How to Auto-Charge Bank of England Interest on Late Invoices

If you invoice other UK businesses, you can charge statutory interest on late payments at the Bank of England base rate plus 8% a year. The catch is that the statutory rate is fixed from the base rate on two reference dates a year, so a debt that stays overdue past a reference date carries more than one rate. Tracking that by hand is the kind of job that quietly gets dropped.

The short version: you can auto-charge Bank of England interest on overdue invoices by connecting Paidnice to Xero or QuickBooks. It reads the base rate at each 31 December and 30 June reference date, adds the statutory 8%, and applies the correct rate to each six-month block an invoice spans, automatically. This applies to UK business-to-business invoices; statutory interest does not apply to consumer debts, and Paidnice works with Xero and QuickBooks Online.

UK statutory late payment interest rate 2026

The statutory rate for debts that fell overdue between 1 January and 30 June 2026 is 11.75%: the 3.75% base rate on 31 December 2025 plus 8%. Debts overdue in late 2025 run at 12.25%.

The rate is not re-read every time the Bank of England meets. It is fixed twice a year, from the base rate in force on 30 June and 31 December, and applied to debts that fall overdue in the following six months. So one ledger can carry two rates at once, and the rate for debts overdue from 1 July 2026 comes from the 30 June 2026 base rate.

Paidnice's Bank of England base rate toggle picks the correct reference rate for each period an invoice spans, so the interest invoice matches the Act rather than today's headline rate.

Why charging Bank of England interest by hand is painful

The statutory rate is not a number you can set and forget. It follows the Bank of England base rate, and the legal mechanism fixes it in six-month blocks from the 31 December and 30 June reference dates, a detail buried in the 2002 Rate of Interest Order. A Bank decision in the middle of a block changes nothing until the next reference date. When a debt stays overdue past a reference date, doing it properly means splitting the debt there and charging each block at its own rate. Our guide to UK late payment fees covers the legal side in full.

Here is what that looks like on a year-old debt.

How to calculate late payment interest UK gov

Reference base rate plus 8%, divided by 365 for the daily rate, multiplied by the overdue amount and the days late, plus £40, £70 or £100 fixed compensation per invoice.

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 for the debt band.

On a £5,000 invoice paid 40 days late in the first half of 2026 that is £64.40 interest plus £70 compensation, £134.40 in total. Our UK late payment fees guide carries the full worked example and calculator; the GOV.UK guidance and the Small Business Commissioner calculator use the same method.

Late Payment of Commercial Debts Interest Act how to calculate statutory interest

The 1998 Act gives the right to simple interest from the day after the due date; the 2002 Rate of Interest Order sets 8% over the six-monthly reference base rate; section 5A adds the fixed sums.

The Act covers business-to-business and public sector debts only, so consumer invoices are outside it. Where no due date was agreed, the debt is late 30 days after the later of delivery and the customer receiving the invoice. Interest is simple, not compound, and both the interest and the fixed sum are outside the scope of VAT. A claim can reach back six years.

Paidnice applies each of these rules in the policy: simple interest is one toggle, the tax rate is "not applicable", and the fixed sum is a line item with its own income account.

How Paidnice auto-charges Bank of England interest

Paidnice does the tracking, the maths and the charging for you:

1. Connect Xero or QuickBooks in one click, so Paidnice can see your overdue invoices.
2. Set your interest rule to the Bank of England base rate plus 8% (or any rate you choose).
3. Paidnice reads the base rate for each reference date and indexes your charge to it, with no manual updates.
4. Interest is charged automatically on every overdue invoice, prorated by the day at the correct rate for each six-month block the debt spans.

It stays correct without you touching it

Because the rate is indexed to the Bank of England base rate at each reference date and prorated by the day, your charges stay right as the statutory rate moves, and every action is logged for a clean audit trail. If you want to sense-check a figure yourself, our free UK statutory interest calculator applies base rate plus 8% to any invoice, and the support article on Bank of England interest explains the proration in detail.

The bottom line

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. That is tedious by hand and automatic with Paidnice: it reads the rate, adds the statutory 8%, and charges your overdue invoices for you.

On Xero or QuickBooks? Start a free trial of Paidnice and auto-charge the right interest, every time.

Written by

Denym Bird

Co-founder & CEO of Paidnice

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

LinkedIn X