Rising HMRC interest rates: Why accurate Quarterly Instalment Payments (“QIPs”) and timely payments are more critical than ever

HMRC’s late payment interest rate is now up to 8.25% (as of 28 May 2025), the financial cost of missing Corporation Tax payment deadlines has never been higher.

This increase, driven by the Bank of England’s base rate and changes announced in the 2024 Autumn Statement to encourage taxpayers to pay their tax on time, makes accurate forecasting and timely payments of Corporate Tax more critical than ever, especially for companies within the Quarterly Instalment Payment (“QIP”) regime. 

Understanding QIPs: Who’s affected?

QIPs apply to large companies with taxable profits exceeding £1.5 million and even more stringent rules apply to those very large companies with profits over £20 million. These thresholds are divided by the number of associated companies (including the company itself), meaning even mid-sized businesses can be caught in the QIP net.  

Under this regime, Corporation Tax is paid in four instalments, with the first payment due before the end of the accounting period; a challenge for cash flow and forecasting.

As an example, for accounting period ended 31 December 2025, the following quarterly instalments are due on the following dates:

As such, a very large company will have needed to pay its estimated tax liability in full before the end of the period that it relates to.  

Late payment of Corporation Tax due under the Quarterly Instalment Payments (QIPs) regime attracts interest at a rate of 6.75% on each underpayment, up to the normal due date (nine months and one day after the end of the accounting period). After this point, the interest rate increases to 8.25% per annum.

For example, if a large company had a Corporation Tax liability of £250,000 due under QIPs and failed to make any payments until nine months after the year end, it would incur late payment interest of in excess of £19,000.

Companies not within the QIPs regime must settle their Corporation Tax liability within nine months and one day of the period end. Failure to do so will result in late payment interest accruing at 8.25% per annum from the due date until payment is made. 

Why this matters more now

With HMRC’s late payment interest rate now set at base rate plus 4% from 6 April 2025 (previously base plus 2.5%), the financial consequences of underestimating QIPs or missing tax payment deadlines are steep.

Meanwhile, repayment interest remains at base rate minus 1%, creating a significant gap that penalises late payers far more than it rewards early ones. As a result, overpaying offers little financial advantage as excess funds tied up with HMRC generate minimal return and could be better utilised within the company.

Key risks of inaccurate QIPs:

• Interest charges: Underpaid instalments attract daily interest at 6.75%, quickly adding up. 
• Cashflow disruption: Late payments can lead to unexpected outflows and budgeting issues, particularly if the company doesn’t anticipate late payment interest. 
• Compliance scrutiny: Persistent underpayments may trigger HMRC reviews or inquiries. 

Best practices for managing QIPs:

• Forecast early and often: Regularly update profit projections to reflect current trading conditions. 
• Understand associated company rules: These can significantly lower your QIP thresholds. 
• Use Group Payment Arrangements (“GPAs”): These can simplify payments across group entities but require coordination. 
• Pay on estimates if necessary: If you are a large company and your tax return isn’t finalised before the final two instalments are due, continue to pay based on a reasonable estimate to avoid incurring interest charges.  

Final thoughts

In today’s high-interest environment, there is little room for error when it comes to Corporation Tax planning. Ensuring your QIPs are accurate and paid on time is not just a compliance requirement; it’s a proactive step toward maintaining financial stability and avoiding unnecessary costs.

Get in touch with us today if you would like to review your current position, refine your QIP forecasts, and ensure your business stays compliant and cash-efficient.