If another business pays your invoice late, you do not have to absorb the cost. UK law gives you an automatic right to charge interest and a fixed compensation fee on overdue business-to-business invoices, without it being written into your contract, and from the first day the payment is late. The interest rate is 8% a year plus the Bank of England base rate. This guide covers the history of the law, exactly what you can charge, how to calculate it correctly with a calculator below, and the answers to the questions businesses actually ask. If you would rather not do any of it by hand, the credit control tools we have compared can apply it automatically.
The short answer
On an overdue business-to-business invoice in the UK you can charge statutory interest of 8% a year plus the Bank of England base rate. With the base rate at 3.75% in mid-2026 that is 11.75%, but the base rate moves, so always check the current rate. On top of the interest you can claim a fixed sum of £40, £70 or £100 depending on the size of the debt, plus your reasonable costs of recovering it. The right is automatic for B2B invoices, so you do not need it in your contract, and it runs from the day the payment becomes late.
- Statutory interest: 8% plus the Bank of England base rate.
- A fixed fee of £40, £70 or £100 per invoice, by debt size.
- Reasonable recovery costs on top, if they exceed the fixed sum.
- Automatic for B2B, from day one late, no contract clause needed.
A short history of the law
The right to charge late payment fees in the UK has been built up over 25 years, in three steps that are worth knowing because each added something you can still use today.
| Year | What changed |
|---|---|
| 1998 | The Late Payment of Commercial Debts (Interest) Act gives businesses an automatic statutory right to charge interest on overdue business-to-business invoices, originally phased in by business size. |
| 2002 | Regulations extend the right to cover public-authority debtors and implement the EU late payment directive, so the same rules apply when you invoice the public sector. |
| 2013 | Regulations add the fixed compensation tiers of £40, £70 and £100, and crucially the right to claim your reasonable costs of recovering the debt where they exceed the fixed sum. |
The Late Payment of Commercial Debts (Interest) Act 1998 and its 2013 amending regulations. Source: legislation.gov.uk.
The effect of those three steps is the position today: an automatic right to interest, a fixed compensation sum, and your recovery costs on top, for any qualifying B2B invoice. What is changing next is covered further down.
The interest you can charge
Statutory interest is 8% a year on top of the Bank of England base rate. Because the base rate moves several times a year, so does the statutory rate, which is why you should read the current figure from the source rather than any single number in an article. At the time of writing the base rate is 3.75%, giving a statutory rate of 11.75%, or about £117.50 a year on every £1,000 outstanding, but always confirm the current rate on GOV.UK before you bill.
There is also a quirk worth knowing. The rate is not the one in force on the day the invoice goes overdue; it is fixed for six-month windows. For invoices that become late between January and June, the rate is set by the base rate on the previous 31 December. For July to December, it is set by the base rate on the previous 30 June. So a long-overdue invoice can carry a different rate from a new one.
| Bank of England base rate change | Rate | Statutory interest (rate + 8%) |
|---|---|---|
| 1 August 2024 | 5.00% | 13.00% |
| 7 November 2024 | 4.75% | 12.75% |
| 6 February 2025 | 4.50% | 12.50% |
| 8 May 2025 | 4.25% | 12.25% |
| 7 August 2025 | 4.00% | 12.00% |
| 18 December 2025 | 3.75% | 11.75% |
Recent Bank of England base rate changes; the statutory rate is the base rate plus 8%. For the current figure see the Bank of England.
The fixed sum on top of the interest
The fixed compensation sum is set by the size of each overdue invoice. It is a floor, not a ceiling.
As well as interest, you can claim a one-off fixed compensation sum for each overdue invoice, set by the size of the debt: £40 for debts up to £999.99, £70 for £1,000 to £9,999.99, and £100 for £10,000 and above. For the figures at common invoice sizes, see how much you can charge.
The part most businesses miss is the next line of the 2013 Regulations: if your reasonable costs of recovering the debt are higher than that fixed sum, you can claim the difference. That covers the cost of a debt-collection agency or a solicitor's letter. So the fixed sum is a floor, not a ceiling.
How to calculate it correctly
There are three parts to a correct calculation, and one trap. First, the interest: take the overdue amount, multiply by the statutory rate, and multiply by the number of days late divided by 365. It is simple interest, not compound, so it does not snowball. Second, add the fixed sum for the debt size. Third, add any reasonable recovery costs above the fixed sum.
