Read by Denym Bird9 min
Summary
In the UK you can charge late payment interest of 8% a year above the Bank of England base rate, which is 11.75% on invoices overdue in 2026, plus fixed compensation of £40, £70 or £100 per invoice by debt size. The Late Payment of Commercial Debts (Interest) Act 1998 gives this right on business-to-business invoices, with no clause needed.
- The rate: 8% plus the Bank of England base rate, which is 11.75% a year for invoices that fall overdue between 1 July and 31 December 2026 (base rate 3.75% on 30 June 2026).
- The fixed sum: £40 for a debt under £1,000, £70 from £1,000 to £9,999.99, £100 at £10,000 or more, per overdue invoice.
- Automate it: Paidnice can lock the base rate for each six-month period as the Late Payment Order sets it, or follow the base rate as it changes, and adds the interest to the overdue invoice in Xero or QuickBooks.
On an overdue UK business invoice you can charge simple interest at 8% a year above the Bank of England base rate, running from the day after the due date, plus a fixed sum of £40, £70 or £100 per invoice. The statutory rate is 11.75% on invoices that fall overdue in 2026, because the Bank of England base rate was 3.75% on both reference dates, 31 December 2025 and 30 June 2026. For one invoice, the UK statutory interest calculator gives the figure in seconds; the version below handles several invoices at once. On Business Central, Finance Charge Terms can hold base rate plus 8%.
The rules may tighten: the Commercial Payments Bill passed the House of Lords on 20 October 2026 and is not yet law. Public buyers already work to a 30-day prompt payment policy.
The UK payment times by industry show how long each industry takes to pay its suppliers.
UK statutory interest calculator
Work out the statutory interest and late-payment compensation you can charge on overdue business invoices under UK law, using the current Bank of England base rate.
Under the Late Payment of Commercial Debts (Interest) Act 1998, UK businesses can claim:
- Statutory interest: 8% plus the Bank of England base rate, on business-to-business invoices.
- Compensation for recovery costs: a fixed £40, £70 or £100 per invoice, depending on the debt.
- Interest from day one overdue: the right to charge from the day after payment was due.
Settings
The 8% addition is fixed by UK law; update the base rate if it has changed (check the current rate). Need a custom or contractual rate? Use the advanced late payment calculator.
Invoice details
Add these to your invoice
Copy ready-to-paste line items for the late-payment invoice you raise. Interest for late payment is outside the scope of VAT; check the treatment of the fixed sums with your accountant.
Apply statutory interest automatically with Paidnice
- Stop calculating late fees and interest manually.
- Auto-indexes to the live Bank of England base rate.
- Connects to Xero, QuickBooks and Stripe.
Is it legal to charge late payment fees in the UK?
Yes. Charging late payment fees on overdue commercial invoices in the UK is legal under the Late Payment of Commercial Debts (Interest) Act 1998, and the right is automatic: you do not need a late payment clause in your contract to use it. Whether a fee changes behaviour is a separate question, covered in our data on whether late fees work. The Act covers business-to-business and public sector invoices, but not private consumers. The only catch is that you cannot claim statutory interest if your contract already provides a substantial remedy of its own. GOV.UK sets out the basics here.
How much can I charge for late payment in the UK?
On an overdue business-to-business invoice in the UK you can charge statutory interest at 8% above the Bank of England base rate, a fixed sum of £40 to £100 per invoice, and any reasonable recovery costs above that sum. In detail:
- Statutory interest at 8% a year above the Bank of England base rate.
- Fixed compensation of £40, £70 or £100 per invoice, towards your recovery costs.
- Reasonable recovery costs above that fixed sum, for example when you instruct a solicitor or a collections agency. This was added by the 2013 Regulations.
The interest rate has one twist worth understanding: which base rate you use depends on when the invoice fell overdue, not on today's rate.
What is the UK statutory late payment interest rate?
