How to Charge Late Payment Interest in the UK
Your legal right to charge interest and claim compensation when business clients pay late — updated for the 2026 reforms.
The Late Payment of Commercial Debts Act 1998
UK law gives every business the automatic right to charge interest on overdue invoices sent to other businesses. You don't need to agree this upfront — it's a statutory entitlement under the Late Payment of Commercial Debts (Interest) Act 1998.
The Act applies to all B2B transactions in England, Wales, Scotland, and Northern Ireland. It does not apply to consumer sales or transactions with individuals acting outside their business.
How Much Interest Can You Charge?
The statutory rate is 8% per annum above the Bank of England base rate. Interest is calculated on a simple (not compound) basis.
Calculation Example
- Invoice amount: £5,000
- Bank of England base rate: 4.5%
- Statutory rate: 8% + 4.5% = 12.5% per annum
- Daily interest: £5,000 × 12.5% ÷ 365 = £1.71 per day
- 30 days overdue: £51.37
Fixed Compensation Amounts
On top of interest, you can claim a fixed compensation payment for the inconvenience of chasing the debt:
| Debt Amount | Compensation |
|---|---|
| Up to £999.99 | £40 |
| £1,000 – £9,999.99 | £70 |
| £10,000 or more | £100 |
Compensation is per invoice, not per day. You can also recover reasonable debt recovery costs if the fixed sum doesn't cover them.
When Does Interest Start?
Interest accrues from the day after the payment due date. If your invoice doesn't specify a due date, the default period is 30 days from either:
- 📅 The date the customer receives the invoice, or
- 📅 The date you delivered the goods or completed the service (whichever is later)
Always set clear payment terms on your invoices (e.g. "Payment due within 14 days") to avoid ambiguity.
How to Charge Late Payment Interest
- 1. State your policy on the original invoice— include a line such as "Late payments will incur statutory interest at 8% above the Bank of England base rate plus fixed compensation under the Late Payment of Commercial Debts Act 1998."
- 2. Send a reminder when the invoice becomes overdue — note the outstanding amount, the overdue period, and the interest that is accruing.
- 3. Issue a supplementary invoice or statement — listing the original debt, the interest calculated to date, and the fixed compensation amount.
- 4. Keep records — log the Bank of England base rate you used, the number of days overdue, and all correspondence.
2026 Late Payment Reforms
The UK Government has introduced tougher measures in 2026 to tackle the culture of late payment that costs small businesses billions each year:
- 🔹 Enhanced reporting obligations — large companies must publish more detailed payment-practice data including the percentage of invoices paid late.
- 🔹 Small Business Commissioner powers — the Commissioner can now investigate complaints, name persistent late payers, and recommend binding payment plans.
- 🔹 Prompt Payment Code strengthened — signatories commit to paying 95% of invoices within 30 days or risk removal.
- 🔹 Public sector 30-day rule enforced — stricter monitoring ensures government bodies and their supply chain pay on time.
💡 Practical Tip
Even if you never intend to charge interest, stating your late payment policy on invoices encourages clients to pay on time. Most businesses find that mentioning statutory interest reduces overdue payments by 20–30%.
Frequently Asked Questions
What is the statutory late payment interest rate in the UK?
The statutory rate is 8% per annum above the Bank of England base rate. With a base rate of 4.5% in early 2026, the total rate is 12.5% per year on the outstanding amount.
How much fixed compensation can I claim for a late payment?
You can claim £40 for debts under £1,000, £70 for debts between £1,000 and £9,999.99, and £100 for debts of £10,000 or more. This is per invoice, not per day.
Does late payment interest apply to consumer invoices?
No. Statutory late payment interest under the Late Payment of Commercial Debts Act 1998 only applies to business-to-business (B2B) transactions. Different consumer credit rules apply to B2C debts.
Do I need to mention late payment interest on my invoice to claim it?
No. The right to charge statutory interest exists automatically for B2B transactions after the payment due date. However, stating your late payment policy on invoices sets clear expectations and strengthens your position.
What are the 2026 late payment reforms?
The UK Government's 2026 reforms strengthen protections for small businesses by requiring large companies to report payment practices, introducing stricter enforcement, and expanding the Small Business Commissioner's powers to investigate complaints.
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