Late Payment Interest in the UK: How to Claim Statutory Interest

If you sell to other businesses in the UK, the Late Payment of Commercial Debts (Interest) Act 1998 gives you a statutory right to charge interest and claim compensation when an invoice is paid late. It applies automatically unless your contract sets a different "substantial remedy" for late payment. It doesn't apply to sales to consumers.

This is based on GOV.UK guidance. Check the current Bank of England rate and the guidance before you claim.

What you can claim

1. Statutory interest

8% a year plus the Bank of England base rate. The base rate you use is the one in force on 30 June (for invoices that become overdue between 1 July and 31 December) or 31 December (for invoices that become overdue between 1 January and 30 June). That reference rate then applies for the whole time the debt is outstanding.

The base rate was 3.75% on 30 June 2026, so for invoices that fall overdue in the second half of 2026 the statutory rate is 11.75% a year.

2. Fixed compensation

A fixed sum per overdue invoice:

Invoice amount	Compensation
Up to £999.99	£40
£1,000 to £9,999.99	£70
£10,000 or more	£100

3. Reasonable recovery costs

If your actual costs of recovering the debt (for example, a collection agency's fees) are higher than the fixed sum, you can claim the difference.

When is a payment late?

If you agreed a payment date, it's late after that date. If you didn't agree one, the default is 30 days after the later of the customer receiving the invoice or receiving the goods or services. For businesses dealing with each other, agreed payment periods longer than 60 days are allowed only if they're fair to both parties. Public authorities have a 30-day default.

Worked example

You invoiced £4,000, due 31 July 2026. It's paid on 29 September, 60 days late. Base rate on 30 June 2026: 3.75%. Statutory rate: 11.75%.

• Annual interest: £4,000 × 11.75% = £470.00
• Daily interest: £470.00 ÷ 365 = £1.2877
• Interest for 60 days: £1.2877 × 60 = £77.26
• Fixed compensation (£1,000–£9,999.99): £70.00
• Total claim: £147.26

How to claim it

1. Mention it in your terms (not required, but it removes surprises):

   We may claim interest and compensation for late payment under the Late Payment of Commercial Debts (Interest) Act 1998.

2. When the invoice is late, send a reminder that states the amount outstanding and that statutory interest and compensation will be added.
3. Issue a separate invoice or statement for the interest and compensation, referencing the original invoice. Don't change the original.
4. Include the calculation, so it's easy to check.

If the customer still doesn't pay, the interest and compensation can be included in a claim through Money Claim Online (in England and Wales) or the courts.

Should you always claim it?

It's your legal right, but not always your best move. Many businesses use it selectively:

• Chronic late payers: yes, and tell them it will be applied every time.
• Good clients, late once: a reminder that you could claim it is often enough.
• Large companies: worth claiming. They're used to it, and the Act exists to protect smaller suppliers from them.

What if my contract sets a different rate?

You can agree a contractual late payment rate instead, but it has to be a "substantial remedy." A token rate (like 0.5%) can be overridden, and statutory interest applies instead.

VAT on late payment interest?

Statutory interest and compensation are not payment for a supply, so they're generally outside the scope of VAT.

For the wider process, including reminders, demand letters and small claims, see what to do about an unpaid invoice.