Worked example: a £5,000 invoice paid 45 days late, when the base rate is 3.75% (an 11.75% statutory rate) and the £70 fixed sum applies.
The trap is the rate. Use the rate fixed for the relevant six-month window, not the base rate on the day you happen to calculate, and confirm the current rate first. For an invoice overdue across a base-rate change, the strictly correct figure prorates the interest across each period at the rate that applied then. The calculator below does the interest and the fixed sum for you, and lets you set the base rate so it stays accurate however long from now you are reading this.
UK late payment fee calculator
Statutory interest is 8% a year plus the Bank of England base rate, plus a fixed sum. The base rate changes, so update it if needed (check the current base rate).
When the right applies
Statutory interest starts to run once payment is late. If you agreed payment terms, that is when those terms expire. If you did not, the default is 30 days after the customer received the invoice or the goods or service, whichever is later. For contracts with public authorities, the maximum term is 30 days.
Contract rate versus statutory rate
A contract can set its own late-payment terms, but they only replace the statutory right if they offer a substantial remedy: broadly, enough to compensate you for late payment or to deter it, and fair to impose. This bar is higher than it looks. A token clause, say 2% a year, would not meet it, so a customer cannot dodge the statutory rate by burying a weak interest clause in their terms. In practice, many businesses with a low contractual rate can still fall back on the statutory rate, a point almost no guide makes plainly.
Where the rules differ
The Act extends to Scotland and Northern Ireland, with the same rate and compensation; only the enforcement courts differ. Consumers are a separate matter: the Act does not apply to B2C invoices, where late-payment terms are governed by your contract and can be challenged as unfair under the Consumer Rights Act 2015. And if a customer disputes part of an invoice in good faith, interest does not run on the genuinely disputed portion until the dispute is resolved, so keep disputed and undisputed amounts separate. The same care applies when you chase the invoice.
What is changing now
Late payment is rising up the political agenda, and two developments matter. The Fair Payment Code replaced the old Prompt Payment Code in December 2024, with Gold, Silver and Bronze tiers based on how quickly a business pays its own suppliers, and from 2025 firms bidding for large government contracts must demonstrate they pay their own suppliers promptly.
Bigger still, the Commercial Payments Bill was introduced to the House of Lords in May 2026 and had its second reading in June 2026. It is not yet law, but as drafted it would cap commercial payment terms at 60 days, make statutory interest mandatory in all commercial contracts rather than a default you can contract out of, and give the Small Business Commissioner powers to investigate and fine persistent late payers. If it passes, charging statutory interest stops being optional, with implementation not expected before 2027.
How to charge it correctly, automatically
Calculating one late fee by hand is straightforward. Doing it correctly on every overdue invoice, every time the base rate moves, and prorating across rate changes, is where it breaks down, which is why most businesses never claim what they are owed. Software can apply it for you, but very few tools do it correctly, as our comparison of UK credit control software sets out in full.
Of the credit control tools we have compared, Paidnice is the only one that applies UK statutory interest correctly and automatically: it indexes the charge to the live Bank of England base rate plus 8%, prorates it across rate changes, and raises the interest invoice into your accounting system, with an audit trail behind each charge. Others either ignore statutory interest or apply a flat rate you have to remember to update by hand, which quietly goes wrong the moment the rate changes. Paidnice holds a 5.0 average across 81 Xero App Store reviews and works on Xero and QuickBooks; here is how to add late fees in Xero either way.
Should you actually charge it
Why credit control matters in the UK. The statutory rate moves with the Bank of England base rate, so confirm the current figure at GOV.UK.
The right exists; whether to use it is a judgement. Late payment costs the UK economy an estimated £11 billion a year, and the government now attributes around 38 business closures a day to it, so the case for charging is strong. The most relationship-safe approach is to state the fee, then offer to waive it if the invoice is paid promptly. That keeps the leverage without forcing a confrontation, and most customers settle rather than incur it.
What rarely works is charging it occasionally and inconsistently. A fee that always applies changes behaviour; one that appears at random just annoys. If you decide to charge, charge every time, which is the case for letting a tool apply it automatically, and for building it into a consistent chasing sequence.
