---
title: "Business Central UK late payment interest and VAT"
description: "Charge UK statutory late payment interest in Business Central: Finance Charge Terms at base rate plus 8%, the fixed sums, VAT, and cancelling a memo."
url: https://www.paidnice.com/blog/business-central-uk-late-payment-interest
---

# Business Central UK late payment interest and VAT

Written by

Ashley Schroder
Expert verified

Co-founder of Paidnice

Ashley checked Microsoft's finance charge pages and HMRC's VAT manual, then mapped base rate plus 8% onto Finance Charge Terms to see what each setting holds.

Reviewed by Jack Daffron

Co-founder of Paidnice

Published Oct 27, 2026 · 10 min

## Summary

You can charge UK statutory interest in Business Central by adding a Finance Charge Terms rate of Bank of England base rate plus 8% and a new rate row each half-year. Microsoft documents no UK statutory interest feature. The £40, £70 and £100 sums can be charged per invoice through Add. Fee per Line and Additional Fee Setup; test it in a sandbox. Interest is outside the scope of VAT.

- **The rate:** UK statutory interest is the Bank of England base rate plus 8% a year, fixed in six-month blocks. Business Central holds it only as rate rows you add each half-year.
- **The fixed sums:** £40, £70 or £100 per invoice, by debt size. Business Central has no UK setting for them, but Add. Fee per Line on one reminder level, with three Threshold Remaining Amount rows in Additional Fee Setup, charges a fee per overdue invoice. Test it in a sandbox.
- **VAT:** HMRC treats late payment interest as outside the scope of VAT. In Business Central the result comes from the VAT Posting Setup row for the customer's VAT Bus. Posting Group and the interest account's VAT Prod. Posting Group.
- **Paidnice on Business Central:** Paidnice indexes interest to the Bank of England base rate, locked per six months or followed live, and raises it as a sales invoice in Business Central, unposted for your team to post or posted, as you choose at implementation.

Paidnice connects to your ERP on the Custom plan. [Book a demo on your own data](https://www.paidnice.com/book-a-demo), and a specialist sets up the connection.

A customer is late on an invoice. You open Finance Charge Terms in Business Central and find a place for one interest rate, with a place to add a new rate for each period. The UK statutory rate changes every six months, so someone has to remember to add it, or every late-paying debtor is charged last period's rate.

This guide covers the credit control side of that job: what Business Central holds for UK statutory interest, how to set it up, what happens to the £40, £70 and £100 sums, how VAT lands in your accounts receivable, and how to undo a memo you issued by mistake.

## Can Business Central charge UK statutory interest automatically?

Not by a built-in UK feature: Microsoft documents no UK statutory interest setting, but Finance Charge Terms can hold base rate plus 8% as rate rows you maintain.

The right to charge comes from the Late Payment of Commercial Debts (Interest) Act 1998. It applies to business-to-business debts, runs as simple interest from the day after the due date, and needs no clause in your contract.

A contract rate replaces the statutory rate only if it is a substantial remedy, says [GOV.UK](https://www.gov.uk/late-commercial-payments-interest-debt-recovery/charging-interest-commercial-debt). Our guide to charging interest on overdue invoices has the legal detail.

Two routes carry the interest in Business Central:

- **A finance charge memo** charges interest without sending a reminder. Create one for a customer, or run **Create Finance Charge Memos** for many at once.
- **A reminder level** with **Calculate Interest** ticked carries the same interest on the reminder. **Post Interest** on the terms decides whether it posts to the ledger.

Only the reminder route is scheduled. Reminder Automation runs Create, Issue and Send through the job queue (see [interest and fees on Business Central reminders](https://www.paidnice.com/blog/business-central-reminders#interest)).

Microsoft's finance charge pages describe a create, review and issue flow run by a person; Reminder Automation is the only receivables schedule Microsoft documents for interest. If you schedule the Create Finance Charge Memos batch on the job queue, someone still issues the memos.

Free: Late payment interest calculatorWork out the interest or fee on an overdue invoice.

## How do you hold base rate plus 8% in Finance Charge Terms?

Create a Finance Charge Terms code with Average Daily Balance and an Interest Period of 365, then add an Interest Rates row for each six-month period at base rate plus 8. This is our suggested setup from Microsoft's formula, so test it in a sandbox before you issue a live memo.

