Corporation Tax interest charges

If your company or organisation is liable for Corporation Tax you must pay any Corporation Tax that's due on time. If you don't, HM Revenue & Customs (HMRC) will charge you interest on a daily basis.

This guide tells you when interest is charged and how it's calculated.

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Interest charged on late or underpaid Corporation Tax

If you pay your Corporation Tax late, don't pay enough or don't pay at all, HMRC will charge your company or organisation interest. This interest is known to HMRC as 'late payment interest'.

Interest is charged from the day after the tax should have been paid (normally nine months and one day after the end of your accounting period) until the date you pay it.

Interest charges are automatic. However, interest is not charged on interest itself.

Any late payment interest you pay to HMRC is tax deductible for Corporation Tax purposes. This means you can include this expense in your company accounts for the accounting period (or periods) when the interest was incurred.

Example

  • Your company's Corporation Tax accounting period ends on 31 December 2009.
  • Your company payment deadline is 1 October 2010 (nine months and one day after the end of your accounting period).
  • You calculate that £10,000 Corporation Tax is due.
  • You make this payment on 30 November 2010.
  • You file your Company Tax Return on 31 December 2010.

In these circumstances, HMRC will charge your company late payment interest for the period 2 October 2010 to 30 November 2010.

But you can deduct this interest as an allowable expense when calculating your taxable profit for the accounting period when your company incurred the interest - the accounting period that ended 31 December 2010.

Find current and previous interest rates for late payments

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Instalment payments and interest

If your company’s profits for an accounting period are at an annual rate of more than £1.5 million, you must normally pay your Corporation Tax for that period in instalments. If you have one or more associated companies this rate is reduced - please follow the links below for more information.

These instalments are all due to be paid earlier than nine months and one day after the end of the accounting period.

HMRC charges interest on late instalment payments. If you do have to pay interest, it's tax deductible for Corporation Tax purposes.

Although this interest applies from each of the instalment payment due dates, it isn’t actually calculated until after the normal due date for the accounting period (which is nine months and one day after the end of the accounting period) has passed, and one of these two events has taken place:

  • you have submitted your Company Tax Return
  • if you didn’t submit your return on time, HMRC has made a determination of your tax liability

Two different rates of interest are charged by HMRC on late payments of Corporation Tax by instalments:

  • The first (lower) rate applies from each of the instalment payment due dates to the normal due date for Corporation Tax (nine months and one day from the end of the accounting period). This interest is known by HMRC as 'debit interest', to distinguish it from interest on late normal payments.
  • The second rate applies after the normal due date.

This two-tier system takes into account the fact that you will be making your instalment payments based on estimated figures but, by the time of the normal due date, should be fairly certain about the amount of your liability.

Read more about instalment payments of Corporation Tax

More about debit interest in the Company Tax Manual

Find current and historical rates of interest for underpaid quarterly instalments

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Interest objections

You can't appeal against an interest charge, but you can make what HMRC calls an 'interest objection' if you think HMRC has made a mistake.

Find out how to object to interest charged by HMRC

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More useful links

What to do if you can't pay Corporation Tax

How to pay Corporation Tax

How HMRC collects unpaid Corporation Tax

Interest paid when Corporation Tax is overpaid or paid early

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