Can HMRC cancel late payment interest

Rarely. Late payment interest is not a penalty, so a reasonable excuse does not remove it, and HMRC’s own guidance says there is no scope for cancelling interest that has been correctly charged. HMRC will only give up interest where its own error or unreasonable delay caused the charge or made it bigger, and that decision is taken by its Interest Review Unit on the facts, usually after the tax itself has been paid.

Why is late payment interest treated differently from a penalty?

Interest is a charge the law attaches to the tax itself. Section 86 of the Taxes Management Act 1970 says that late income tax and capital gains tax “shall carry interest” from the relevant date until payment, and section 87A says the same for corporation tax from the date it becomes due and payable. There is no discretion written into those sections. HMRC’s Self Assessment Legal Framework manual at SALF308A puts the purpose plainly: interest on late payments is not a penalty, it is designed to cancel the financial advantage of paying late over those who pay on time.

That is why the usual defence does not help. The reasonable excuse rules, for example paragraph 16 of Schedule 56 to the Finance Act 2009, relieve a person from a penalty under that Schedule; they say nothing about interest. A serious illness may get a late payment penalty cancelled, but the interest on the same tax stays. See reasonable excuse for what does work against penalties, and HMRC late payment interest for how the charge and rate work. HMRC sets the late payment rate at Bank of England base rate plus 4% from 6 April 2025.

What does HMRC’s guidance say about cancelling interest?

The Debt Management and Banking Manual at DMBM405020 sets the tone for every objection:

• there is no scope for cancelling correctly charged interest, and no automatic right to have it reduced or given up;
• where the charge is legally correct, HMRC is entitled to recover it in full regardless of the circumstances, because tax is due under law and not under a contract;
• the key principle for any relief is that HMRC error or unreasonable delay financially disadvantaged the customer, either by creating an interest charge or by increasing one;
• a case will not normally be considered before the underlying tax has been paid and the interest charged;
• a decision is based on the facts alone and will not be influenced by a customer’s persistence or willingness to complain;
• the decision cannot be negotiated to reach a settlement figure, and any relief is non statutory and limited to the part of the interest caused by HMRC.

Objections are reviewed by the Interest Review Unit, but you cannot write to it directly. DMBM405020 says objections go to the HMRC office that deals with your affairs, which passes them on.

When will HMRC give up interest because of its own delay?

Delay is the most common argument and the hardest to win. DMBM405030 explains that the time HMRC takes to resolve an issue is not treated as delay however long it is, because a taxpayer who pays on time is not affected by it. The Unit will not consider any period before interest started, after the tax was paid, within a statutory waiting period such as the window for opening a Self Assessment enquiry, within HMRC’s published turnaround times, or when it was the taxpayer’s job to move the case forward.

For a delay to count, all of these must apply:

1. interest was increasing during the period;
2. HMRC was responsible for the conduct of the case at the time;
3. the delay was extensive and unreasonable in the circumstances;
4. it was only this delay that caused the absence of payment; and
5. the taxpayer was not aware that a debt existed, or might arise, that they should have paid or paid something on account against.

The test HMRC applies is a single question: would the interest charge still have existed if HMRC had not caused any unreasonable delay? If yes, the interest is upheld. Where interest was already building up and HMRC’s delay increased it, relief is limited to additional debt the taxpayer was unaware of or could not reasonably have foreseen.

What other HMRC mistakes can lead to interest being given up?

The same manual lists specific situations:

• Wrong advice (DMBM405050). Relief is considered only if you relied on the advice by paying nothing, paying late or paying less, applying the law would be so unfair as to be an abuse of power, and you would be financially worse off than if you had been told the right position. Being told that no interest would be charged is not enough, because you are no worse off than if you had been told the truth.
• Misallocated payments (DMBM405090). Where a payment was proved not to follow your instructions at the time, reallocating it corrects the interest. A request made with hindsight purely to gain an interest advantage is refused.
• Lost cheques (DMBM405090). Proof of posting is not proof of receipt, so interest is normally kept. If you send an unprompted replacement within 30 days of the original payment date, the interest is given up in full; if you contact HMRC quickly and replace within 14 days, with the whole period under 45 days, it is considered.
• Repayments made in error (DMBM405080). If HMRC wrongly repaid tax you had paid on time, interest is set aside for the period HMRC held the money; if your error caused the repayment, it is upheld.
• Online filing faults (DMBM405110). If HMRC systems were at fault, relief is limited to interest on any extra tax, because the tax shown on the return should have been paid anyway.
• Combined errors (DMBM405120). Several HMRC errors that would not justify relief on their own can do so when viewed together.