The UK statutory late payment interest rate is 11.75% a year for invoices that fall overdue between 1 July and 31 December 2026: the 3.75% Bank of England base rate in force on 30 June 2026, plus the fixed 8% margin set by the Late Payment of Commercial Debts (Rate of Interest) (No. 3) Order 2002.
Invoices that fell overdue between 1 January and 30 June 2026 also run at 11.75%, from the 3.75% base rate fixed on 31 December 2025. Debts that went overdue in the second half of 2025 keep running at 12.25% (4.25% plus 8%). The rate for the first half of 2027 will be fixed from the base rate in force on 31 December 2026.
Check the Bank of England base rate on the reference date before you calculate, then add 8 percentage points: the 8% margin has not changed, only the base rate moves. The next section explains why the rate is fixed in six-month blocks rather than tracking every base rate decision.
Which late payment interest rate applies to my invoice?
The correct statutory rate for an overdue UK invoice is set by the base rate in force on 30 June or 31 December, locked for the following six months, under the Late Payment of Commercial Debts (Rate of Interest) (No. 3) Order 2002. Most guides stop at "8% plus the Bank of England base rate" and miss this rule.
It is easy to get wrong because the base rate keeps moving. The Bank of England has cut it repeatedly, so the correct statutory rate has fallen too. Charge last period's figure and you are charging the wrong rate.
Here is how the correct rate has actually moved:
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30 Jun2025
Base rate 4.25% → statutory 12.25%
The rate to use for invoices that became overdue between 1 July and 31 December 2025.
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31 Dec2025
Base rate 3.75% → statutory 11.75% rate cut
The rate to use for invoices that became overdue between 1 January and 30 June 2026. December's cut dropped the correct charge by half a point.
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30 Jun2026
Base rate 3.75% → statutory 11.75%
The rate to use for invoices that become overdue between 1 July and 31 December 2026. The base rate was held, so the statutory rate did not move.
Each rate holds for its whole six-month block, even if the Bank of England changes the base rate in between. The next reset uses the base rate in force on 31 December.
Quick check. An invoice that went overdue in September 2025 should be charged at 12.25%, not the 2026 rate. Paidnice handles this rule in one of two ways: lock the base rate for each six-month period, as the Order sets it, or follow the base rate as it changes. For the detail, see the GOV.UK guidance.
The compensation is a flat fee per invoice, set by the size of the debt.
How much late payment compensation can I claim per invoice?
Fixed compensation under the 1998 Act is £40 for a debt up to £999.99, £70 from £1,000 to £9,999.99 and £100 at £10,000 or more, per overdue invoice, claimed on top of statutory interest towards the cost of recovery:
This is a flat fee per invoice, not per reminder, and it is payable in addition to the interest. If your reasonable costs of recovering the debt are higher than the fixed sum, you can claim the difference.
On a typical late invoice, the fixed sum is worth far more than the interest. UK small business invoices were paid 8.3 days late on average in September 2026 (Xero Small Business Insights). At 11.75% for that many days, interest only overtakes the £100 fixed sum on invoices above about £37,000, so claim both on every invoice.
| Invoice | Statutory interest at 11.75% | Fixed sum | Worth more |
|---|---|---|---|
| £500 | £1.34 | £40 | Fixed sum |
| £5,000 | £13.36 | £70 | Fixed sum |
| £25,000 | £66.80 | £100 | Fixed sum |
| £50,000 | £133.60 | £100 | Interest |
Interest is 8% over the Bank of England Bank Rate of 3.75% in force on 30 June or 31 December, simple, for 8.3 days. Days late: Xero Small Business Insights, September 2026. See the full data on the UK accounts receivable statistics page.
When does an invoice become late?
An invoice is late the day after its agreed due date, or 30 days after the customer receives the invoice or the goods and services (whichever is later) when no due date was agreed. Statutory interest runs from that day. The charge is leverage: a customer who knows interest runs from day one, and can see the figure growing on each statement, moves your invoice up the payment run. Here is how the maths works on a typical invoice.
How do you calculate UK statutory late payment interest?