A suggested setup, from Microsoft's formula:

1. **Finance Charge Terms:** create a code, choose Average Daily Balance, set Interest Period 365, add an Interest Rates row per half-year.
2. **Reminder Terms:** tick Calculate Interest on the levels that should carry it, and Post Interest on the terms.
3. **Customer Card:** set Fin. Charge Terms Code and Reminder Terms Code.

| Setting in Business Central | Where | What to enter for UK statutory interest |
| --- | --- | --- |
| Finance Charge Terms code | Search "Finance Charge Terms" | A new code, for example UK-STATUTORY |
| Interest Calculation Method | Finance Charge Terms | Average Daily Balance, which charges per day overdue: overdue amount × (days overdue ÷ Interest Period) × (rate ÷ 100) |
| Interest Period (Days) | Finance Charge Terms | 365. Average Daily Balance needs this field filled |
| Interest Calculation | Finance Charge Terms | Open Entries charges unpaid invoices. Closed Entries or All Entries also charges invoices that were paid late. Reminders cover open entries only, so a paid-late invoice needs a finance charge memo |
| Interest Rates | Action on Finance Charge Terms | One row per six-month period, start date 1 January or 1 July, rate = the base rate in force on the previous 31 December or 30 June, plus 8 |
| Fin. Charge Terms Code | Customer Card | Select the code for each UK business customer. The Act does not cover consumers ([GOV.UK](https://www.gov.uk/late-commercial-payments-interest-debt-recovery/charging-interest-commercial-debt)) |
| Calculate Interest | Reminder Level | Tick on the levels that should show interest |
| Post Interest, Post Additional Fee | Reminder Terms and Finance Charge Terms | Tick to post to the customer ledger and G/L |
| Interest account and VAT | Customer Posting Group, VAT Posting Setup | An interest income account whose VAT Prod. Posting Group has a no-VAT row in VAT Posting Setup for each customer VAT Bus. Posting Group. Check with your tax adviser |
| Fixed sums | Reminder Level, Reminder Terms, Additional Fee Setup | Add. Fee per Line on one level, Post Add. Fee per Line on the terms, and Additional Fee Setup rows with Charge Per Line and Threshold Remaining Amount 0, 1,000 and 10,000 for £40, £70 and £100. Test in a sandbox |

Microsoft's own example for the [Interest Rates action](https://learn.microsoft.com/en-us/dynamics365/business-central/finance-how-to-set-up-multiple-interest-rates) is a rate that changes twice a year, on 1 January and 1 July. That matches the UK rule: the base rate in force on 30 June or 31 December sets the statutory rate for the next six months.

The statutory rate is fixed for six months at a time: the Bank of England base rate on 31 December sets the rate for 1 January to 30 June, and the rate on 30 June sets 1 July to 31 December. It is 11.75% for debts that fall overdue between 1 July and 31 December 2026.

Maintenance is manual: someone adds the new rate row each 1 January and 1 July. If nobody does, memos keep charging the old rate. Our guide to [Bank of England base rate interest](https://www.paidnice.com/blog/auto-update-bank-of-england-interest-rate) explains how the rate is set and locked.

### Check one invoice for a UK debtor

Check one invoice before you trust the setup. A £5,000 invoice that fell overdue in 2026 and was paid 40 days late is £5,000 × 11.75% ÷ 365 × 40, which is £64.38 in interest, plus £70 compensation, £134.38 in total. The [UK statutory interest calculator](https://www.paidnice.com/uk/statutory-interest-calculator) applies the right reference rate for any debt and date.

That invoice is paid, so it is a closed entry. A reminder cannot charge it; the interest needs a finance charge memo with Interest Calculation set to Closed Entries or All Entries.

## What about the £40, £70 and £100 fixed compensation sums?

Business Central has no UK setting for the £40, £70 and £100 fixed sums, but it can charge a fee per overdue invoice: Add. Fee per Line on a reminder level, with the bands set on the Additional Fee Setup page.

Section 5A of the Act sets three bands per overdue invoice, listed on [legislation.gov.uk](https://www.legislation.gov.uk/ukpga/1998/20/section/5A):

- Under £1,000: £40
- £1,000 to under £10,000: £70
- £10,000 or more: £100

A reminder level carries two fees: **Additional Fee (LCY)**, one fee per reminder, and **Add. Fee per Line**, a fee on each overdue invoice listed. Microsoft's [Reminder Level table](https://learn.microsoft.com/en-us/dynamics365/business-central/application/base-application/table/microsoft.sales.reminder.reminder-level) describes the second as the fee amount per document line. Both can be Fixed, Single Dynamic or Accumulated Dynamic.

