UK late payment interest explained
UK law gives suppliers a right to interest and compensation on late business invoices. Here is how it works and how to calculate it.
In short
- Business-to-business invoices in the UK attract statutory interest at 8% above the Bank of England base rate from the day after the due date.
- You can add fixed compensation of £40, £70 or £100 per invoice depending on its size.
- The reference base rate is fixed for each half-year, so the rate does not change every time the Bank moves.
- The right exists without a clause in your terms, but stating it is good practice. Consumers are not covered.
Who it applies to
The Late Payment of Commercial Debts (Interest) Act 1998 covers contracts for goods or services between businesses, including sole traders and the public sector. It does not cover sales to consumers.
If you agreed a payment date, interest runs from the day after it. If no date was agreed, the default is 30 days after the later of the invoice or the delivery of the goods.
Public sector buyers are held to 30 days by law. For private buyers, terms longer than 60 days are allowed only if they are not grossly unfair to the supplier, and the government has proposed capping them at 60 days outright; see the end of this guide.
How much interest
Statutory interest is 8% a year above the Bank of England base rate. The base rate you use is fixed for each half-year: the rate on 31 December applies to debts that become late between January and June, and the rate on 30 June applies to debts that become late between July and December.
Interest is simple, not compound, and is worked out daily: debt × (8% + reference rate) ÷ 365 × days late.
Fixed compensation
On top of interest, you can claim a fixed sum per invoice for the cost of recovering the debt.
| Invoice amount | Fixed sum |
|---|---|
| Up to £999.99 | £40 |
| £1,000 to £9,999.99 | £70 |
| £10,000 or more | £100 |
You may also claim reasonable recovery costs above the fixed sum where you can show them.
Worked example
Worked example
A £6,000 invoice is paid 45 days late, and the reference base rate for that half-year is 4%. Interest is £6,000 × 12% ÷ 365 × 45 = £88.77. Fixed compensation for an invoice of that size is £70. The buyer owes £6,158.77.
The base rate here is only for illustration. Check the Bank of England rate for the relevant date, or let Terms Due apply it for you.
| Invoice | £6,000 |
|---|---|
| Days late | 45 |
| Rate (8% + 4%) | 12% |
| Interest | £88.77 |
| Compensation | £70.00 |
| Total due | £6,158.77 |
Four invoices, one buyer
Compensation is per invoice, which is why it adds up faster than interest on a book of small late invoices. Same 12% rate.
| Invoice | Days late | Interest | Compensation | Total added |
|---|---|---|---|---|
| £650 | 20 | £4.27 | £40 | £44.27 |
| £1,900 | 20 | £12.49 | £70 | £82.49 |
| £3,200 | 35 | £36.82 | £70 | £106.82 |
| £12,500 | 35 | £143.84 | £100 | £243.84 |
| Total | £197.42 | £280 | £477.42 |
How to claim it
Say so in your terms
A line in your trade terms that statutory interest and compensation will be applied to late invoices. Not required by law, but it removes the argument.
Calculate from the day after the due date
Use the reference rate for the half-year in which the invoice became late, and count the days to the date of payment.
Show it as separate lines
On the statement or final notice: the invoice, the interest to date, the compensation, and the total. Terms Due does this automatically.
Invoice it
Raise a separate invoice for the interest and compensation, or add them to the next statement. Interest is outside the scope of VAT.
Decide whether to insist
Many suppliers waive it when the main debt is paid promptly after a final notice, and insist when it is not. Either way, decide on purpose.
Before you claim
Your contract can set a different remedy for late payment, as long as it is substantial. Mention statutory interest in your trade terms so buyers are not surprised, and take advice before pursuing a disputed debt. This guide is general information, not legal advice.
What is changing: the Small Business Plan
On 30 July 2025 the government published proposals to tighten the law. The main points: agreed payment terms could not exceed 60 days, falling to 45 days after five years; a buyer would have 30 days from receiving an invoice to dispute it, after which the full amount is payable; statutory interest would become mandatory, so parties could not agree a lower rate; large companies would have to report the interest they owe and pay; and the Small Business Commissioner would be able to fine persistent late payers. The consultation closed on 23 October 2025.
These need legislation and may change on the way through Parliament. If they become law, Terms Due will apply the new rules. Until then, the 1998 Act as described here is what applies. Check GOV.UK for the current position.
Questions
Can I claim late payment interest if my terms do not mention it?
Yes. The right comes from the Act, not your contract, although stating it in your terms is good practice.
Is the compensation per invoice or per customer?
Per invoice.
Does VAT apply to late payment interest?
No. Statutory interest and compensation are outside the scope of VAT, so show them without VAT on the invoice.
Can I claim it from a buyer in Scotland or Northern Ireland?
Yes. The Act applies across the UK.
How long do I have to claim?
The usual limitation period for a contract debt applies, six years in England and Wales, but in practice claim it with the debt or not at all.
Does it apply to a buyer who is a sole trader?
Yes, if they bought in the course of business. It does not apply to someone buying as a consumer.
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