Late Payment Interest Calculator
Calculate statutory interest and compensation on overdue business invoices in the UK
Calculate Late Payment Interest
Rate effective from 27 August 2025
Calculation Breakdown
How Late Payment Interest Works
Under the Late Payment of Commercial Debts (Interest) Act 1998, businesses in the UK have the right to charge statutory interest on overdue invoices when dealing with other businesses. This legislation protects suppliers from the cash flow problems caused by late payments.
Current Interest Rate
The statutory interest rate is calculated as 8% above the Bank of England base rate. With the current base rate at 4.00% (as of August 2025), the total statutory interest rate stands at 12.00% per annum.
Current Rate = 4.00% + 8% = 12.00% per annum
Fixed Compensation Amounts
In addition to interest, businesses can claim fixed compensation for each unpaid invoice:
| Invoice Value | Compensation Amount |
|---|---|
| Under £1,000 | £40 |
| £1,000 – £9,999.99 | £70 |
| £10,000 and above | £100 |
When Can You Claim
You can claim statutory interest and compensation when all of the following conditions are met:
- The transaction is between two businesses (business-to-business)
- The contract is for goods or services
- The payment is overdue according to your agreed terms
- Your contract doesn’t already include substantial late payment provisions
- The debt is not a consumer credit agreement
How to Calculate Interest
Statutory interest is calculated daily from the day after the payment due date until the debt is paid in full. The daily interest rate is calculated as follows:
Total Interest = Daily Interest × Number of Days Overdue
Step-by-Step Calculation
- Determine the payment due date from your invoice or contract terms
- Count the number of days from the due date to the calculation date
- Apply the current statutory interest rate (12.00% per annum)
- Add the appropriate fixed compensation amount
- Include any reasonable recovery costs if applicable
Recent Rate Changes
Interest rates change when the Bank of England adjusts the base rate. Recent changes include:
- 27 August 2025: Rate reduced to 12.00% (base rate 4.00%)
- 28 May 2025: Rate was 12.25% (base rate 4.25%)
- 6 April 2025: Framework changed – rate now base rate + 8% (previously + 2.5%)
Taking Action on Late Payments
When an invoice becomes overdue, consider taking these steps:
Initial Actions
- Send a polite payment reminder highlighting the overdue amount
- Include details of your right to charge statutory interest
- Set a clear deadline for payment
- Maintain detailed records of all communications
Formal Debt Recovery
- Send a formal letter before action including interest and compensation calculations
- Consider using a solicitor or debt recovery service
- File a claim in the County Court if necessary
- Explore alternative dispute resolution methods
Frequently Asked Questions
Can I charge interest if there’s no written contract?
Yes, the Late Payment of Commercial Debts (Interest) Act 1998 applies even without a written contract, provided the transaction is between businesses for goods or services.
What if my contract specifies different payment terms?
If your contract includes substantial late payment provisions, you must follow those terms instead of claiming statutory interest. However, if the contractual provisions are deemed unfair, you may still be able to claim statutory interest.
Can I backdate interest claims?
Yes, you can claim interest from the original due date even if you don’t pursue it immediately. There’s a six-year limitation period for debt recovery in England and Wales.
Do I need to warn customers about interest charges?
It’s good practice to include late payment terms on your invoices, but it’s not legally required. The statutory right exists regardless of whether you’ve specifically mentioned it.
Can public sector organisations be charged interest?
Yes, public sector organisations can be charged statutory interest on late payments, and they’re generally required to pay within 30 days.
What happens if the debtor disputes the charges?
If there’s a genuine dispute about the original debt, interest may not be chargeable during the dispute period. However, if the dispute is resolved in your favour, interest typically runs from the original due date.
Legal Framework
The Late Payment of Commercial Debts (Interest) Act 1998 provides the legal foundation for claiming interest on overdue business-to-business debts. The Act has been amended several times to strengthen protections for suppliers.
Key Provisions
- Automatic right to statutory interest on qualifying debts
- Fixed compensation amounts for debt recovery costs
- Protection against unfair contract terms that exclude reasonable late payment remedies
- Ability to claim reasonable recovery costs beyond fixed compensation
Upcoming Changes
The UK government announced in July 2025 plans for the most significant reforms to late payment legislation in over 25 years. Proposed changes include making statutory interest rates mandatory and introducing tougher penalties for persistent late payers.
References
This calculator and information are based on current UK legislation and official government sources:
- Late Payment of Commercial Debts (Interest) Act 1998, UK Parliament
- HMRC Interest Rates for Late and Early Payments, HM Revenue & Customs, 2025
- Bank of England Base Rate Decisions, Bank of England, 2025
- Small Business Commissioner Late Payment Guidance, 2025
- Late Payment of Commercial Debts (Rate of Interest) Orders, UK Statutory Instruments