Late Payment Interest in the UK (2026): How to Charge Statutory Interest and Compensation

If another business pays you late, the law already gives you two things most small firms never claim: interest at a rate well above what banks pay, and a fixed sum towards the cost of chasing. This guide is for UK sole traders, partnerships and companies selling to other businesses or the public sector in 2026. It explains when an invoice is legally late, how to work out statutory interest at today's rate, what compensation you can add, how to claim without wrecking the relationship, and what the Commercial Payments Bill now in Parliament will change.

Quick answer

Under the Late Payment of Commercial Debts (Interest) Act 1998 you can charge another business statutory interest at 8% above the Bank of England base rate — 11.75% a year on invoices that went late in 2026 — plus a fixed £40, £70 or £100 per invoice for recovery costs.

• Applies to business-to-business and public sector sales, not consumers

• No agreed date? Payment is late 30 days after the invoice or delivery

• Interest is simple, daily, on the VAT-inclusive amount

• You can't use it if your contract sets a different interest rate

• A 60-day cap and mandatory interest are coming, but aren't law yet

Who the late payment rules cover

The 1998 Act applies to contracts for the supply of goods or services where both parties are acting in the course of a business, and to sales to public authorities. It applies throughout the UK and covers businesses of every size, so a sole trader can use it against a multinational and a multinational can use it against a sole trader.

It doesn't cover sales to consumers. If you sell to members of the public, any right to interest has to come from your own terms, and consumer protection law limits what you can impose. It also doesn't apply where your contract already provides a different rate of interest for late payment. GOV.UK puts it simply: you cannot claim statutory interest if there's a different rate of interest in a contract. That's why some big customers write a low rate, such as 2% above base, into their standard purchase terms. If you sign those terms, that's the rate you get. When a public authority is the customer, though, the contract can't set a lower rate than statutory interest.

The right is optional. GOV.UK says you have the right to charge interest but can choose not to, and many small firms waive it for good customers who pay a few days late. The point is that the choice is yours, and on a large or very late invoice the amounts are worth having.

When an invoice legally becomes late

Interest starts the day after the payment becomes late. That depends on what you agreed.

• You agreed a payment date. The invoice is late on the day after that date. Between businesses, agreed terms should usually be no more than 60 days. You can agree longer, but only if it's fair to both businesses.
• A public authority is the customer. Agreed terms should be no more than 30 days.
• Nothing was agreed. The law says payment is late 30 days after the customer receives the invoice, or after you deliver the goods or finish the service, if that's later.

The practical lesson is to agree payment terms in writing before you start work and print them on every invoice, along with the invoice date and a clear due date. Our guide to VAT invoice requirements covers the other details an invoice must carry, and the invoice generator has a payment terms field.

An invoice with 30-day terms, issued 1 September

1 September

Invoice issued and received; terms 30 days

1 October

Payment due

2 October

Invoice is late — statutory interest starts

2 October onwards

Fixed compensation can be claimed once

Up to 6 years

Period for which interest can be claimed

How statutory interest is calculated

Statutory interest is 8% a year above the Bank of England base rate. It's simple interest, not compound, and it runs daily from the day after the due date until the day you're paid.

The base rate isn't the one in force on the day you send your claim. It's fixed for six-month periods. The Small Business Commissioner's guidance explains that for debts that become late between 1 January and 30 June, you use the base rate on the previous 31 December; for debts that become late between 1 July and 31 December, you use the base rate on 30 June. Once set, that rate applies for the life of the debt.

Bank Rate has been 3.75% since 18 December 2025, so it was 3.75% on both 31 December 2025 and 30 June 2026. That means:

Statutory interest rates for 2026

11.75%

Debts late 1 Jan – 30 Jun 2026

8% + 3.75% (base rate on 31 Dec 2025)

11.75%

Debts late 1 Jul – 31 Dec 2026

8% + 3.75% (base rate on 30 Jun 2026)

3.75%

Bank of England base rate now

Reviewed at each MPC meeting

The formula is the one GOV.UK uses:

1. Multiply the debt by the annual rate to get a year's interest.
2. Divide by 365 to get the daily interest.
3. Multiply by the number of days the payment is late.

