Statutory Interest on Late Payments: How to Calculate It
Late payment interest explained: calculate statutory interest under the UK 1998 Act and EU Directive, with formulas, worked examples and £40-£100 compensation.
Quick answer: Statutory late payment interest in the UK is 8% above the Bank of England reference rate, charged as simple interest from the day after the due date. Multiply the debt by the annual rate, divide by 365 and multiply by days late. You can also claim fixed compensation of £40, £70 or £100 per invoice, depending on its size.
This guide works through the calculation step by step, explains which base rate to use, covers the EU Late Payment Directive and other countries, and shows how to claim. If you only need the broad picture on charging fees, read our guide to late payment fees. To reissue an invoice or a demand with interest added, use our UK invoice generator.
Important: This is general information, not legal advice. Check the current rules and reference rates on GOV.UK and the Bank of England, and take advice for larger or disputed debts.
What is statutory late payment interest?
Statutory interest is interest that the law lets you charge on a late commercial debt even if your contract says nothing about it. In the UK it comes from the Late Payment of Commercial Debts (Interest) Act 1998, amended in 2013 to implement the EU Late Payment Directive (2011/7/EU). It applies across England, Wales, Scotland and Northern Ireland.
The Act gives a supplier three things when a business customer pays late:
- Interest at the statutory rate.
- Fixed compensation for the cost of recovering the debt.
- Reasonable recovery costs above the fixed sum, if you incur them.
Who can claim late payment interest?
- Businesses selling to other businesses, including sole traders, partnerships and companies. See invoicing as a sole trader.
- Suppliers to the public sector; public authorities are covered too.
- Not consumers. Sales to individuals acting outside a business are excluded.
- Not where your contract sets a substantial remedy. A fair contractual interest rate replaces the statutory one.
When does statutory interest start?
Interest runs from the day after the payment due date:
- Agreed date: the date in your contract. Business-to-business terms over 60 days are only valid if expressly agreed and not grossly unfair.
- No agreed date: 30 days after the later of delivery of the goods or services, or the customer receiving the invoice.
- Public authorities: 30 days, in most cases.
A clear invoice due date on every invoice removes arguments about when the clock started.
Which base rate do you use?
You do not use the base rate on the day you calculate. The Act uses a reference rate fixed for six months:
| Debt becomes overdue between | Reference rate is the Bank of England base rate on |
|---|---|
| 1 January and 30 June | 31 December of the previous year |
| 1 July and 31 December | 30 June of the same year |
That reference rate applies for the whole time the debt is outstanding, even if the Bank changes its rate later. Add 8 percentage points to get your statutory rate. In the examples below we use an illustrative base rate of 3.75%, giving 11.75%. Check the Bank of England's rate history for your actual reference date.
How to calculate late payment interest: the formula
- Find the statutory rate: reference rate + 8%.
- Annual interest: amount owed x statutory rate.
- Daily interest: annual interest / 365.
- Interest due: daily interest x number of days late.
In a spreadsheet, the formula is =Amount*(BaseRate+0.08)/365*DaysLate. Interest is simple, not compound: you never charge interest on interest.
Worked example 1: £4,800 invoice, 45 days late
| Step | Calculation | Result |
|---|---|---|
| Statutory rate | 3.75% + 8% | 11.75% |
| Annual interest | £4,800.00 x 11.75% | £564.00 |
| Daily interest | £564.00 / 365 | £1.5452 |
| Interest for 45 days | £1.5452 x 45 | £69.53 |
| Fixed compensation (£1,000 to £9,999.99) | Statutory sum | £70.00 |
| Total claim on top of the debt | £69.53 + £70.00 | £139.53 |
Worked example 2: £850 invoice, 60 days late
| Step | Calculation | Result |
|---|---|---|
| Annual interest | £850.00 x 11.75% | £99.875 |
| Daily interest | £99.875 / 365 | £0.2736 |
| Interest for 60 days | £0.2736 x 60 | £16.42 |
| Fixed compensation (under £1,000) | Statutory sum | £40.00 |
| Total claim on top of the debt | £16.42 + £40.00 | £56.42 |
On small invoices the fixed compensation is often worth more than the interest, which is why it matters to claim both.
