Bank of England base rate late payment interest: how to charge it automatically

What is the UK statutory late payment interest rate?

The UK statutory late payment interest rate is the Bank of England base rate plus 8% a year, which is 11.75% for debts that fall overdue between 1 July and 31 December 2026. The base rate has been 3.75% since 17 June 2026.

The right comes from the Late Payment of Commercial Debts (Interest) Act 1998, and the 8% margin from the 2002 Rate of Interest Order. The Act covers business-to-business and public sector debts only, so consumer invoices are outside it. Interest is simple, not compound, runs from the day after the due date, and both the interest and the fixed compensation sum of £40, £70 or £100 per invoice are outside the scope of VAT. Where no due date was agreed, the debt is late 30 days after the later of delivery and the customer receiving the invoice. Our UK late payment fees guide covers the legal side in full.

Does the rate lock for six months, or follow the base rate?

Under the Act the rate locks for six months: the base rate in force on 30 June or 31 December applies to debts that fall overdue in the following six months, and a Bank decision mid-block changes nothing until the next reference date. In Paidnice both modes are available, and you choose per policy.

• Lock for the period. Paidnice takes the base rate from the last reference date and holds it for each six-month block, which is the statutory method. A debt that runs past a reference date is split there and each block is charged at its own rate.
• Follow the base rate. Paidnice applies base rate plus your margin using the base rate as it changes, so a Bank decision feeds the charge from the day it takes effect. This suits terms of business that set a contractual rate against the base rate rather than relying on the Act.

Either way the margin is yours to set. Statutory is 8%; a contractual clause can name a different figure, though a UK business should never charge more than base rate plus 8% a year on the strength of the Act alone.

Why charging Bank of England interest by hand is painful

Charging Bank of England interest by hand means checking the base rate on 31 December and 30 June, splitting every long-overdue debt at each reference date, and prorating each block by the day, on every overdue invoice, every month.

A year-old debt shows the size of the job. Picture a £10,000 invoice that falls overdue on 1 November 2025 and stays unpaid for a year, crossing the 31 December 2025 and 30 June 2026 reference dates. Done properly, the debt is split into three blocks and each block carries the rate set on its own reference date.

That is one invoice. A ledger with forty overdue invoices at different ages needs the same split forty times, redone each month as the days accrue, and reversed for the ones that get paid. In most businesses that job survives a couple of months before something more urgent takes the morning, and the terms that promise interest go unenforced.

How do you calculate late payment interest under the Act?

Late payment interest under the Act is the overdue amount, times the reference base rate plus 8%, divided by 365, times the days overdue, plus the fixed compensation sum of £40, £70 or £100 for the invoice's size band.

1. Take the base rate from 31 December (debts overdue January to June) or 30 June (debts overdue July to December).
2. Add 8% to get the annual statutory rate.
3. Multiply the overdue amount by that rate, divide by 365, then multiply by the days from the day after the due date.
4. Add the fixed sum: £40 for a debt under £1,000, £70 from £1,000 to £9,999.99, £100 for £10,000 or more.

On a £5,000 invoice paid 40 days late in the first half of 2026 that is £5,000 × 11.75% ÷ 365 × 40, which is £64.38 in interest, plus £70 compensation, £134.38 in total. The GOV.UK guidance and the Small Business Commissioner calculator use the same method, and the UK statutory interest calculator applies the right reference rate for you. A claim can reach back six years.

How Paidnice auto-charges Bank of England interest

Paidnice charges Bank of England interest on overdue Xero and QuickBooks Online invoices automatically: one policy sets base rate plus your margin, picks lock or follow, and raises each charge as a real invoice in the ledger at the correct rate for each block the debt spans.

1. Connect Xero or QuickBooks Online, so Paidnice can see your overdue invoices.
2. Create a late fee policy on a customer group and turn on the Bank of England base rate. Enter your margin: 8% for the statutory rate, or the figure in your terms.
3. Choose lock or follow. Lock the base rate for each six-month period as the Order sets it, or follow the base rate as it changes.
4. Set the accounting. Simple interest is one toggle ("Include previous interest charges" off), the tax rate is "Not applicable", and the £40, £70 or £100 fixed sum is a line item with its own income account.
5. Interest is charged automatically on every overdue invoice in the group, prorated by the day at the correct rate for each block, posted to the ledger as an invoice the customer's payables team can process.

You can leave the policy in draft for the first month to see what it would have raised before anything goes out. Whether the interest should compound is covered in compound or simple interest on overdue invoices, and where it posts in how to account for late fees. The support article on Bank of England interest explains the proration in detail.

Common questions

What interest can I charge on overdue B2B invoices in the UK?
Statutory interest of 8% a year above the Bank of England base rate, which is 11.75% for debts overdue in the second half of 2026, plus fixed compensation of £40, £70 or £100 per invoice. Your own terms can set a different contractual rate.

What happens if the base rate changes while an invoice is still overdue?
Under the Act, nothing until the next reference date. The statutory rate is fixed from the base rate on 31 December or 30 June, so a mid-block Bank decision feeds the next block only. A debt that stays overdue past a reference date is split there, each block charged at its own rate. In Paidnice's follow mode, the new base rate applies from the day it takes effect.

Does Paidnice update the Bank of England rate automatically?
Yes. Paidnice reads the base rate for you, either at each reference date in lock mode or as it changes in follow mode, so interest charges stay correct without manual updates.

Does statutory interest compound?
No. The Act gives simple interest on the debt. Compounding is only available where your terms of business set it up, and in Paidnice it is a toggle on the policy.

Does this work with Xero and QuickBooks Online?
Yes. Paidnice connects to both and applies the interest rule to overdue invoices in either ledger. See late fees and interest for how it works.

Charging Bank of England interest correctly means using the base rate from the right reference date and splitting any debt that runs past the next one. Start free, no card required, and Paidnice reads the rate, adds your margin, and charges your overdue invoices for you.

Written by

Denym Bird

Co-founder & CEO of Paidnice

Denym is a software entrepreneur and writes about accounts receivables management for small business.

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