UK statutory late payment interest is calculated by adding 8% to the reference Bank of England base rate, multiplying the overdue amount by that annual rate, dividing by 365 for the daily figure, multiplying by the days overdue, then adding the fixed compensation for the debt band.
- Find the annual statutory rate. For invoices that fall overdue from 1 July 2026 that is 11.75% (8% + the 3.75% Bank of England base rate on 30 June 2026).
- Work out the daily interest. Multiply the invoice amount by the annual rate, then divide by 365.
- Multiply by the number of days overdue.
- Add the fixed compensation for the size of the debt.
Example: a £5,000 invoice paid 40 days late
That £134.40 is payable on top of the original £5,000, so the customer now owes £5,134.40. On smaller invoices the fixed compensation does most of the work, which is why it pays to claim both the interest and the fee.
The GOV.UK guidance sets out the same method, and the Small Business Commissioner publishes a free calculator for a single invoice. Three pieces of legislation set the calculation. The 1998 Act gives the right to interest and the start date. The Late Payment of Commercial Debts (Rate of Interest) (No. 3) Order 2002 sets the 8% margin and the six-month reference base rate. Section 5A, added in 2002, sets the £40, £70 and £100 sums and, since 2013, allows reasonable recovery costs above them.
Statutory interest is simple, not compound, so the same daily figure applies for every day the debt is outstanding within a block, and a claim can reach back six years, including on invoices since paid in full. Whether a contractual rate should compound is covered in compound or simple interest. If you would rather set your own late fee than rely on the statutory route, here is how the two compare.
Can I charge my own late fee instead of statutory interest?
For most UK business-to-business invoices the statutory route is the better choice: the 8% plus base rate and the £40 to £100 sums are set in law, apply without a contract clause and are hard to dispute. A contractual fee suits consumer invoices or very small invoices where a flat charge makes more sense.
Either route works better as a fixed sum. In Paidnice data, about 8 in 10 fixed late fees are paid, against about 6 in 10 percentage fees, and UK businesses that start charging late fees get about 2 more invoices in every 100 paid on time than similar businesses that do not. See fixed vs percentage fee data. See our late fee data.
The statutory route
The Late Payment of Commercial Debts (Interest) Act 1998: legally backed amounts that are hard to argue with.
- Fixed rate of 8% above the Bank of England base rate
- Set compensation of £40 to £100 per invoice
- Applies automatically, no contract clause needed
- Safest option because the amounts are defined in law
The contractual route
A late fee you write into your own terms, such as a flat admin charge or a monthly percentage.
- You set the amount and structure
- Often a better fit for small or consumer invoices
- Must be agreed in advance and genuinely reasonable
- Risks being unenforceable if it reads as a penalty
For most established businesses, the simplest approach is to index to the statutory rate and lean on the Act, which is exactly what Paidnice does automatically.
These rights were built up over more than 25 years, and the biggest change yet is now before Parliament.
What does the Late Payment of Commercial Debts (Interest) Act 1998 say?
The Late Payment of Commercial Debts (Interest) Act 1998 gives a business supplying another business or a public authority the right to statutory interest on a late payment, with the rate, the fixed sums and the default payment terms added by later regulations. The full text is on legislation.gov.uk; the four steps that built the current position are below.
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1998
A statutory right to interest
The Late Payment of Commercial Debts (Interest) Act 1998 came into force on 1 November 1998 to tackle persistent late payment. At first, only small businesses could claim interest, and only from larger companies and the public sector. From November 2000 the right was extended so small businesses could also claim from each other.
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2002
Extended to every business, plus fixed compensation
The Late Payment of Commercial Debts Regulations 2002 implemented EU Directive 2000/35/EC. From 7 August 2002 any business or public body could claim statutory interest from any other, and a new fixed compensation sum of £40, £70 or £100 per invoice was introduced through Section 5A.
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2013
Recovery costs above the fixed sum
The Late Payment of Commercial Debts Regulations 2013 implemented the recast EU Directive 2011/7/EU. They added the right to claim reasonable recovery costs above the fixed compensation, and set default payment terms where a contract is silent: generally 30 days for public authorities and 60 days for business-to-business.