To model the statutory bands, set Add. Fee Calculation Type to Single Dynamic on one level and tick **Post Add. Fee per Line** on the reminder terms. Then add three [Additional Fee Setup](https://learn.microsoft.com/en-us/dynamics365/business-central/application/base-application/table/microsoft.sales.reminder.additional-fee-setup) rows with Charge Per Line ticked: Threshold Remaining Amount 0 for £40, 1,000 for £70 and 10,000 for £100. Use one level only, so each invoice is charged once.

Test it in a sandbox before you rely on it; the fields are documented, but we have not confirmed every band edge. GOV.UK says to send a new invoice for the interest and the fixed sum, so you can also raise them outside the reminder.

**Very few UK late fees are the statutory fixed sums.** Only about 4 in 100 UK late fees in Paidnice data are the £40, £70 or £100 fixed sums; 46 in 100 are interest charged at a yearly rate. So the rate rows matter more than the missing fixed-sum feature.
Original dataSource: our analysis of invoice data from over 1,000 Paidnice customers. See how much a typical late fee is.

## Is VAT due on late payment interest in Business Central?

HMRC treats interest awarded or agreed because of late payment as outside the scope of VAT, so the interest account in Business Central should carry no VAT.

HMRC's VAT manual, [VATSC06810](https://www.gov.uk/hmrc-internal-manuals/vat-supply-and-consideration/vatsc06810), puts it in one line: "This is outside the scope of VAT as compensation for payment being delayed."

Business Central does not know that. When you issue a memo or reminder with Post Interest or Post Additional Fee ticked, it posts a customer ledger entry, a receivables G/L entry and interest and fee G/L entries, and Microsoft's docs say VAT entries may result.

The accounts come from the Customer Posting Group. VAT comes from the [VAT Posting Setup](https://learn.microsoft.com/en-us/dynamics365/business-central/finance-setup-vat) row that combines the customer's VAT Bus. Posting Group with the interest account's VAT Prod. Posting Group. Create a no-VAT row for each combination a memo can meet, or it will not post, and check a test memo.

The fee account is a separate choice. HMRC's manual page covers interest. It says nothing on the £40, £70 and £100 sums, and HMRC revised its view of compensation payments in Revenue and Customs Brief 2 (2022), so ask your tax adviser about VAT on them. Check with your tax adviser before you set the fee account's posting group.

In Paidnice the fee line carries the VAT Prod. Posting Group you choose at implementation, with a no-VAT group for statutory interest.

## How do you cancel an issued finance charge memo?

Cancel an issued finance charge memo from Issued Finance Charge Memos before you send it; once it is sent or applied, reverse it with a manual credit journal.

Open **Issued Finance Charge Memos**, select one or more, choose **Cancel**, and complete **Cancel Issued Fin. Charge Memos**. Microsoft's docs say this works before the memos are sent out. Issued reminders cancel the same way, as our guide to [issuing reminders in Business Central](https://www.paidnice.com/blog/business-central-reminders#issue) covers.

After a memo is sent or a payment is applied to it, Microsoft gives no cancel step. Forum answers describe a credit journal to the interest income account, applied to the memo; Microsoft's docs do not cover it. Suggest Fin. Charge Memo Lines handles positive amounts only, so a negative memo is not a route.

## How does Paidnice charge UK statutory interest on Business Central?

Paidnice charges Bank of England base rate plus 8% from a policy, locked for each six-month period or followed live, and raises the charge as an invoice in Business Central.

Paidnice connects to Business Central on the Custom plan. Paidnice follows the integration pattern Microsoft documents for Business Central: a Microsoft Entra app registration signed in with client credentials, an entry on the Microsoft Entra applications page in each environment you connect, and a permission set limited to the records Paidnice reads and writes, all set up in your tenant.

