HMRC pays interest on corporation tax paid early, but the return is small. As of early 2026, companies not on quarterly instalments earn repayment interest at 2.75%, while companies paying by quarterly instalments earn credit interest at 3.50%.1GOV.UK. HMRC Interest Rates for Late and Early Payments Both figures sit well below the 7.75% HMRC charges on late payments, so the real value of early payment is defensive: it protects against a shortfall penalty rather than earning a meaningful return.
Which Rate Applies to Your Company
The rate you earn depends on how your company pays its corporation tax, and that depends on profits.
Most small and medium-sized companies pay in a single lump sum, due nine months and one day after the accounting period ends. If they pay before that deadline, they earn repayment interest. The rate is the Bank of England base rate minus 1%, with a floor of 0.5%. At the current base rate of 3.75%, that works out to 2.75%.1GOV.UK. HMRC Interest Rates for Late and Early Payments
Companies with annual profits above £1.5 million must pay by four quarterly instalment payments (QIP) spread across the accounting period. Companies with profits above £20 million follow an accelerated instalment schedule. Both groups earn credit interest on early or excess instalment payments. The rate is the base rate minus 0.25%, currently 3.50%.2HM Revenue & Customs. Company Taxation Manual – CTSA: Quarterly Instalments: Credit Interest3GOV.UK. Pay Corporation Tax if You’re a Large Company
Both rates track the Bank of England base rate and change automatically when the base rate moves. The 0.5% floor on repayment interest means non-instalment companies always earn something, even if the base rate falls below 1.5%.
One thing to check before assuming you’re a non-instalment company: the £1.5 million and £20 million thresholds are divided by the number of associated companies, so a group with several subsidiaries can hit the QIP threshold at much lower individual profit levels.3GOV.UK. Pay Corporation Tax if You’re a Large Company
When Interest Actually Starts Accruing
This is the point that catches people out. Paying nine months early does not earn nine months of interest.
For a non-instalment company, interest cannot begin accruing any earlier than the date that would have been the company’s first quarterly instalment date if it were a large company. For a standard 12-month accounting period, that falls six months and 13 days after the first day of the period.2HM Revenue & Customs. Company Taxation Manual – CTSA: Quarterly Instalments: Credit Interest Paying earlier than that date does not earn additional interest.
For a QIP company, credit interest on an early instalment runs from the later of the instalment due date or the date the overpayment occurred. It stops when the liability is finalised or the overpayment is refunded.
How Much You’ll Actually Get
HMRC calculates the interest on a simple basis, not compound. Accrued interest does not itself earn further interest.4GOV.UK. Compliance Handbook – Simple Interest, Not Compound The calculation runs daily across the accrual window at the applicable rate.
Interest only applies to the portion of the payment that covers actual corporation tax liability. Overpayments may generate repayment interest, but the system is designed to reward genuine early settlement of a genuine tax bill, not to let companies park surplus cash at favourable rates.
A worked example makes the size of the payoff clearer. A non-instalment company with a 31 March year-end owes £500,000 in corporation tax and pays the full amount on 14 October, the earliest date interest can start accruing for its accounting period. At the current 2.75% repayment rate, and with roughly 170 days between that date and the normal due date of 1 January, the interest works out to around £6,400. Useful, but not the sort of figure that changes cash-flow strategy.
Compare that with the cost of getting it wrong the other way. HMRC charges 7.75% on late payments, roughly three times the reward for paying early.1GOV.UK. HMRC Interest Rates for Late and Early Payments The asymmetry is deliberate.
How HMRC Pays the Interest
You don’t need to claim anything. Once the company files its Company Tax Return (CT600) and HMRC knows the final tax bill for the period, any early payment interest is calculated and applied automatically.5GOV.UK. Get a Refund or Interest on Your Corporation Tax There is no separate application form.
If the company is owed a refund because it overpaid, HMRC returns the overpayment together with any interest. You can specify on the CT600 how you want the refund paid. Include bank details and HMRC will transfer the amount directly; otherwise HMRC can send a payable order to the registered company address or refund to the original payment card.5GOV.UK. Get a Refund or Interest on Your Corporation Tax
Where there’s no overpayment but the company paid early, the interest is credited to the company’s HMRC account and can be applied against future corporation tax or other tax obligations.
Tax Treatment
Both credit interest and repayment interest are taxable. HMRC treats them as non-trading loan relationship credits under the Corporation Tax Act 2009, the same way you would account for interest earned on a bank deposit.6HM Revenue & Customs. Company Taxation Manual – CTM92320: CTSA: The Payment and Collection of Tax The interest goes into the company’s corporation tax computation for the period in which it is received or credited.
Because the loan relationship rules apply, the interest should be accounted for on an accruals basis. Income is recognised when the right to receive it arises, not necessarily when the cash arrives. That matters when an accounting period closes before HMRC has finalised the interest calculation, and proper accrual avoids discrepancies between the tax return and the accounts.
Is Paying Early Worth It?
At current rates, paying early rarely makes sense as a pure investment decision. Where it genuinely helps is when a company has a strong handle on its tax liability and wants to smooth cash flow across the year rather than face a single large outgoing at the nine-month mark. Spreading payments, even voluntarily, can be easier to budget around.
The risk is paying early based on an estimate that turns out to be wrong. Overestimate the liability, need the money back, and the refund process adds time and administrative friction. HMRC processes refunds after the CT600 is filed and the liability confirmed, so cash can be locked up for months longer than planned. Companies with volatile profits or pending transactions that could shift their tax position are usually better off waiting until the number is more certain.
There is one scenario where early payment is clearly worthwhile. A company that has already filed its CT600, knows its exact liability, and still has weeks before the normal due date carries no estimation risk. Paying at that point earns a small amount of interest for doing something the company was going to do anyway.