The Small Business Commissioner's guidance says to use the full invoice amount including VAT. You can claim interest for up to 6 years from the day after the payment terms end. You can't charge interest on an invoice that was paid late because of a genuine dispute, and you can't charge interest or compensation on your own interest invoice if that is paid late.

Worked examples

Example 1 — a design agency. Hollins Studio invoices a retailer £4,000 plus £800 VAT (£4,800) on 16 June 2026 with 30-day terms. The due date is 16 July, so the debt became late on 17 July — in the second half of the year, so the rate is 11.75%. The retailer pays on 14 September, 60 days late.

• Annual interest: £4,800 × 11.75% = £564.00
• Daily interest: £564.00 ÷ 365 = £1.5452
• Interest for 60 days: £1.5452 × 60 = £92.71
• Fixed compensation (debt between £1,000 and £9,999.99): £70
• Total claim: £162.71

Example 2 — a groundworks subcontractor. Tarn Groundworks is owed £12,000 including VAT on an invoice due 31 March 2026 that's finally paid 100 days late. The debt became late on 1 April, so the rate is set by base rate on 31 December 2025: 11.75%.

• £12,000 × 11.75% = £1,410.00 a year, or £3.8630 a day
• Interest for 100 days: £386.30
• Fixed compensation (£10,000 or more): £100
• Total claim: £486.30, plus any reasonable extra recovery costs

For context, that £486 is about 4% of the invoice. Borrowing £12,000 for 100 days on an overdraft would cost far less, which is exactly why the law sets the rate high: to make paying suppliers late more expensive than borrowing.

Fixed compensation and recovery costs

On top of interest, you can claim a fixed sum for the cost of recovering each late payment. The amount depends on the size of the debt:

You can claim the fixed sum only once for each payment, however many reminders you send. If your actual, reasonable costs of recovering the debt are higher — for example a debt collection agency's fee — GOV.UK says you can also claim those reasonable costs. Keep invoices for any costs you want to recover.

Because the fixed sum is per invoice, a customer who pays ten £500 invoices late owes ten lots of £40. On small, frequent invoices the compensation can be worth more than the interest.

How to claim late payment interest, step by step

Claiming interest without starting a fight

1. 1

   Check your terms and the dates

   Confirm the agreed payment date (or that none was agreed), when the customer received the invoice, and that your contract doesn't set its own interest rate.

2. 2

   Send a polite reminder first

   Most late payments are admin, not bad faith. A reminder a few days after the due date that mentions your right to statutory interest often does the job.

   Tip: The payment reminder generator drafts a firm but polite note.

   Payment reminder generator
3. 3

   Calculate interest and compensation

   Use the VAT-inclusive invoice total, the correct six-monthly rate and the exact number of days late.

4. 4

   Issue a separate interest invoice

   GOV.UK says to send a new invoice if you decide to add interest. Show the original invoice number, the rate, the days and the fixed sum.

5. 5

   Escalate if you still aren't paid

   Send a formal letter before action, then consider a court claim online or a statutory demand. Small firms can ask the Office of the Small Business Commissioner for help with larger customers.

The interest invoice is a demand for compensation, not a new sale. Keep it separate from your sales invoices and make the calculation easy to check. A customer who sees a clear, correct figure is far more likely to pay it, or to pay future invoices on time, than one who gets a round number with no workings.

Timing matters. Some businesses add interest automatically to every overdue invoice. Others mention the right in reminders and only claim on persistent late payers or large sums. Both are lawful. What doesn't work is threatening interest and never following through.

If the customer disputes the work, deal with the dispute first. Interest can't be charged on an invoice paid late because of a genuine dispute, and a court will look at whether the dispute was real.

Payment practices reporting: check before you sign

The UK's largest companies and LLPs must publish how quickly they pay suppliers, twice a year, on a public government service. That's useful intelligence before you accept a big customer's 60-day terms.

