How to calculate late payment interest UK (2026): Bank Rate + 8% and compensation

How to calculate late payment interest UK (2026): Bank Rate + 8% and compensation

By InvoiceAdept Team1 September 2026Updated 1 September 202613 min read

Last reviewed: 1 September 2026

Author: InvoiceAdept Editorial

Sources checked today: GOV.UK late commercial payments, GOV.UK interest page, GOV.UK debt recovery costs, Bank of England Bank Rate, BoE Bank Rate history, OSBC interest calculator guidance.

This is a practical guide for UK trades and small suppliers. It is not legal advice. Rules change; confirm on GOV.UK before you claim.

In short: who this applies to

UK law gives most business-to-business (B2B) suppliers an automatic right to charge statutory interest and a fixed compensation sum when another business pays late for goods or a service. The main statute is the Late Payment of Commercial Debts (Interest) Act 1998, as updated by the Late Payment of Commercial Debts Regulations. The working GOV.UK hub is Late commercial payments: charging interest and debt recovery.

It applies when:

• Both sides are acting in the course of a business (company, sole trader, partnership supplying another business).

• The payment is late under the agreed terms, or — if no date was agreed — after the default period on GOV.UK (see below).

It does not automatically apply when:

• You are invoicing a consumer / homeowner for domestic work. The statutory Act is commercial. For private clients you need a fair contractual term, and unfair-terms rules still bite.

• The invoice is still disputed on genuine grounds (OSBC guidance: you cannot charge interest and compensation on an invoice paid late because of a dispute).

• Your contract already sets a different interest rate that is a substantial remedy — then that contractual rate usually replaces statutory interest (GOV.UK: you cannot claim statutory interest if there is a different rate in the contract). Public-authority contracts cannot push you below the statutory floor.

If you want a quick arithmetic check after you have read the reference-date rule, use InvoiceAdept’s live late payment interest calculator. The calculator is a helper; the law and the reference rate still come from GOV.UK and the Bank of England.

The formula: Bank Rate + 8%

GOV.UK’s interest page is clear:

Statutory interest = Bank of England base rate (Bank Rate) + 8%

Checked on 1 September 2026:

GOV.UK’s worked example on that page uses a 0.5% base rate only as an illustration. That is not today’s rate. Do not copy 0.5% into a live claim.

Daily interest (simple, 365-day year, matching the GOV.UK style of annual ÷ 365):

Daily interest = Invoice amount (incl. VAT) × (Bank Rate + 8%) ÷ 365
Interest owed  = Daily interest × number of days late

Interest starts the day after the payment was due. OSBC says you can collect interest for up to 6 years from the date following the end of the contracted payment terms (Limitation Act territory — get advice if you are near that edge).

Which Bank Rate applies? The six-month reference rule

You do not always use today’s Bank Rate. The Office of the Small Business Commissioner’s interest calculator guidance explains the statutory reference dates:

For debts becoming overdue in 2026, both halves currently point at 3.75%:

If Bank Rate moves after 30 June 2026, that change does not rewrite the reference rate for debts that already became late in H2 2026. Always pick the rate from the correct reference date, then add 8%.

When is a payment “late”?

From the GOV.UK hub:

• If you agree a payment date, it must usually be within 30 days for public authorities or 60 days for business transactions. You can agree longer than 60 days between businesses if it is fair to both.

• If you do not agree a payment date, the law says payment is late 30 days after either the customer gets the invoice, or you deliver the goods / provide the service (whichever is later).

So “default 30 days” is the no-terms rule on GOV.UK — not a ban on agreeing 14-day terms with other businesses.

Many UK tradespeople also find it helpful to review how to chase late invoice payments at this stage.

Worked examples (365-day simple interest at 11.75%)

These are illustrative invoices, not industry averages. Recalculate with your own figures and the correct reference rate for the overdue date.

