UK Statutory Late Payment Interest: What You're Owed and How to Claim It

If you run a UK business and invoice other businesses, you already have a statutory right to charge interest and a fixed fee on invoices that are paid late. Most small businesses never claim it — either because they don't know the exact numbers, or because calculating it by hand for every overdue invoice is enough friction to not bother. Here's exactly how it works and what you're actually owed.

The legal basis

The right comes from the Late Payment of Commercial Debts (Interest) Act 1998, as amended by later regulations in 2002 and 2013. It applies automatically to business-to-business contracts for goods or services in the UK unless the contract explicitly specifies a different remedy for late payment — you don't need to have written it into your terms for it to apply, though stating it upfront makes it less of a surprise to clients.

It has two separate components: statutory interest, which accrues daily for as long as the debt remains unpaid, and fixed compensation, a one-off amount you're entitled to the moment an invoice becomes overdue, regardless of how much interest has built up.

Calculating statutory interest

Statutory interest is simple (not compound) interest at 8% plus the Bank of England base rate. The specific base rate used is the “reference rate” fixed twice a year — on 31 December for debts that become overdue between 1 January and 30 June, and on 30 June for debts overdue between 1 July and 31 December. That reference rate stays fixed for the whole period even if the Bank of England changes its base rate mid-period.

The formula: interest = amount owed × (8% + base rate) × (days overdue ÷ 365).

For example, on a £1,000 invoice that's 60 days overdue, with a base rate of 4%: interest = £1,000 × 12% × (60/365) = £19.73.

Fixed compensation

On top of interest, you're entitled to a fixed compensation amount per overdue invoice, banded by the size of the debt:

This is payable the moment the invoice is overdue — you don't need to wait, and you don't need to prove you incurred any actual cost recovering the debt.

A worked example

Take the £1,000 invoice from above, 60 days overdue, base rate 4%: statutory interest of £19.73, plus fixed compensation of £40 (under the £1,000 band), brings the total payable to £1,059.73 — an extra £59.73 the client owes on top of the original invoice, purely for paying late.

Should you actually charge it?

It's your right, not an obligation — you can choose not to invoke it, and many businesses don't for reliable clients who are only a few days late. Where it earns its keep is with genuinely slow payers: it gives a final-notice email real, specific numbers instead of a vague threat, and UK courts take the position that if a debt reaches litigation, the statutory amounts are recoverable regardless of what your own invoice said.

Calculating this by hand for every invoice, tracking which reference-rate period each one falls into, and remembering to update the base rate twice a year is exactly the kind of small, easy-to-get-wrong arithmetic that's worth automating rather than doing manually invoice by invoice.