HMRC late payment interest at 7.75%: what a client's overdue bill costs per day, worked on £10,000

A client with a tax bill they cannot quite face asks the plain question: "what does it cost me if I leave it till next month?" The honest answer is a number, and it is small enough per day that clients often misjudge it in both directions. Some think it is a fine; others think it is nothing. It is interest, and it is easy to work out.

What GOV.UK says

The GOV.UK page on HMRC interest rates lists the current rates. On the day I read it, the table showed:

• Late payment interest: 7.75% from 9 January 2026.
• Repayment interest: 2.75% from 9 January 2026.

The same table showed the earlier steps: 8.00% from 27 August 2025, 8.25% from 28 May 2025, 8.50% from 6 April 2025 and 7.00% from 25 February 2025.

The GOV.UK page on late payment interest for VAT says the rate is the Bank of England base rate plus 4%, that interest starts on the first day the payment is overdue, and that it stops on the day it is paid in full. Its worked example is £8,340 overdue for 7 days at 8.5%: £8,340 x 8.5% x 7 / 365 = £13.60. Where a payment arrangement is in place, HMRC charges interest on the outstanding balance until the tax is paid in full.

The rates page is about interest on the main taxes, including Income Tax, National Insurance and Capital Gains Tax. The formula page I read is the VAT one. I have used its method for the sums below. For a client's Self Assessment bill, confirm the method on the page for that tax.

The sum

Interest = amount overdue x rate x days late / 365. The GOV.UK example is a single multiplication of this kind, with no compounding step.

That is our arithmetic using the 7.75% in the table. Useful rule of thumb for a conversation: about £2 a day for every £10,000 owed.

When the rate changes during the debt

The table has several steps in the last two years, so a debt that straddles a change needs two sums. Take £10,000 overdue from 1 August 2025 to 30 September 2025, 61 days.

1. 1 August to 26 August 2025 is 26 days at 8.25%: £10,000 x 8.25% x 26 / 365 = £58.77.
2. 27 August to 30 September 2025 is 35 days at 8.00%: £10,000 x 8.00% x 35 / 365 = £76.71.
3. Total: £135.48.

Using the old 8.25% for all 61 days would give £137.88, so the error is £2.40, which is small. But on a £250,000 company bill the same slip is £60, and a client who spots it will ask about the rest of your figures. I have not read how HMRC itself splits a debt across a rate change, so the two-step method is our assumption from the dated table. Treat it as an estimate and check against HMRC's own statement.

What to do with the figure

• Quote it as a daily cost. "About £2.12 a day on £10,000" is easier to weigh than a percentage.
• Compare it with the alternatives. Late payment interest is not the only cost. Penalties are separate: see which penalty applies to a late return or payment.
• If the client genuinely cannot pay, an arrangement is better than silence, and interest still runs on the balance. See a client who cannot pay the Self Assessment bill.
• If payments on account are too high, the interest on a reduction that turns out wrong is worth knowing about: reducing payments on account.

What I did not read

I did not read how interest on penalties is treated, whether late payment interest is deductible for any particular tax, the rules for repayment interest in a client's favour, or how HMRC counts days for a payment that is made by a method that clears slowly. I have not checked the rate against any announcement after the GOV.UK page I read on 16 October 2026; the base rate moves, so look at the page on the day you quote.

Overlyft builds AI staff who join your practice team and keep the list of clients with overdue balances, work out the daily interest from the dated rate table and put the figure in front of the accountant to confirm before anything goes to the client.

This is general information, not legal or financial advice. Check the GOV.UK pages and HMRC's own figures for your client's case.