Base rate 3.75% + 8%, for debts that became late in 2026.
UK guide · 7 minute read
The Late Payment of Commercial Debts Act, in plain English
The Late Payment of Commercial Debts (Interest) Act 1998 lets a UK business charge another business simple interest on a late invoice at 8% over the Bank of England base rate. That is 11.75% a year for debts that became late in 2026. You can also claim a fixed £40, £70 or £100.
Work out your interest and compensationFree UK calculator, same rules as this guide.
A fixed sum per late invoice, plus reasonable recovery costs.
When no payment date was agreed. Otherwise the day after the agreed date.
Both sides acting in the course of a business. Not consumers.
Who it covers
Who the Late Payment Act applies to
The Act adds a right to interest to every qualifying contract automatically. You don’t need to mention it in your terms, though it helps to.
Business to business only
Both you and your client must be “acting in the course of a business”. A profession counts, and so do government departments and public authorities.
Source: s.2 of the Act, legislation.gov.uk.
Not consumers
If you bill a private person, the Act doesn’t apply. Employment contracts, consumer credit and mortgage or security contracts are left out too.
Source: s.2 of the Act, legislation.gov.uk.
Goods or services
Selling or hiring out goods, or doing a service, in return for money. Freelancers and sole traders are covered when the client is a business.
Source: s.2 of the Act, legislation.gov.uk.
The interest rule
Statutory late payment interest: base rate + 8%
The rate is the Bank of England base rate plus 8 percentage points. The base rate used is the one on 31 December (for debts that become late from January to June) or on 30 June (for debts that become late from July to December). Each debt keeps the rate it started with, even if the base rate changes later.
| Interest starts | Base rate taken on | Bank Rate then | Yearly rate |
|---|---|---|---|
| 1 January – 30 June 2026 | 31 December 2025 | 3.75% (set 18 December 2025) | 11.75% |
| 1 July – 31 December 2026 | 30 June 2026 | 3.75% (unchanged in 2026) | 11.75% |
The Bank of England held Bank Rate at 3.75% on 18 June, 30 July and 17 September 2026. Its next decision is due on 5 November 2026; it won’t change the rate for debts that became late in 2026. Sources: SI 2002/1675, art. 4, s.4 of the Act and Bank of England (decision of 17 September 2026).
When interest starts
You agreed a payment date
Interest starts the day after that date.
No date was agreed
30 days starting with the day your client got the invoice, or the day you delivered if that was later. The day they got it is day 1, so interest starts on day 31.
Source: s.4 of the Act and GOV.UK (updated 16 October 2026).
A worked example
An invoice for £1,800.00 is paid 34 days late, and interest started in September 2026, so the rate is 11.75%.
- Interest for a year: £1,800.00 × 11.75% = £211.50
- Interest for 34 days: £211.50 ÷ 365 × 34 = £19.70 (about £0.58 a day)
- Fixed compensation for a debt from £1,000 to £9,999.99: £70.00
- You can claim £89.70 on top, so £1,889.70 in total.
The interest is simple, never compounded (s.1). Method from GOV.UK: yearly interest ÷ 365 × days late.
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Fixed sum
Late payment compensation: £40, £70 or £100
As soon as interest starts, you’re also owed a fixed sum on top. You don’t need to send a reminder first, and you can charge it once per invoice.
Under £1,000 (up to £999.99)£40
£1,000 to £9,999.99£70
£10,000 or more£100
Exactly £1,000 gets £70, and exactly £10,000 gets £100. If your reasonable costs of recovering the debt are higher than the fixed sum, you can claim the difference as well. Sources: s.5A of the Act and GOV.UK (updated 16 October 2026).
Payment terms: the 30 and 60-day limits
Business clients: usually 60 days
If you agree a payment date more than 60 days out, the Act treats day 60 as the due date, unless the longer term is not grossly unfair to you. So 60 days isn’t a hard cap today.
Public authorities: 30 days
When the client is a public authority, an agreed date later than 30 days is treated as day 30. There is no fairness exception.
Source: s.4 of the Act (last amended 24 February 2025).
When you can’t claim statutory interest
Your contract has its own remedy
If you agreed a late-payment remedy that is “substantial”, statutory interest doesn’t apply. A clause that just removes it without a substantial remedy is void.
Source: s.8 and s.9.
Your client is a consumer
The Act only covers contracts where both sides act in the course of a business.
Source: s.2.
The invoice is genuinely disputed
The Small Business Commissioner says you can’t charge interest or compensation on an invoice paid late because of a dispute.
Source: SBC calculator guidance.
Step by step
How to claim late payment interest
Not sure where to start with an overdue invoice? Read what to do about an unpaid invoice first.
- 1Check the Act applies
Your client is a business, there’s no substantial late-payment remedy in your contract, and the invoice isn’t disputed.
- 2Find the day interest started
The day after the agreed payment date. With no agreed date, day 31 counting the day the client got the invoice (or you delivered, if later) as day 1.
- 3Work out the interest
Amount × 11.75% ÷ 365 × days late, at the rate fixed on the day interest started. Simple interest, never compounded.