Which arguments will not work?

• Personal circumstances. DMBM405070 says illness, old age, mental incapacity or lack of funds are not reasons to give up interest where HMRC has not caused an error or delay.
• HMRC asked for the interest late. DMBM405040 says a late demand does not increase the amount, because HMRC does not charge interest on interest, and the six year limitation rule does not apply to tax and interest.
• A payment marked “in full and final settlement”. DMBM405060 says HMRC can keep the payment, refuse the condition and ask for the balance, because paying less does not satisfy a larger debt in law.
• Reduced payments on account. Where you reduced payments on account and the final bill was higher, DMBM405250 says interest from the original due dates is upheld if you calculated the tax yourself.
• A Time to Pay arrangement. DMBM803545 says interest continues to be charged in every case where Time to Pay is agreed.

How can the interest bill legitimately go down?

Most real reductions come from changing the tax or the payment date. Interest stops when the tax is paid, so paying now limits the charge. If the tax itself is reduced, payments are reallocated and DMBM210165 says the interest position is reviewed automatically each time a payment is allocated or reallocated. If a payment went to the wrong charge and is moved to where you originally intended, SAM110144 says it keeps its original date. If a refund could have been set against the debt earlier, DMBM405080 allows the set off date to be corrected. For tax that HMRC failed to collect for years despite having the information, the separate concession is ESC A19, which can remove the tax itself.

How do you ask HMRC to give up interest?

1. Pay the tax, or agree how it will be paid, because an objection is not normally considered until the tax is paid and the interest charged.
2. Write to the office or helpline that deals with that tax, not to the Interest Review Unit.
3. Identify the HMRC error or delay precisely: dates, what HMRC should have done, and copies of letters, call notes or online messages.
4. Show cause and effect: explain why you would have paid earlier but for HMRC’s action, and work out the period affected.

HMRC aims to give a full reasoned explanation when it upholds interest. It will look again only if you bring new facts. The Complaints and Remedy Guidance at CRG5525 says claims that interest on overdue tax should be reduced for HMRC delay are referred to the Interest Review Unit, and DMBM405020 adds that complaint handlers cannot overturn or vary its decision. A wider complaint about how HMRC handled your case follows the route in escalating issues with HMRC.

How might this play out?

Illustration only. A sole trader owes a £4,000 balancing payment due on 31 January. On 20 January an HMRC adviser wrongly tells her in a recorded call that a pending repayment will cover the bill and she need not pay. HMRC writes on 10 April to say the tax is still due, and she pays on 15 April.

• She objects in writing, citing the date of the call and asking HMRC to check its records.
• If the evidence shows she had the money and would have paid by 31 January, the conditions in DMBM405050 can be met and interest for the period she was misadvised may be given up.
• If her own notes show she had already told HMRC she could not pay until April, the advice did not cause the delay and the interest is upheld.

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Related Accountapedia entries

• HMRC Late Payment Interest Explained
• VAT late payment penalties and interest
• When inheritance tax is due and interest on late payment
• Do you charge VAT on late payment interest
• Self Assessment late payment penalties and interest

Sources

• legislation.gov.uk: Act 1970 c. 9, section 86
• legislation.gov.uk: Act 1970 c. 9, section 87A
• GOV.UK: www.gov.uk
• legislation.gov.uk: Act 2009 c. 10, schedule 56
• GOV.UK: Rates and allowances hmrc interest rates
• GOV.UK: Manual page DMBM405020
• GOV.UK: Manual page DMBM405030
• GOV.UK: Manual page DMBM405050
• GOV.UK: Manual page DMBM405090
• GOV.UK: Manual page DMBM405080

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.