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2026
The biggest reform in over 25 years
The Commercial Payments Bill, introduced to the House of Lords in May 2026, passed its House of Lords third reading on 20 October 2026 and is now before the House of Commons. It is not yet law and has no commencement date. It makes statutory interest a mandatory term that cannot be contracted out of, caps payment terms at 60 days (30 days for public authorities), lets ministers shorten those limits by regulation, and gives the Small Business Commissioner powers to fine persistent late payers. Our Commercial Payments Bill guide covers each measure. Two other schemes already set payment times: the voluntary Fair Payment Code for businesses that sign it, and the prompt payment policy that requires public bodies to pay valid invoices within 30 days.
What mistakes cost UK suppliers their late payment charges?
Three mistakes cut a claim or hand the customer an argument.
Writing a small flat fee into your terms. A clause that sets a £25 fee may replace the £134.40 claim in the example above if it counts as a substantial remedy.
Section 9 says a remedy is not substantial if it is insufficient to compensate you or deter late payment, and it would not be fair to rely on it. If a court treated the £25 as substantial, you would be £109.40 short.
Fix: take legal advice before you add a fee clause, because the statutory route needs none.
Using today's base rate for an older invoice. Each rate is fixed for six months under the 2002 Order. An invoice that fell overdue in the second half of 2025 runs at 12.25%, not 11.75%. On a £50,000 invoice 60 days late, the half point is £41.10 (£50,000 × 0.005 × 60 ÷ 365).
Fix: look up the rate for the six-month block in which the invoice fell overdue.
Starting the clock on the invoice date. With no agreed payment date, section 4 counts 30 days from the later of delivery and receipt of the invoice. If the invoice arrives 7 days after you raise it, counting from the invoice date overstates interest on £5,000 at 11.75% by £11.27 (£5,000 × 0.1175 × 7 ÷ 365).
Fix: record the date the customer received the invoice.
How do I claim late payment interest?
To claim UK statutory late payment interest you raise a separate invoice or statement for the interest and the fixed compensation, show the workings, cite the Act and set a due date. If a customer has gone quiet for longer than that, look at the UK insolvency tracker to see how many companies in their industry are failing. No court step is needed unless the customer refuses to pay.
- Raise a separate invoice or statement showing the original amount, the interest, and the compensation.
- Show your workings: the rate, the daily figure, and the number of days overdue.
- Reference the Act so the charge is clearly grounded in law.
- Set a clear due date for the new total.
Statutory interest is outside the scope of VAT, so raise the interest line with no VAT rather than at a zero rate.
How do I add a late payment clause to my invoice?
A UK late payment clause is one sentence in your invoice terms that names the statutory rate and the fixed sums. You do not need it to claim statutory interest, but stating it sets expectations and makes the charge routine rather than a surprise:
"Overdue accounts are subject to statutory interest at 8% above the Bank of England base rate, plus fixed compensation of £40 to £100 per invoice, in line with the Late Payment of Commercial Debts (Interest) Act 1998. Reasonable recovery costs may also apply."
Indexing to the statutory rate keeps you within the law. A fee set purely to punish a customer can be challenged as a penalty. For contractual and flat-fee versions, see our late fee policy wording examples, and run a specific invoice through the free late fee calculator.
Put late fees on autopilot with Paidnice
Paidnice applies UK statutory interest to overdue invoices automatically in Xero and QuickBooks, with a Bank of England base rate toggle that adds your 8% on top. You choose how the base rate is applied: locked for each six-month period, as the Late Payment Order sets it, or followed as it changes. The interest is prorated per day, raised on the ledger and shown on every reminder and statement. Doing this manually for every overdue invoice is the reason most businesses never bother. Businesses using Paidnice see half as many late invoices in the first 30 days.
See how Paidnice works with Xero and QuickBooks
Related reading: how much you can charge for late fees across other countries, and how to add late payment fees to invoices in Xero.