- 4Add the fixed sum
Add £40, £70 or £100 once per invoice, plus any reasonable recovery costs above that.
- 5Send a new invoice
GOV.UK suggests sending a new invoice if you decide to add interest. Say which original invoice it relates to.
- 6Escalate if you need to
If you have fewer than 50 staff and the client is larger, the Small Business Commissioner can help for free, within 12 months of the due date.
Still unpaid after that? Send a final payment reminder, then a letter before action with the interest and fixed sum included. Sources: GOV.UK (updated 16 October 2026) and Small Business Commissioner FAQs (modified 6 October 2025).
Scotland and Northern Ireland
The Act applies across the whole UK. Scotland has its own rate order (SSI 2002/336) with word-for-word the same formula, so the rate is the same. The main rate order, SI 2002/1675, covers England, Wales and Northern Ireland.
Sources: s.17, SSI 2002/336 (made 2 July 2002).
The Small Business Commissioner
If you have fewer than 50 staff and a larger business owes you, the Office of the Small Business Commissioner can look at the complaint for free. It covers the whole UK. Complain within 12 months of the due date, after trying to sort it out with the client yourself.
Source: SBC FAQs (modified 6 October 2025).
The Commercial Payments Bill (not law yet)
In March 2026 the government proposed a 60-day cap on payment terms when large firms pay smaller suppliers, statutory interest required in all commercial contracts, and new powers for the Commissioner. The Bill passed its third reading in the House of Lords on 20 October 2026 and now goes to the Commons. Until it becomes law, the rules above apply.
Sources: GOV.UK (24 March 2026), UK Parliament (updated 21 October 2026).
How common is late payment? See our late payment statistics. For the friendly first nudge, try the free payment reminder email writer.
Before you start
Good questions
What is the Late Payment of Commercial Debts (Interest) Act 1998?
A UK law that lets a business charge another business simple interest on a late invoice, at 8% over the Bank of England base rate, plus a fixed £40, £70 or £100. It is built into every business-to-business contract for goods or services unless the contract has its own substantial remedy.
What is the statutory late payment interest rate in 2026?
11.75% a year for debts that became late from 1 January to 30 June 2026, and 11.75% for debts that became late from 1 July to 31 December 2026. Bank Rate was 3.75% on both reference dates (31 December 2025 and 30 June 2026).
How much late payment compensation can I claim?
£40 if the debt is under £1,000, £70 from £1,000 to £9,999.99, and £100 for £10,000 or more. It’s due as soon as interest starts, once per invoice. If your reasonable recovery costs were higher, you can claim the difference too.
Does the Act apply to sole traders and freelancers?
Yes, as long as your client is also a business. A profession counts as a business under the Act. It doesn’t cover invoices to private individuals.
Do I include VAT when working out the interest?
The Act doesn’t say. The Small Business Commissioner’s guidance says to use the full invoice total, including VAT, for both interest and compensation.
Is 60 days the maximum payment term between businesses?
Not yet. Today, terms longer than 60 days are allowed if they are not grossly unfair to the supplier. Public authorities are limited to 30 days. The government has proposed a firmer cap in the Commercial Payments Bill, which is not law yet.
Sources
- Late Payment of Commercial Debts (Interest) Act 1998, s.1 (simple interest) · legislation.gov.uk, no date shown
- The Act, s.2 (contracts covered) · legislation.gov.uk, no date shown
- The Act, s.4 (when interest starts, 30 and 60-day limits) · legislation.gov.uk, last amended 24 February 2025
- The Act, s.5A (fixed sum and reasonable costs) · legislation.gov.uk, no date shown
- The Act, s.8 (contracting out, substantial remedy) · legislation.gov.uk, no date shown
- The Act, s.9 (what counts as a substantial remedy) · legislation.gov.uk, no date shown
- The Act, s.17 (extends to Northern Ireland) · legislation.gov.uk, no date shown
- SI 2002/1675, article 4 (base rate + 8%, reference dates) · legislation.gov.uk, made 22 June 2002
- SSI 2002/336, the Scottish rate order · legislation.gov.uk, made 2 July 2002
- Bank Rate (current rate and latest decision) · Bank of England, decision of 17 September 2026
- Bank Rate history · Bank of England, latest change 18 December 2025
- Late commercial payments: overview · GOV.UK, updated 16 October 2026
- Late commercial payments: charging interest · GOV.UK, updated 16 October 2026
- Late commercial payments: claim debt recovery costs · GOV.UK, updated 16 October 2026
- Small Business Commissioner: FAQs · Office of the Small Business Commissioner, modified 6 October 2025
- Small Business Commissioner: interest calculator guidance · Office of the Small Business Commissioner, modified 21 October 2026
- “Time to pay up” press release (proposals and £10,000 example) · GOV.UK, published 24 March 2026
- Commercial Payments Bill [HL], stages · UK Parliament, last updated 21 October 2026
- Ireland: late payment interest rate · Department of Enterprise, Tourism and Employment, no date shown
- Ireland: compensation for recovery costs · Department of Enterprise, Tourism and Employment, no date shown
- Ireland: S.I. 580/2012 (late payment regulations) · Irish Statute Book, in operation 16 March 2013
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