Does HMRC charge interest on penalties

Yes, for many penalties. Where the Finance Act 2009 interest rules apply to the tax concerned, such as self assessment income tax and capital gains tax and VAT for periods from 1 January 2023, an unpaid penalty carries late payment interest from the date it becomes due and payable, normally 30 days after the penalty notice is issued, until it is paid. You do not have to pay a penalty under appeal until the appeal is settled, and if the penalty is cancelled or reduced the interest follows.

Does HMRC charge interest on penalties at all?

Section 101 of the Finance Act 2009 says any amount payable to HMRC under or by virtue of an enactment carries interest at the late payment interest rate from the late payment interest start date until payment. Penalties are amounts payable under an enactment. HMRC’s Compliance Handbook at CH140240 says that eventually all taxes, duties, penalties and surcharges will be subject to late payment interest, but for now the rules apply only to the taxes, and associated penalties, for which a Treasury order has appointed a start day.

CH140240 gives the key example: if an income tax inaccuracy penalty is not paid by its due date, late payment interest can be charged on it. Section 101(8) confirms that interest is not charged on interest, and CH140260 confirms it is simple, not compound.

Which penalties carry interest at the moment?

CH140160 lists the taxes covered and their start dates. The main ones for most businesses and individuals are:

Tax	Interest on associated penalties from
Income tax and capital gains tax under self assessment returns and section 29 assessments, and penalties assessed in relation to that tax	31 October 2011
PAYE amounts and certain PAYE late filing and late payment penalties	6 May 2014
VAT and penalties assessed in relation to it, for accounting periods starting on or after 1 January 2023	1 January 2023
Stamp Duty Reserve Tax and related penalties	1 January 2015

HMRC’s Debt Management and Banking manual table at DMBM400020 lists self assessment late filing and late payment penalties as interest bearing, and says inaccuracy and failure to notify penalties carry interest only where they relate to taxes that attract interest under the new rules. The same table lists corporation tax penalties as not interest bearing, and section 101(2)(a) excludes corporation tax from the Finance Act 2009 rules. For PAYE penalties the table says no interest is being charged at this time.

For VAT, HMRC’s guidance says interest is charged on all penalties that are overdue, including late payment penalties and late submission penalties. See VAT late payment penalties and interest.

When does interest start to run on a penalty?

Section 101(4) says the start date is the date the amount becomes due and payable. Each penalty schedule sets that date:

• Schedule 24 FA 2007, paragraph 13(1A): an inaccuracy penalty must be paid before the end of 30 days beginning with the day the notification is issued;
• Schedule 41 FA 2008, paragraph 16(2): the same 30 day rule for failure to notify penalties;
• Schedule 55 FA 2009, paragraph 18(2): the same for late filing penalties.

HMRC’s Self Assessment Legal Framework manual says, for both late filing (SALF208A) and late payment penalties (SALF308A), that late payment interest runs from the end of the 30 day payment period until payment. Its worked example shows a late payment penalty assessed on 3 March 2013 carrying interest from 2 April 2013. SAM60080 also lists the statutory due date for penalties as 30 days after the date of the penalty notice.

So interest on a penalty never starts on the original tax deadline. It starts once the penalty notice has been issued and 30 days have passed without payment.

What happens to interest if I appeal the penalty?

Paragraph 16(2) of Schedule 24, paragraph 18(2) of Schedule 41 and paragraph 21(2) of Schedule 55 each say the normal collection rules do not require a penalty to be paid before an appeal against it is determined. GOV.UK puts it simply: if you have appealed against a penalty, you will not have to pay until your appeal has been settled.

CH140240 adds that if a penalty is cancelled or adjusted for any reason, any late payment interest is adjusted too. A penalty that is cancelled on appeal therefore carries no interest at all.

The position where an appeal fails is less clearly stated. For disputed tax, Schedule 53 paragraph 4 to the Finance Act 2009 makes interest on income tax or capital gains tax postponed under section 55 of the Taxes Management Act 1970 run from the date it would have run without the appeal. That provision is about postponed tax; HMRC’s guidance does not set out a separate rule for penalties confirmed after an appeal. If your statement shows interest on a confirmed penalty running from a date you think is wrong, you can raise an interest objection disputing the relevant date. Disputed tax is covered in postponing tax pending appeal.

Is interest charged on a suspended penalty?

No. CH140240 says late payment interest is not charged where Schedule 24 penalties are suspended, because those penalties are not currently due and payable. A careless inaccuracy penalty suspended under paragraph 14 of Schedule 24 does not build up interest while the conditions are being met. See HMRC suspended penalties for how suspension works.

Can interest on a penalty be appealed or waived?

CH140300 says there is no statutory right of appeal against interest and no power in the Finance Act 2009 to mitigate or waive interest correctly charged. The route is to challenge the underlying amount: if the penalty is reduced, the interest reduces automatically. HMRC’s Enquiry Manual at EM4001 stresses that interest is compensation for the use of money, not a penalty.

You can raise an objection, rather than an appeal, where you dispute the relevant date or the effective date of payment, claim mitigating circumstances, or question the legislation (CH140300). HMRC’s VAT guidance says an objection can be made where HMRC made a mistake or caused unreasonable delay that contributed to the interest, and that objections are only accepted once the tax concerned has been paid in full.

How much interest will be charged?

HMRC’s published rates say late payment interest is the Bank of England base rate plus 4% from 6 April 2025, having been base rate plus 2.5% before that. HMRC’s table shows a late payment rate of 7.75% from 9 January 2026. Interest is worked out daily on the unpaid amount at the rate in force on each day; our guide to HMRC late payment interest explains how rate changes are handled.

Illustration only. A £1,000 self assessment penalty is paid 60 days after the end of its 30 day payment period, with the rate at 7.75% throughout. Interest is £1,000 x 7.75% x 60/365, which is £12.74.

What mistakes should you avoid?

• Leaving a penalty unpaid after the 30 days without having appealed, which starts interest running.
• Assuming an appeal against the tax also covers a separate penalty; the penalty needs its own appeal.
• Expecting HMRC to waive interest on hardship grounds; the remedy is to challenge the penalty or object to the dates.
• Paying a penalty that is later cancelled and not checking that both the penalty and any interest have been credited.
• Confusing interest with late payment penalties, which are separate charges on unpaid tax; see self assessment late payment penalties.

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Related Accountapedia entries

• VAT late payment penalties and interest
• Do you charge VAT on late payment interest
• Where HMRC penalties and interest go in the accounts
• Self Assessment late payment penalties and interest
• HMRC Late Payment Interest Explained

Sources

• legislation.gov.uk: Act 2009 c. 10, section 101
• GOV.UK: Manual page CH140240
• GOV.UK: Manual page CH140160
• GOV.UK: Manual page CH140260
• GOV.UK: Manual page CH140300
• GOV.UK: Manual page DMBM400020
• legislation.gov.uk: Act 2007 c. 11, schedule 24
• legislation.gov.uk: Act 2008 c. 9, schedule 41
• legislation.gov.uk: Act 2009 c. 10, schedule 55
• legislation.gov.uk: Act 2007 c. 11, schedule 24

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.