Example 1 — plumber, commercial client, £2,400

• Invoice total (incl. VAT if charged): £2,400

• Payment terms: 14 days

• Invoice date: 1 February 2026 → due 15 February 2026

• Paid: 15 March 2026 → 28 days late

• Overdue in H1 2026 → use 31 Dec 2025 Bank Rate 3.75% → statutory 11.75%

Example 2 — electrician, commercial rewire, £12,500

• Invoice total (incl. VAT if charged): £12,500

• Payment terms: net 30

• Invoice date: 1 January 2026 → due 31 January 2026

• Paid: 1 April 2026 → 60 days late

• Overdue in H1 2026 → again 11.75%

Cross-check with the InvoiceAdept late payment calculator or the OSBC calculator if you want a second pass. Round consistently to two decimal places when you invoice the interest.

Sanity-check against GOV.UK’s own example style

GOV.UK’s interest page walks through:

1. 1. Multiply the debt by the statutory annual rate (base + 8%).

2. 2. Divide by 365 for a daily figure.

3. 3. Multiply by the number of days late.

Their published illustration used a 0.5% base (8.5% statutory) only as a teaching example. Swap in the correct reference Bank Rate for your overdue window. While Bank Rate is 3.75%, that teaching template becomes 11.75% — which is what the plumber and electrician tables above use.

Leap years: GOV.UK’s public example divides by 365. OSBC’s calculator is built around the Act’s six-month reference rates. For consistency with the GOV.UK worked method on this page, we use 365. If you use a solicitor’s template that uses 365.25 or actual/365, say so on the interest invoice so the buyer can follow the arithmetic.

Fixed compensation: £40 / £70 / £100 per invoice

On top of interest, GOV.UK’s claim debt recovery costs page sets a fixed sum for recovering a late commercial payment. You can charge it once per payment (per late invoice), not once per customer:

Three separate overdue invoices of £800 each can support three £40 compensation claims (£120) plus interest on each — not one £40 for the whole relationship.

GOV.UK also notes that a supplier can claim reasonable costs each time you try to recover the debt, where those costs exceed the fixed sum. Keep evidence (solicitor letters, tracing fees). That is not a blank cheque.

You cannot charge interest and compensation again on the interest-and-compensation invoice itself if that second invoice is paid late (OSBC FAQ).

Contractual interest vs statutory interest

You can write your own late-payment clause into quotes and terms (“Interest at X% per annum on overdue sums”). Common trade wording is higher than statutory. Two GOV.UK points matter:

1. 1. If the contract already sets a different interest rate, you generally cannot also claim statutory interest on top of that contractual rate (GOV.UK interest page).

2. 2. Public authorities: you cannot be forced onto a rate lower than the statutory floor.

Under the Late Payment Act framework, a contractual term that is not a “substantial remedy” for late payment can be vulnerable — courts can look through a token 0.1% clause. Setting a clear, commercially serious rate (and applying it consistently) is cleaner than a decorative percentage. If you have no late-payment clause at all, statutory interest is available for eligible B2B debts without you having agreed it in advance.

Practical takeaway for trades: put a short late-payment paragraph on every quote and invoice terms block for commercial clients, keep a copy of what you sent, and still know the statutory fallback for when the paperwork is silent.

If you are sorting this alongside other compliance work, read dealing with clients who will not pay.

How to claim (without pretending software files it for you)

Escalate in steps. Most overdue commercial invoices move when the buyer sees a specific daily figure.

1. Reminder that states the daily interest

Send a firm, polite reminder that names:

• the original invoice number and due date

• that the debt is now late under your terms (or the statutory default)

• that statutory interest is accruing at Bank Rate + 8% (state the annual % you are using and the daily £ amount)

• that fixed compensation of £40 / £70 / £100 may also be claimed

InvoiceAdept Pro can send payment reminders and put a Stripe card link on the invoice so the buyer can pay without another chase. That is delivery and collection tooling — not a court filing and not debt-collection agency work.

2. Separate interest-and-compensation invoice

GOV.UK says: send a new invoice if you add interest. OSBC says the interest invoice should carry the date you submit it, and should reference the original invoice (date and number) so the buyer can see what it relates to. Line items typically:

• Statutory interest for X days at Y% on £Z

• Fixed compensation under late payment legislation

Do not invent “admin fees” that are neither the fixed sum nor evidenced reasonable costs.

3. Money Claim Online / court

For many debts within the small-claims band, Money Claim Online (MCOL) is the public route. Court fees are set by HMCTS and can usually be added to the claim. InvoiceAdept does not run MCOL for you, does not act as your solicitor, and does not file anything to HMRC. If the sum or the dispute is material, speak to an adviser or solicitor before you issue.

