# HMRC Late Penalty and Interest Calculations for 2025/26

Discover how HMRC calculates late filing and payment penalties, alongside 2025/26 interest rates, statutory models, and how to appeal penalty assessments.

**Published:** 2026-07-14  
**Updated:** 2026-07-14  
**Source:** https://aztajournal.com/gb/hmrc-late-payment-penalty-interest

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> This guide outlines how HMRC calculates late filing and payments penalties, alongside interest rates for the 2025/26 tax year. Learn about statutory calculation methods, reasonable excuses under UK tax law, and how to successfully appeal penalties without paying upright.

HMRC late payment penalties and interest are calculated based on how long your tax return remains outstanding and when the final payment is settled. Late filing issues attract fixed and daily points-based charges, while unpaid tax balances face cumulative percentage-based surcharges and statutory simple interest. Under the **Finance Act 2009**, taxpayers can appeal these penalties if they possess an acceptable reasonable excuse, often without needing to pay the disputed penalty upfront.

## Key Takeaways

- Filing and payment penalties run on entirely separate statutory frameworks.
- Late filing penalties start at a £100 fixed fee and escalate to daily charges after three months.
- Late payment surcharges accrue at intervals of 30 days, 6 months, and 12 months.
- Late payment interest is currently set at 7.75% for 2025/26 and calculated as simple interest daily.
- Taxpayers can appeal penalties within 30 days using form SA370 or by appealing to the First-tier Tax Tribunal.

## How are HMRC penalties and interest calculated on late tax?

HMRC penalties are calculated using distinct timelines for missing submission deadlines versus missing payment deadlines, plus automatic simple interest.

For missing the submission deadline, a flat fee of £100 is charged immediately, followed by daily £10 charges after three months. Late payment penalties are calculated as a cumulative 5% surcharge of the tax outstanding at specified intervals of 30 days, 6 months, and 12 months past the payment due date.

Additionally, under the **Finance Act 2009**, interest is calculated daily from the original due date until the tax is fully paid. This interest rate tracks the Bank of England base rate plus a statutory margin, operating independently from any penalty appeals.

## What is the difference between late filing and late payment penalties?

A late filing penalty is a charge for failing to submit your tax return by the deadline, whereas a late payment penalty is a charge levied on outstanding tax balances.

These penalties are governed by two separate statutory frameworks inside the **Finance Act 2009**. Late filing penalties are assessed under the rules of **Schedule 55**, which penalise the administrative delay of withholding information, even if no tax is actually owed.

By contrast, late payment penalties are assessed under **Schedule 56** rules and are directly tied to the cash value of unpaid tax. A taxpayer can easily face both types of charges simultaneously if they submit a return late and fail to clear the outstanding balancing payment.

## How much are HMRC late filing penalties?

HMRC late filing penalties for Self Assessment returns start at £100 and scale up to a percentage of tax due after six months.

| How late | Penalty Amount | Statutory Reference |
| --- | --- | --- |
| 1 day late | £100 fixed penalty | Sch. 55, para. 3 |
| 3 months late | £10 per day for up to 90 days (maximum £900) | Sch. 55, para. 4(2) |
| 6 months late | Greater of 5% of tax due or £300 | Sch. 55, para. 5(2) |
| 12 months late | Greater of 5% of tax due or £300 (up to 100% of tax if deliberate) | Sch. 55, para. 6(3) |

## How much are HMRC late payment penalties?

HMRC charges late payment penalties in 5% increments based on the outstanding tax balance still unpaid at specific monthly milestones.

| Filing Delay | Surcharge Rate | Statutory Reference |
| --- | --- | --- |
| 30 days late | 5% of unpaid tax | Sch. 56, para. 3(2) |
| 6 months late | Further 5% of still-unpaid tax | Sch. 56, para. 3(3) |
| 12 months late | Further 5% of still-unpaid tax | Sch. 56, para. 3(4) |

For employers, PAYE defaults run on an escalating scale rather than flat milestones. Under **Schedule 56, paragraphs 6(5)-(7A)**, penalties range from 1% to 4% depending entirely on the number of payment defaults incurred within the same tax year.