Frequently asked questions
How much late payment interest can I charge in the UK right now?
Statutory interest is 8% a year plus the Bank of England base rate. Because the base rate changes, read the current figure from the Bank of England or GOV.UK rather than relying on a fixed number; at the time of writing the base rate is 3.75%, giving 11.75% a year, or about £117.50 on every £1,000 outstanding for a full year. The rate is fixed in six-month windows, so it can differ for invoices that became late in different halves of the year.
How do I calculate a late payment fee?
Multiply the overdue amount by the statutory rate, then by the number of days late divided by 365, to get the interest. Add the fixed compensation sum of £40, £70 or £100 by debt size. Add reasonable recovery costs if they are higher than the fixed sum. The calculator above does the first two for you, and lets you set the current base rate.
When does an invoice officially become late?
On the day your agreed payment terms expire. If you did not agree terms, the statutory default is 30 days after the customer received the invoice or the goods or service, whichever is later. Statutory interest runs from that day.
Is statutory interest simple or compound?
Simple. It is charged on the overdue principal only, not on accrued interest, so it does not compound. That keeps the calculation to amount, times rate, times days over 365.
Do I need late fees written into my contract?
No, not for business-to-business invoices. The right to statutory interest and the fixed compensation sum is automatic under the Late Payment of Commercial Debts (Interest) Act 1998. A contract can change the terms, but only if it offers a substantial remedy; a weak interest clause does not remove the statutory right.
Can I claim more than the £40, £70 or £100 fixed fee?
Yes. The fixed sum is a minimum. If your reasonable costs of recovering the debt, such as a debt-collection agency or solicitor fees, are higher than the fixed sum, you can claim the difference under the 2013 Regulations. You claim the higher figure, not both.
Does VAT apply to a late payment fee?
No. Statutory interest and the fixed compensation sum are outside the scope of VAT, so you do not add VAT when you raise them, and they stay out of your VAT return. See how to add late fees in Xero for the right tax treatment.
Is it legal to charge a late fee to a consumer?
The statutory right covers business-to-business invoices, not consumers. You can include a late-payment term in a consumer contract, but it is governed by the Consumer Rights Act 2015 and can be challenged if it is an unfair penalty. Keep B2B and B2C terms separate.
Can I charge a late fee on a part-paid invoice?
Yes. Interest continues to run on the outstanding balance after a partial payment. A part-payment is generally applied first to the accrued interest and then to the principal, so the remaining balance keeps earning interest until it is cleared.
What if the customer disputes the invoice?
Interest does not run on a genuinely disputed amount until the dispute is resolved or judgment is obtained. If only part of the invoice is disputed, keep the disputed and undisputed amounts separate and continue to charge interest on the undisputed part.
Which software can charge UK late payment fees correctly?
Very few. Of the credit control tools we have compared, Paidnice is the only one confirmed to apply UK statutory interest dynamically, indexing it to the live Bank of England base rate plus 8%, prorating across rate changes, and raising the invoice for you. Most tools either ignore statutory interest or apply a flat rate you must update by hand.
Is the law on late payment about to change?
Possibly. The Commercial Payments Bill, introduced to the House of Lords in May 2026, would cap commercial terms at 60 days and make statutory interest mandatory rather than optional. It is not yet law, and implementation would not be before 2027, but it signals the direction of travel.
The bottom line
Charging late payment fees in the UK is simpler than most businesses assume: 8% plus the Bank of England base rate, plus a fixed sum of £40, £70 or £100, plus your recovery costs, automatically and from day one on B2B invoices. The law is on your side, it is about to get firmer, and the practical trick is consistency. State it, mean it, and apply it every time, by hand using the calculator above, or automatically with a tool that keeps the rate correct for you.
Sources and further reading
- Late Payment of Commercial Debts (Interest) Act 1998 (legislation.gov.uk)
- The Late Payment of Commercial Debts Regulations 2013
- GOV.UK: charging interest on commercial debt (current rate)
- Bank of England: interest rates and Bank Rate
- UK Parliament: Commercial Payments Bill [HL]
- GOV.UK: late payment crackdown and economic cost, March 2026
This guide is general information, not legal advice. The statutory rate moves with the Bank of England base rate, so confirm the current figure before you bill. This resource is published by Accounting.Events, powered by Paidnice.
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