Late payment fees UK: frequently asked questions
Is it legal to charge late payment fees in the UK?
Yes, on commercial invoices. The Late Payment of Commercial Debts (Interest) Act 1998 gives you an automatic right to statutory interest and a fixed compensation fee on overdue business-to-business invoices, whether or not your contract mentions it. Charging late fees to consumers is governed by separate rules and your agreed terms.
How much can I charge in late payment fees?
Two things: statutory interest at 8% a year above the Bank of England base rate, and fixed compensation of £40, £70 or £100 per invoice depending on its size. If your reasonable recovery costs are higher than the fixed sum, you can claim the difference.
What is the statutory interest rate right now?
For invoices that fall overdue between 1 July and 31 December 2026, the rate is 11.75% (8% plus the 3.75% Bank of England base rate in force on 30 June 2026). The rate is refixed on 31 December and 30 June each year. Always check the base rate on the reference date before you calculate.
What is a reasonable interest rate for late payments?
The statutory rate is 8% over the Bank of England base rate on the reference date, so 11.75% for interest that starts to run in 2026. If your contract sets its own rate instead, it must be a substantial remedy for late payment or the statutory rate applies in its place (1998 Act, s.8 and s.9).
How do I calculate late payment interest?
Add 8% to the relevant base rate to get the annual rate, divide by 365 for the daily rate, then multiply by the overdue amount and the number of days late. For example, a £5,000 invoice paid 40 days late at 11.75% earns about £64.40 in interest, plus £70 fixed compensation, so £134.40 in total.
How much is the late payment compensation fee?
It is a fixed sum per overdue invoice: £40 for debts up to £999.99, £70 for debts between £1,000 and £9,999.99, and £100 for debts of £10,000 or more. It is charged per invoice, not per customer or per reminder.
Can I charge late payment fees if my contract doesn't mention it?
Yes, for business-to-business debts. The statutory right applies automatically unless your contract already provides a substantial remedy for late payment. If your terms are silent, the statutory rate of base rate plus 8% applies by default.
When does an invoice legally become late?
The day after the agreed due date. If you did not agree a date, payment is treated as late 30 days after the later of two points: the customer receiving the invoice, or you delivering the goods or service.
Can I charge late fees to consumers, not just businesses?
The statutory route only covers commercial debts between businesses. For consumer invoices, any late fee must be set out in your terms, agreed in advance, and reflect a genuine cost of late payment rather than a penalty.
Is statutory interest simple or compound interest?
Simple interest. It accrues daily on the overdue amount and does not compound, so you do not charge interest on interest that has already built up.
Is late payment interest subject to VAT?
No. Interest for late payment is outside the scope of VAT: HMRC's VAT Supply and Consideration manual (VATSC06810) says no VAT is due on interest paid because of late payment, as it is compensation for the delay. Check the VAT treatment of the fixed compensation sums with your accountant or HMRC. A separate administration fee beyond the statutory compensation may be subject to VAT if you are VAT-registered.
Is statutory interest the same as HMRC late payment interest?
No. Statutory interest under the 1998 Act applies to overdue commercial invoices between businesses. HMRC late payment interest is a separate rate that applies to overdue tax. They are not connected.
What does the Commercial Payments Bill change?
The Commercial Payments Bill passed its House of Lords third reading on 20 October 2026, is now before the House of Commons, and is not yet law. It makes statutory interest a mandatory term that cannot be contracted out of, caps payment terms at 60 days (30 days for public authorities), and gives the Small Business Commissioner powers to fine persistent late payers. The headline rates are not changing.
Will a 2 day late payment affect a credit score in the UK?
No. A single business invoice paid two days late does not itself affect a personal or business credit score, because trade invoices are not reported to credit reference agencies. Persistent non-payment that a supplier reports, or a court judgment for the debt, can.
This guide is general information about UK late payment rules, not legal or financial advice. For your specific situation, check with a qualified professional.
Read the transcript: What is the maximum you can charge for late fees in the UK?