A company or LLP is in scope if, on its last two balance sheet dates, it exceeded two of the three medium-sized company thresholds. Since 6 April 2025 those are £54 million turnover, £27 million balance sheet total and 250 employees (up from £36 million and £18 million). Each report must be published within 30 days of the end of the reporting period, and failing to publish is a criminal offence for the business and its directors.

The reports show the average number of days taken to pay, and the percentage of invoices paid within 30 days, between 31 and 60 days, and in 61 days or more. For financial years starting on or after 1 January 2025, they also show the total value of payments and the share paid late because of a dispute. From 1 April 2025, firms using construction contracts must also report on retention practices.

Search the payment practices service for any large customer before you agree terms. If a company routinely pays half its invoices after 60 days, price that in, ask for staged payments or a deposit, or think about invoice finance.

The Commercial Payments Bill: what's changing

The government consulted on tackling late payments from 31 July to 23 October 2025 and published its response, "Time to pay up", on 24 March 2026. The Commercial Payments Bill — which the government also calls the Small Business Protections Bill — was introduced in the House of Lords on 19 May 2026. It finished committee stage on 21 July, and its Lords third reading is scheduled for 20 October 2026. It then has to pass the House of Commons. None of it is law yet.

Where the Commercial Payments Bill has got to

Step 1

Consultation Jul–Oct 2025

Step 2

Response 24 Mar 2026

Step 3

Lords: introduced 19 May

Step 4

Committee done 21 Jul

Step 5

Lords 3rd reading

20 Oct 2026

Step 6

Commons, Royal Assent, lead-in

not yet law

According to the Department for Business and Trade's overview, the Bill would:

• impose maximum payment terms of 60 days, with strictly limited exemptions, for large firms paying smaller suppliers (public authorities stay at 30 days)
• make statutory interest at 8% above base rate mandatory, so contracts could no longer replace it with a lower rate
• give suppliers the right to a fixed sum where a customer raises a dispute late or without enough information
• ban retention payments in construction contracts, with a transition period
• give the Small Business Commissioner powers to investigate persistent late payers, issue binding interim decisions in disputes between small and larger firms, and impose financial penalties that the government says could run to tens of millions of pounds
• require boards or audit committees of persistently late-paying large companies to explain their performance, and require large companies to report the interest they've paid and owe

The government has said there will be a lead-in time and transition period before the powers come into force, and that the rules won't apply retrospectively: payments, contracts and disputes will be judged under the rules in force at the time. Industry commentators expect Royal Assent around the end of 2026 or early 2027, with secondary legislation after that. Some details, such as which businesses count as "large" and "small", will be set in regulations after further consultation.

What this means today: carry on using the current Act. If you're negotiating long-term contracts with big customers now, it's reasonable to raise the fact that 60-day caps and non-excludable interest are on the way. The Autumn Budget on 28 October 2026 isn't expected to change the Act, but watch for any updates on the Bill's timetable.

Common mistakes when charging late payment interest

• Using today's base rate. The rate is fixed by the base rate on 30 June or 31 December before the debt became late.
• Charging compound interest. Statutory interest is simple. Don't add interest to interest.
• Leaving VAT out. The Small Business Commissioner's guidance uses the VAT-inclusive total.
• Claiming the fixed sum twice. It's once per invoice, not once per reminder.
• Ignoring your own contract. If your terms set "2% per month", that's the remedy you've chosen, not statutory interest.
• Charging consumers. The Act doesn't cover them.
• No proof of dates. Keep evidence of when invoices were sent and received. Our guide to how long to keep business records explains how long to hold on to them.

Protecting your cash flow before payments go late

Interest compensates you, but it doesn't pay this month's wages. The cheapest fixes are upstream: credit-check new customers, agree terms in writing, invoice the day the work is done, take deposits on large jobs, and offer easy payment methods. If you're VAT registered and customers routinely pay slowly, the VAT Cash Accounting Scheme means you don't pay HMRC VAT until your customer pays you. For a cash gap you can't close, compare options in our guide to small business loans and model the effect with the working capital calculator.

