Guidance

Corporation Tax: interest charges

Find out when HMRC may charge your company interest for not paying the right amount of Corporation Tax or for paying late.

Overview

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 and Customs (HMRC) will charge you interest on a daily basis.

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 9 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

HMRC would charge your company late payment interest for the period 2 October to 30 November 2010 if

  • your company’s Corporation Tax accounting period ended on 31 December 2009
  • your payment deadline is 1 October 2010
  • you don’t pay until 30 November 2010

But you could deduct this interest as an allowable expense when calculating your taxable profit for the accounting period ended 31 December 2010.

Instalment payments and interest

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 9 months and one day after the end of the accounting period) has passed, and one of these 2 events has taken place:

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

You pay interest at a:

  • lower rate (known as debit interest) from each of the instalment payment due dates to the normal due date (9 months and one day from the end of the accounting period)
  • higher rate after the normal due date

Interest is usually calculated after the normal due date has passed.

Find current and historical rates of interest for underpaid quarterly instalments.

Interest objections

You can’t appeal against an interest charge, but you can make an ‘interest objection’ if you think HMRC has made a mistake. You should write to Corporation Tax Services:

  • saying what you don’t agree with
  • giving your reasons for disagreeing

You should give as much background information as possible so HMRC can consider your company’s circumstances fully.

Corporation Tax Services will pass your interest objection to a specialist team in the HMRC Accounts Office.

Published 30 January 2012