Hi there. So, how much can you charge for late fees or interest in the UK? Right.
Well, thankfully there is some guidance on how to do that. So, under the Late Payment of Commercial debts act of 1998, UK businesses are legally entitled to charge two things. Statutory interest at a rate of 8% plus the Bank of England base rate for business to business transactions as well as additional compensation for recovery costs.
Now, those vary from £40 to £100 depending on the debt amount. And you're allowed to claim this interest the day that the payment comes over due. Now, doing this with a lot of different invoices can typically take a little bit of time, especially if you're going to have to calculate not only the interest as well as the compensation recovery costs.
Now, we can manually do this. I've actually built a calculator for you to be able to do that, which I'll show you now. And we've also got you can also use software like Paidnice which can automate that calculation process for you and just essentially calculate it every month and generate those late charges via new invoices and pop them in your account ledger for you.
But anyway, I'll just show you how this this works to begin with. So we can let's first we want to set the statutory interest rate. Now we can check the current rate here.
Let's click this link. We'll see what the bank of England rate is. So as of today, May 13th, 2005, sorry, 25, the rate is 4.25.
So we're going to change that to 4.25. Now, again, you're entitled to 8%. So that gives us an annualized rate of 12.25%.
Now, we're also going to charge a fixed, compensation or admin fee. So we're going to pop that in there here. And now that varies based on the amount of debt.
So, if it's up to it's going to be 40 quid. If it's between 1,000 quid and essentially 10,000 quid, then it's it's it's 70. Or if it's 10,000 and more, then you can charge 100 there.
Now, we'll just do the the statutory amount, what we're legally allowed to. Now, it's going to show you an example of how that'll actually look on an invoice. So, on this invoice here, we're going to do let's say the payment date was today.
Let's say that the client paid me today. Then we're going to let's have a look at when the actual invoice was due. So, let's say we're going to make the due date go February the 1st, right?
And we're going to say that that invoice amount was yeah, let's go 5,000 quid there. All right. Now, let's calculate what that will look like.
So, we'll see here we've got our results here. First one here is the amount of days it was overdue. We can see that was about 101 days there.
We can see based on that our daily interest rate of the for the total amount was about £1.68 per day interest rate interest is there plus our compensation fee. So total do is is this here. Now we can see that that number there reflected there as well with the total amount.
We can see the compensation number of invoices daily interest rate etc. So yeah, that's essentially how you would be able to do this or use this tool to be able to do it for your own invoices manually if you so like and and desire. But if you would like to do this automatically with a tool like Paidnice you can do this by signing up for a free account and then setting up what would be here a statement interest charge policy.
Now, one of the really cool things that you can do with Paidnice is we can we can automatically pull the existing Bank of England base rate from the Bank of England. So, whenever that rate changes you'll always have the most up-to-date rate here. Now, here we can essentially set up a interest rate, you know, the same same policy that we just went through before in our calculator.
We can set up, you know, we can pull the base of Bank of England base rate there plus our annualized rate there. We can apply it when we want it to go out. So let's say the first of every month or you might want to do it at the end of every month.
You can do that as well. And then you can alter all sorts of other little details around this in terms of if you want to kind of have a little grace period of 7 days. You can do that as well.
You can also alter how the calculation is applied. You can also have a start date for the calculation for this. You can do a variety of different things.
But what this would do is this would essentially generate a brand new invoice and pop it into your accounting ledger either on on Xero on QuickBooks and then it would do it every single month and it would do that same calculation that I just showed you on the little calculator that we made. And it does it perfectly and send it to the client if you like or it can even pop it into drafts if you like as well. So anyhow, if you'd like to learn a little bit more about how that works, click on some links below. But outside of that, that's legally what you're allowed to charge in the UK.
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About the editorial team
Denym started Paidnice in 2022 after customers paying late left his own business short on payroll. He has led it to $1 billion collected on time across more than 1 million invoices, and writes about credit control, late fees and getting paid on Xero and QuickBooks.
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.
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