What if the base rate changes while the invoice is unpaid?
Nothing changes for that debt. Suppose an invoice fell due on 15 May 2026 and is still unpaid in October. Because it became overdue between 1 January and 30 June, you use the base rate on 31 December 2025 for the whole period, even though the Bank of England may have moved its rate since. A second invoice from the same customer that fell due on 15 July 2026 would use the 30 June 2026 rate instead. If you track several late invoices, record the reference rate next to each one in your invoice tracker spreadsheet.
Claiming recovery costs above the fixed sum
If you pay a collection agency or solicitor to recover a debt, you can claim reasonable costs above the fixed compensation. For example, on a £4,800 debt, if a collection agency charges you £300 (an illustrative figure), you can claim the £70 fixed sum plus the £230 difference, as long as the costs are reasonable and you can show them. Courts look at proportionality, so keep invoices for every recovery cost.
Late payment compensation: £40, £70 and £100
| Size of the debt | Fixed compensation |
|---|---|
| Up to £999.99 | £40 |
| £1,000 to £9,999.99 | £70 |
| £10,000 or more | £100 |
You can claim this once per late invoice. If your reasonable costs of recovering the debt, such as a collection agency fee, are higher, you can claim the difference too. Neither interest nor compensation carries VAT.
EU Late Payment Directive: interest in Europe
Across the EU, Directive 2011/7/EU sets minimum rules for commercial transactions, implemented through each member state's law:
- Rate: at least 8 percentage points above the European Central Bank's reference rate (the main refinancing operations rate), usually the rate in force on the first day of each half-year.
- Compensation: a fixed minimum of €40 per late invoice, plus reasonable recovery costs.
- Default term: 30 days where none is agreed.
- Maximum terms: 60 days between businesses unless expressly agreed and not grossly unfair; 30 days for public authorities, extendable to 60 in limited cases.
Some countries go further. Germany uses 9 percentage points above its base rate for business debts, and France uses the ECB rate plus 10 points, both with a €40 flat recovery fee. Confirm the current figures nationally. A proposal to replace the Directive with a stricter regulation with 30-day maximum terms was still pending at our last check.
Worked example 3: €6,000 invoice, 30 days late
Assume an illustrative ECB reference rate of 2.15% and the minimum 8-point margin, so 10.15%.
| Step | Calculation | Result |
|---|---|---|
| Annual interest | €6,000.00 x 10.15% | €609.00 |
| Daily interest | €609.00 / 365 | €1.6685 |
| Interest for 30 days | €1.6685 x 30 | €50.05 |
| Fixed compensation | Minimum | €40.00 |
| Total claim on top of the debt | €50.05 + €40.00 | €90.05 |
Late payment interest in the US and elsewhere
- United States: no general statutory interest on late business invoices. Interest or late fees must normally be agreed in your contract and respect state usury and consumer laws; courts may award prejudgment interest at state rates. Federal agencies must pay interest to contractors under the Prompt Payment Act, at a rate the Treasury sets every six months.
- Australia, Canada, Pakistan and many other countries: rules vary, and interest usually depends on your contract or court awards. Put an agreed rate in your terms.
How to claim statutory interest step by step
- Check eligibility: business customer, debt overdue, no contractual substitute.
- Calculate interest to date and the daily rate, plus compensation.
- Write to the customer with the invoice number, amount, due date, days late, rate used, daily interest and compensation. A statement of account works well.
- Set a deadline and say interest continues at the daily rate until payment.
- Escalate through a final notice, then a claim. See small claims court for an unpaid invoice.
Sample wording: "Invoice INV-2026-118 for £4,800.00 was due on 1 September 2026. Under the Late Payment of Commercial Debts (Interest) Act 1998 we are claiming statutory interest at 11.75% a year (£1.55 a day), currently £69.53, and fixed compensation of £70.00."
Common mistakes when calculating late payment interest
- Starting the count from the invoice date rather than the day after the due date.
- Using today's base rate instead of the six-monthly reference rate.
- Compounding interest.
- Adding VAT to interest or compensation.
