Late Payment Interest Calculator UK 2025 — Commercial Debt Interest & Compensation
If a customer or client has paid you late — or still hasn't paid — you may be legally entitled to statutory interest and fixed compensation under the Late Payment of Commercial Debts (Interest) Act 1998. Use this calculator to work out exactly how much you can claim.
The Late Payment of Commercial Debts (Interest) Act 1998
The Late Payment of Commercial Debts (Interest) Act 1998 (as amended by the Late Payment of Commercial Debts Regulations 2002, implementing the EU Late Payment Directive 2011/7/EU into UK law — retained post-Brexit) gives businesses the automatic right to claim statutory interest and compensation when commercial debts are paid late.
The Act applies to "qualifying debts" — these are debts arising from contracts for the supply of goods or services where both parties are acting in the course of business, or where one party is a public authority. Consumer debts (B2C transactions) are not covered by the Act, but may attract interest under the County Court Act 1984.
What Is a Qualifying Debt Under the Act?
A debt qualifies for statutory late payment interest if:
- It arises from a contract for the supply of goods or services
- The purchaser is acting in the course of a business (B2B) or is a public authority
- The debt is not excluded (employment contracts, financial services, interest-bearing debts, consumer credit agreements and some other specific categories are excluded)
- The debt is not already carrying a higher contractual interest rate
The Statutory Interest Rate
The statutory interest rate for B2B and B2G late payments is calculated as the Bank of England base rate plus 8 percentage points. The base rate used is the rate in force on the date the debt became due for payment (or, if it became due within 6 months of a change, the rate in force at the start of that 6-month period).
The interest accrues as simple interest (not compound) calculated on a daily basis. The formula is:
At a Bank of England base rate of 4.5%, the current statutory rate is 12.5% per annum. This means a £10,000 invoice paid 90 days late would attract approximately £308.22 in statutory interest alone.
When Does Statutory Interest Start to Run?
Under the 2002 Regulations implementing the EU Late Payment Directive, the debt becomes late (and interest starts to accrue) as follows:
- B2B contracts: 30 days after the later of (a) the invoice being received, or (b) goods/services being received — unless the parties have agreed a different payment period (up to a maximum of 60 days, or longer if not grossly unfair to the supplier and expressly agreed)
- Public authority contracts: 30 days after the later of invoice or goods/service delivery — they cannot contract out of the 30-day period
- Where no invoice is issued: 30 days after delivery of goods or completion of services
Payment terms longer than 60 days for B2B contracts can be agreed but are subject to the "grossly unfair" test — terms that are grossly unfair to the supplier can be challenged and set aside by a court.
Fixed Debt Recovery Compensation
In addition to statutory interest, the Act (under section 5A, as amended) provides for fixed compensation amounts that can be claimed automatically when a qualifying debt becomes late — regardless of whether you actually incurred those costs:
| Invoice Amount | Fixed Compensation |
|---|---|
| Under £1,000 | £40 |
| £1,000 to £9,999.99 | £70 |
| £10,000 or more | £100 |
If your reasonable debt recovery costs exceed the fixed compensation amount (e.g. solicitor's letters, debt collection agency fees), you can claim the higher of the actual reasonable costs or the fixed compensation — not both.
Contractual Interest vs Statutory Interest
If your contract already includes an interest clause, you may use either the contractual rate or the statutory rate, but not both. Under the Act, a contractual interest rate that is lower than the statutory rate can be challenged if it is a "substantial remedy" — i.e. if it is sufficient to compensate the creditor and deter late payment. If the contractual rate is not a substantial remedy, a court can award statutory interest instead.
For SMEs in particular, the Act provides specific protections: contractual terms cannot exclude or reduce the statutory right to interest to less than a substantial remedy where the purchaser is a larger business. Any attempt to do so is void.
How to Claim Statutory Late Payment Interest
You can claim late payment interest by:
- Sending a formal notice/invoice: Issue a separate invoice or letter for the interest and compensation amounts. Many businesses include late payment interest as a line item on their next invoice or credit control letter.
- Statutory Demand: If the debt (plus interest) is over £5,000, you can serve a Statutory Demand under the Insolvency Act 1986 — if unpaid for 21 days, this can be used to present a winding-up petition (for companies) or bankruptcy petition (for individuals).