## How is HMRC late payment interest calculated?

HMRC late payment interest is calculated daily as simple interest on outstanding tax amounts, using base rates set by HM Treasury.

- Interest runs from the exact day the tax becomes due until the date of actual payment under the **Finance Act 2009, s. 101(3)**.
- The rate for the 2025/26 tax year is set at 7.75%, linking directly to the Bank of England base rate plus a statutory 4% margin.
- Under **s. 101(8)**, interest does not compound and is only charged on the principal unpaid tax balance, not on accrued interest.
- Because interest is a strict statutory requirement rather than a discretionary penalty, it cannot generally be appealed by the taxpayer.

## How do I appeal an HMRC penalty?

To appeal an HMRC penalty, you must submit a written challenge within 30 days of receiving the assessment notice before escalating to tribunal.

1. Submit a written appeal to HMRC within 30 days of the penalty notice date, utilizing form SA370 for Self Assessment issues.
2. Review the option to skip upfront payment, as under **Schedule 55, para. 21(2)(a)** you are not required to pay the penalty before the appeal is resolved.
3. Request an optional administrative internal review by an independent HMRC officer if your initial written appeal is rejected.
4. Appeal directly to the First-tier Tax Tribunal if you reject the internal review decision, where the tribunal holds the power to cancel or amend the penalty.

### What counts as a "reasonable excuse" under HMRC statutory rules?

A reasonable excuse under UK tax rules is an exceptional event beyond your control that directly prevented you from filing or paying on time.

Under **Schedule 55, paragraph 23(1)**, HMRC will cancel a penalty if you establish a reasonable excuse. Legitimate excuses typically include serious life-threatening illnesses, unexpected hospital stays, postal delays, or HMRC online service outages.

However, under **paragraph 23(2)**, certain situations are explicitly disqualified. These include a general lack of funds, relying on an accountant who failed to file, or claiming you did not understand the statutory deadlines.

## How does a Time to Pay arrangement affect late payment penalties?

Setting up a Time to Pay arrangement suspends prospective late payment penalties provided you establish the agreement before the penalty trigger date.

According to **Schedule 56, paragraph 10(2)**, entering an approved instalment plan prior to the 30-day, 6-month, or 12-month marks halts future surcharge penalties. This suspension remains valid as long as you strictly adhere to the agreed payment schedule.

Taxpayers must note that this arrangement only suspends the late payment penalties. Statutory late payment interest will continue to accrue daily on the outstanding tax liability throughout the duration of the instalment plan.

## What is changing under Making Tax Digital from April 2026?

A transitional points-based penalty system is launching in April 2026 alongside Making Tax Digital for individuals earning above £50,000.

Under this new regime, taxpayers will accumulate points for missed digital submissions instead of receiving immediate financial penalties. A financial penalty is only triggered once a specific threshold of points is reached, making the framework fairer for minor slip-ups.

In addition, late payment penalties will shift to a two-stage percentage model starting 15 days past the due date. The existing rules under Schedule 55 and Schedule 56 remain fully active for all 2025/26 tax returns.

### Do I have to pay my HMRC penalty before I can appeal it?

No. Under statutory rules in Schedule 55 and Schedule 56, you are not required to pay the contested penalty amount while your appeal is being formally reviewed by HMRC or the First-tier Tax Tribunal.

### Can I appeal a late payment interest charge?

Generally, no. Interest is a statutory charge under s. 101 of the Finance Act 2009 rather than a discretionary penalty, meaning it cannot be appealed unless the underlying tax assessment itself is proven incorrect.

### What happens if my accountant missed the filing deadline instead of me?

HMRC rules state that the legal responsibility to file remains with you. Relying on a third party is not considered a reasonable excuse under Schedule 55, para. 23(2) unless you can prove you took reasonable care to ensure they would file on time.

### Does HMRC charge interest on unpaid penalties?

Yes. If a penalty is assessed and remains unpaid after the date specified on the penalty notice, HMRC will charge daily late payment interest on that outstanding penalty amount.

### Does HMRC offer special reductions for penalty amounts?

Yes. Under Schedule 55, paragraph 16, HMRC possesses discretionary powers to reduce penalties due to 'special circumstances'. However, this statutory reduction explicitly excludes general inability to pay.