- Claiming from consumers.
- Forgetting compensation, which is often worth more than the interest on small debts.
- Threatening interest you have not calculated, which weakens your position.
Checklist before you claim
- Business-to-business debt confirmed.
- Due date and days late confirmed with evidence.
- Correct reference rate identified.
- Interest, daily rate and compensation calculated per invoice.
- Letter or statement sent with the calculation shown.
- Relationship considered; many suppliers waive interest if the customer pays promptly after the demand.
Next step: add interest terms to your invoices
Put a late payment clause on every invoice so customers know before they are late. Open the UK invoice generator and add "Late payments may incur statutory interest and compensation under the Late Payment of Commercial Debts (Interest) Act 1998" in the notes. For changes coming to UK law, read UK late payment law 2026, and for a full collection timeline see our overdue invoice guide.
Frequently asked questions
Do I charge late payment interest on the VAT part of an invoice?
In the UK, statutory interest is normally calculated on the full amount owed, including VAT, because that is the debt the customer has failed to pay. You do not add VAT to the interest or to the fixed compensation, as they are not payments for a supply. Show interest and compensation as separate lines on a statement or demand.
Can I claim statutory interest from a consumer?
No. The Late Payment of Commercial Debts (Interest) Act 1998 only applies where both parties are acting in the course of business. For consumer debts you can only charge interest if your contract allows it and the term is fair under consumer law, or if a court awards interest on a judgment.
Does statutory interest stop when I start a court claim?
You can include statutory interest accrued up to the date of the claim, and ask for it to continue at the daily rate until judgment or payment. After judgment, judgment interest rules apply instead. The online money claim forms let you state the interest basis, rate and daily amount.
Can I claim compensation on every overdue invoice from the same customer?
Yes. In the UK, the fixed sum of £40, £70 or £100 applies to each qualifying late invoice, not once per customer. If a customer pays three separate invoices late, you can generally claim compensation on each one, based on the size of each debt.
What if my contract already sets a late payment interest rate?
If your contract provides a substantial remedy for late payment, such as a reasonable contractual interest rate, that applies instead of statutory interest. A clause that sets a token rate, or excludes interest, can be challenged if it is not a substantial remedy. Many businesses simply refer to the 1998 Act in their terms.
Is there statutory late payment interest in the United States?
There is no general federal rule giving businesses automatic interest on late invoices. Late fees or interest normally have to be agreed in the contract and must respect state usury and consumer laws, and courts may award prejudgment interest under state law. Federal agencies paying contractors late must pay interest under the Prompt Payment Act.
How do I calculate interest if the customer pays part of the invoice?
Calculate interest on whatever is outstanding in each period. Charge interest on the full debt from the day after the due date until the part payment, then on the reduced balance from that date until the rest is paid. For example, if half of a £4,800 invoice is paid 20 days late, the later days run on £2,400. The fixed compensation is still claimed only once for that invoice.
How long do I have to claim statutory interest on an old invoice?
In England and Wales, you generally have six years from when the debt fell due to bring a claim for an unpaid contract debt, including interest, under the Limitation Act 1980. Northern Ireland also uses six years for contract claims, while in Scotland the prescriptive period is usually five years. Older claims are harder to prove, so act sooner, and take legal advice if a debt is close to the deadline.
Do I have to warn customers before charging statutory interest?
No. The right to statutory interest arises automatically under the 1998 Act, so it applies even if your contract and invoice never mention it. In practice, a line on your invoices reserving your rights avoids surprises and encourages customers to pay on time. When you do claim, send a written statement showing the calculation so the customer can check the figures before paying.
Is statutory interest I receive taxable?
Yes. Late payment interest and compensation you receive generally form part of your business income and are taxed with your other profits, whether you are a sole trader or a company. They are not subject to VAT. Record them separately from sales in your accounts so the figures are easy to trace, and check HMRC guidance or ask your accountant if you are unsure how to report them.
Invoice Creator Editorial Team
Guides on invoicing, cash flow and small-business finance from Invoice Creator, operated by Next Software Development Company. Content is reviewed for accuracy against the fields our own invoice generator produces.
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