- County Court claim: Claims up to £10,000 can be made in the small claims track (no solicitor fees recoverable unless unreasonable behaviour). Claims over £10,000 go to the fast track or multi-track. You can file online via MCOL (Money Claim Online) or at your local County Court.
- High Court: Claims over £100,000 can be commenced in the High Court. The High Court also awards interest under section 35A of the Senior Courts Act 1981 (formerly Supreme Court Act 1981) at rates it considers just — typically 8% per annum for commercial claims.
Interest on County Court and High Court Judgments
Once you have a court judgment, interest continues to accrue on the unpaid judgment debt:
- County Court judgments over £5,000: Post-judgment interest accrues at 8% simple per annum under the Judgments Act 1838 and County Court (Interest on Judgment Debts) Order 1991
- County Court judgments of £5,000 or less: No automatic post-judgment interest, though the court has discretion to award it
- High Court judgments (all amounts): Post-judgment interest at 8% per annum under the Judgments Act 1838
Pre-judgment interest (interest accruing between the invoice date and the date of judgment) can be claimed under the Late Payment Act for qualifying debts, or under section 35A of the Senior Courts Act 1981 for other commercial claims.
Commercial Rent Arrears Recovery (CRAR)
Commercial landlords have an additional remedy for unpaid commercial rent: Commercial Rent Arrears Recovery (CRAR), introduced by the Tribunals, Courts and Enforcement Act 2007 (replacing the old common law right of distress). CRAR allows a commercial landlord to instruct a certified enforcement agent (formerly known as a bailiff) to seize and sell a tenant's goods on the premises to recover unpaid rent — but only pure rent, not service charges or other sums due under the lease. The minimum rent arrears threshold for CRAR is the equivalent of 7 days' rent.
Frequently Asked Questions
The Late Payment of Commercial Debts (Interest) Act 1998 does not apply to B2C (business-to-consumer) transactions. However, if your contract with a consumer includes an interest clause, that clause applies. If not, you can claim interest as part of a County Court claim at the court's discretion — typically 8% per annum under section 69 of the County Courts Act 1984 from the date the debt fell due. You cannot claim the fixed compensation amounts (£40/£70/£100) for B2C debts.
Yes. The Late Payment of Commercial Debts (Interest) Act 1998 applies to all qualifying commercial contracts, whether written, verbal or implied by conduct. If there is no agreed payment date, the Act sets a default period of 30 days from the later of delivery of goods/completion of services or receipt of the invoice. You do not need a written contract to claim statutory late payment interest, though a written contract (or at least written evidence of the invoice and delivery) will make your claim much easier to pursue.
If the whole invoice is genuinely disputed, interest may not begin to run until the dispute is resolved (as the debt may not yet be a "qualifying debt" if liability is contested). If only part of the invoice is disputed, you can typically claim late payment interest on the undisputed portion. Courts have discretion in awarding pre-judgment interest and will consider whether a dispute was raised in good faith or as a delaying tactic. If a partial payment has been received, interest runs on the outstanding balance from the due date.
No. Under the Late Payment Regulations, payment terms of more than 60 days for B2B contracts are automatically void if they are "grossly unfair" to the supplier — and the Regulations make clear that very long payment periods imposed by a significantly more powerful buyer on an SME supplier are likely to be considered grossly unfair. The Chartered Institute of Credit Management and the Small Business Commissioner can assist businesses in challenging unfair payment terms. The Government's Prompt Payment Code also requires signatories to pay 95% of invoices within 60 days.
Yes. Statutory late payment interest received by a business is generally treated as taxable income for corporation tax or income tax purposes. You should include it in your turnover or other income. The fixed compensation amounts (£40/£70/£100) may also be taxable income depending on how they are classified. If you are claiming significant amounts of late payment interest, consult your accountant to ensure correct tax treatment. Conversely, if you are paying late payment interest to a creditor, it may be deductible as a business expense.
Statutory interest under the Late Payment of Commercial Debts Act accrues automatically from the date the debt becomes overdue, before any court proceedings are issued. The rate is BoE base rate + 8%. County Court judgment interest accrues after a judgment has been entered, at a flat rate of 8% per annum (for judgments over £5,000). You can claim the pre-judgment statutory interest as part of your County Court claim, then post-judgment interest accrues at 8% on the total judgment sum until it is paid.