penalty: £100.
  3. Daily penalty: £10 × 90 days = £900, as she is more than 3 months late.
  4. 6-month penalty: 5% × £8,000 = £400, which is more than £300, so £400.
  5. Total filing penalties = £100 + £900 + £400 = £1,400.
  6. Late payment: payment is over 30 days late, so 5% × £8,000 = £400. It is also over 6 months late, so another £400. Total £800.
  7. Interest: 31 January 2027 to 20 August 2027 is 201 days. £8,000 × 8.50% × 201 ÷ 365 = £374.

Answer: Filing penalties £1,400; late payment penalties £800; interest £374. Interest is not tax deductible.

Example 2

Ben's second payment on account of £4,000 was due 31 July 2026 and was paid on 30 September 2026. Separately, a balancing payment of £2,000 was paid 25 days after its due date. Explain the penalties and calculate interest on both. Then calculate interest HMRC owes Ben on a £3,000 overpayment repaid after 120 days.

Show the solution
  1. Payment on account: no late payment penalty, because penalties apply to the balancing payment only.
  2. Interest: 31 July to 30 September 2026 is 61 days. £4,000 × 8.50% × 61 ÷ 365 = £56.82.
  3. Balancing payment: it was paid within 30 days, so no 5% penalty.
  4. Interest on it: £2,000 × 8.50% × 25 ÷ 365 = £11.64.
  5. Overpayment interest: £3,000 × 3.50% × 120 ÷ 365 = £34.52.

Answer: No late payment penalties. Interest payable: £56.82 and £11.64. Interest receivable: £34.52, which is taxable.

Exam tips

  • Write interest and penalties as separate headed lines. Markers award marks for each element.
  • Check which payment is late. Late payment penalties apply only to the balancing payment.
  • Be careful with dates: count months for penalties, but count days for interest.
  • In Section C, show the 5% against the £300 minimum for late filing. Examiners test it.
  • In objective test questions, watch for the trap options that apply the 5% penalty to a payment on account or use 3.50% for underpaid tax.

Practice questions from The time limits for the submission of information, claims and payment of tax, including payments on account

Interest and Penalties for Late Payment and Filing in other exams

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

Interest and Penalties for Late Payment and Filing: frequently asked questions

What is the difference between late payment interest and a penalty?

Interest is charged daily from the due date until you pay, at 8.50% in ACCA's assumed rates. A penalty is a one-off charge once you pass a set point, such as 30 days late. You can pay both on the same tax.

What are the late filing penalties for a self-assessment return?

There is £100 once the return is late. After 3 months, £10 a day applies for up to 90 days. At 6 months, the greater of 5% of the tax due and £300 is added. The same amount is added again at 12 months.

When do the 5% late payment penalties apply?

They apply to tax still unpaid 30 days, 6 months and 12 months after the due date. Each one is 5% of the tax then unpaid. They apply to balancing payments, not payments on account.

What interest rate applies to underpaid and overpaid tax?

The assumed rate on underpaid tax is 8.50%. On overpaid tax it is 3.50%. Use the number of days late divided by 365.