Good bookkeeping helps too. An aged debtors report, reviewed weekly, shows which invoices are drifting before they become 60 days late.

Official links

• Late commercial payments: charging interest and debt recoveryRates, fixed sums, payment terms
• Small Business Commissioner interest calculatorWorks out statutory interest for you
• Bank of England Bank RateCurrent and past base rates
• Check a company's payment practicesLarge companies' payment reports
• Commercial Payments BillTrack the Bill's progress
• Make a court claim for moneyMoney Claim Online

What to do next

Add your payment terms and a line about statutory interest to your invoice template today, then run an aged debtors report and work out what your three oldest unpaid invoices are now worth with interest and compensation. Send reminders with the payment reminder generator and a clear interest invoice if they still don't pay. Check back after 20 October 2026 for the Bill's next stage, and after 31 December for the rate that will apply to invoices going late in the first half of 2027.

This is general information, not legal or tax advice — confirm on the official source or with a professional.

Frequently asked questions

What is the statutory interest rate for late payment in the UK?

It's 8% a year above the Bank of England base rate, fixed for six months at a time. For debts that became late between 1 July and 31 December 2026 the rate is 11.75%, because base rate was 3.75% on 30 June 2026. The same 11.75% applied from January to June 2026. The rate for January 2027 onwards depends on base rate on 31 December 2026.

Can I charge late payment interest if it's not in my terms and conditions?

Yes. Statutory interest under the Late Payment of Commercial Debts (Interest) Act 1998 is implied into business-to-business contracts for goods and services, so you don't need a clause. You can't claim it if your contract already sets a different interest rate. It doesn't apply to sales to consumers.

How much compensation can I claim for a late invoice?

A fixed sum per invoice on top of interest: £40 for debts under £1,000, £70 for £1,000 to £9,999.99, and £100 for £10,000 or more. You can claim it only once per payment. If your actual recovery costs are higher, you can also claim reasonable extra costs.

When does an invoice become late?

On the day after the agreed payment date. If no date was agreed, it becomes late 30 days after the customer receives the invoice or after you deliver the goods or services, whichever is later. Agreed terms between businesses should usually be no more than 60 days, and 30 days where a public authority is the customer.

Should I include VAT when calculating late payment interest?

Yes. The Small Business Commissioner's guidance says to use the full invoice amount including VAT. On a £1,000 job plus £200 VAT, interest and compensation are worked out on £1,200. You can't charge further interest on an interest invoice that's paid late, or on an invoice paid late because of a genuine dispute.

Is the 60-day payment cap law yet?

Not yet. The Commercial Payments Bill, introduced on 19 May 2026, would impose a 60-day maximum on payment terms, make statutory interest mandatory and give the Small Business Commissioner powers to fine persistent late payers. Its Lords third reading is scheduled for 20 October 2026; it then goes to the Commons, and the government has promised a lead-in period before it takes effect.

Sources & verification

Figures on this page were checked against the sources below when it was last reviewed on 11 October 2026. Each rate and limit is stored once with its own official source and review date, and official update channels are monitored daily so changes are picked up. How we verify

1. 1.Late commercial payments: charging interest and debt recovery — GOV.UK · accessed 11 October 2026
2. 2.Interest calculator guidance — Office of the Small Business Commissioner · accessed 11 October 2026
3. 3.Bank Rate history — Bank of England · accessed 11 October 2026
4. 4.Commercial Payments Bill [HL] — bill stages — UK Parliament · accessed 11 October 2026
5. 5.Commercial Payments Bill: overview — Department for Business and Trade (GOV.UK) · accessed 11 October 2026
6. 6.Largest crackdown on late payments in over 25 years as landmark Bill enters Parliament — GOV.UK · accessed 11 October 2026
7. 7.Duty to report: guidance to reporting on payment practices and performance — Department for Business and Trade (GOV.UK) · accessed 11 October 2026
8. 8.Commercial Payments Bill: what changed at committee stage — BCIS · accessed 11 October 2026