An implementation specialist handles setup. Custom is quoted for your setup: the ERP connection, your invoice volume and support. The interest policy then does the upkeep that Finance Charge Terms leaves to a person:

- **The base rate is indexed.** Turn on the Bank of England base rate toggle and add your 8%. Lock the base rate for each six-month period, as the Late Payment Order sets it, or follow the base rate as it changes. No rate row to add in January or July.
- **Simple interest.** The "Include previous interest charges" toggle is on by default. Turn it off for statutory interest, which is simple interest.
- **The fixed sums are a line item.** A fixed amount line with its own description and income account carries the £40, £70 or £100, next to the interest.
- **VAT follows your posting groups.** The fee line carries the VAT Prod. Posting Group you choose at implementation, with a no-VAT group for statutory interest, and the income account for each line.
- **It lands on the ledger.** Late fees and interest are raised as sales invoices in Business Central, unposted for your team to post or posted, as you choose at implementation, with the G/L account, posting groups and dimensions mapped with your finance team. Waive or credit a charge in Paidnice when a customer disputes it.
- **Statement interest stays current.** Interest on a [customer statement](https://www.paidnice.com/blog/late-payment-interest-on-statements) is recalculated at send, so the figure the customer opens is that day's figure.

See [late fees and interest](https://www.paidnice.com/late-fees) and [Paidnice for Dynamics 365](https://www.paidnice.com/integrations/dynamics-365). To compare tools first, read our guide to [credit control software for Business Central](https://www.paidnice.com/blog/credit-control-software-business-central), and for the wider UK rules, [late payment fees in the UK](https://www.paidnice.com/blog/late-payment-fees-uk).

![Paidnice UK statutory interest policy: 8% plus base rate, locked six months, fixed sums, raised in Business Central](https://www.paidnice.com/images/blog/business-central-uk-late-payment-interest-card.png)

## Common questions

**Can Business Central charge UK late payment interest automatically?** Not with a built-in UK feature. You set Finance Charge Terms to base rate plus 8% and add a rate row each half-year. Reminder Automation can carry interest on reminders; Microsoft's finance charge pages describe a create, review and issue flow run by a person.

**What is the UK statutory late payment interest rate?** Bank of England base rate plus 8% a year. It is 11.75% for debts that fall overdue between 1 July and 31 December 2026. See [how the base rate sets the statutory rate](https://www.paidnice.com/blog/auto-update-bank-of-england-interest-rate).

**Is VAT charged on late payment interest?** HMRC says interest on a late payment is outside the scope of VAT. In Business Central the VAT Posting Setup row for the customer's VAT Bus. Posting Group and your interest account's VAT Prod. Posting Group decides the result, so give that combination a no-VAT row.

**Can Business Central add the £40, £70 and £100 fixed sums?** Not with a UK setting, but Add. Fee per Line on one reminder level, with three Threshold Remaining Amount rows on Additional Fee Setup, charges a fee per overdue invoice. Test it in a sandbox before you rely on it.

**How do I calculate late fees on one invoice?** Multiply the invoice by the rate, divide by 365 and multiply by days late, then add the fixed sum. Or use the [UK statutory interest calculator](https://www.paidnice.com/uk/statutory-interest-calculator).

**What are the legal terms for late payment on an invoice in the UK?** If no date is agreed, a business debt is late 30 days after the invoice or the goods or service are delivered. A contract rate replaces the statutory rate only if it is a substantial remedy.

**Is this the same as the interest HMRC charges for late tax?** They are different. HMRC's interest on late tax is a different rate set by HMRC. Statutory late payment interest is what one business charges another.

**How do I cancel a finance charge memo I issued by mistake?** Cancel it from Issued Finance Charge Memos before you send it. After it is sent, Microsoft documents no cancel step; forum answers use a credit journal to the interest account.

## Paidnice features in this article

- [**Late fees and interest** Adds late fees and interest to overdue invoices when you turn them on.](https://www.paidnice.com/late-fees)
- [**Escalations** Hands a call, a credit stop or a letter to the right person when reminders do not work.](https://www.paidnice.com/escalations)
- [**Customer statements** Sends branded customer statements on your schedule, with one button to pay.](https://www.paidnice.com/automated-customer-statements)

## About the editorial team

Written by Ashley Schroder Co-founder of Paidnice

Ashley is a co-founder and lead developer of Paidnice and has built accounting software for more than 10 years. He builds the ledger connections that put reminders, late fees and payments into Xero, QuickBooks and ERPs such as NetSuite and Business Central. Before Paidnice he co-founded A2X, ecommerce accounting software for Xero and QuickBooks.

Reviewed by Jack Daffron Co-founder of Paidnice

Jack is a co-founder of Paidnice and has built accounting software for more than 10 years. He builds the product that sends reminders, adds late fees and takes payments for businesses on Xero, QuickBooks and ERPs such as NetSuite and Business Central.

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