What to put on the interest invoice

Keep it boring and auditable:

1. 1. Your business name, address, and (if VAT-registered) VAT number.

2. 2. Buyer’s legal name as on the original job.

3. 3. A unique interest-invoice number.

4. 4. Date of issue.

5. 5. Clear reference: “Statutory interest and compensation on invoice INV-#### dated DD Month YYYY.”

6. 6. Days late, annual rate used (e.g. 11.75%), daily rate, interest subtotal.

7. 7. Fixed compensation band and amount.

8. 8. Payment details (sort code / account, or Stripe link).

9. 9. A short note that interest continues to accrue on the original unpaid principal until that principal is paid (it does not restart on this interest invoice).

If the original invoice included VAT, calculate interest on the gross total. OSBC’s guidance is explicit: include VAT in the debt figure.

Public-sector buyers

GOV.UK treats public authorities more tightly on payment periods (usually within 30 days) and will not let a public contract push interest below the statutory rate. If your customer is a council, NHS trust, academy, or similar, check the purchase order and framework terms, but do not assume a soft verbal “we always pay at 60 days” overrides the statute.

Domestic and consumer work: statutory Act does not apply

If you are a plumber, electrician, or builder invoicing a homeowner for work at their house, you are usually in a consumer relationship. The Late Payment of Commercial Debts (Interest) Act route described above is for commercial debts.

For consumers:

• You may include a late-payment interest clause in your terms if it is fair and transparent under consumer-contract rules.

• Aggressive or surprise percentages risk being challenged as unfair.

• Deposits, clear scope, and card payment on completion usually recover more cash than arguing about interest after the fact.

When the client is a landlord’s limited company, a managing agent acting for a business, or another trade on a subcontract, you may be back in B2B territory — look at who the contracting party is on the purchase order, not only who answered the door.

Preventing late payment (better than claiming interest)

Interest is a backstop. Cash in the bank on the due date is the goal.

InvoiceAdept plans (excl. VAT, from the live pricing page): Free — 5 invoices/month; Pro — £7.99/month; Pro+ — £12.99/month with CIS on the invoice. Company: Tech Me Today Ltd, Companies House 15917255, ICO ZB944663.

Same-day invoicing checklist for trades

1. 1. Photo or sign-off of the completed work on site.

2. 2. Materials and labour lines that match the quote (or a written variation).

3. 3. Payment terms in plain English on the PDF and in the email / WhatsApp message.

4. 4. Bank details and a card link if you are on Pro.

5. 5. Send before you leave the driveway when the buyer is a business; for consumers, still send the same day so the trail is clean.

Late interest rarely fixes a quote that never stated terms. Put terms on the quote first, then mirror them on the invoice.

Deposits and staged billing

For jobs over a few hundred pounds, a deposit invoice and a final invoice beat one giant bill that sits in someone else’s purchase-ledger queue. See the deposit invoice template UK for structure. Staged billing on longer commercial works (first fix / second fix / completion) also reduces how much is exposed if the final certificate slips.

Related: see cashflow management for tradespeople for practical next steps.

What we are not claiming

• InvoiceAdept is not a debt-collection agency.

• InvoiceAdept does not file Money Claim Online, County Court claims, or statutory demands for you.

• InvoiceAdept does not file VAT returns, Self Assessment, Making Tax Digital updates, or CIS300 returns to HMRC. Digital invoice records, yes. Filing, no. Do not read this guide as “stay MTD-compliant by charging interest.”

• This page does not quote survey percentages or unpaid “industry totals.” If a figure is not on GOV.UK, the Bank of England, or another named primary source checked for this rewrite, it is not here.

• VAT registration threshold, if you are budgeting growth: confirm the live figure on GOV.UK — as of this review the standard threshold is £90,000 (not the older £85,000 figure still floating around older blogs).

Worth pairing this with our guide to handling deposit payments as a tradesperson.

FAQ

Can I charge statutory late payment interest to a homeowner?

Not under the commercial Late Payment Act route. That Act is for B2B. For consumers you need a fair contractual term, and consumer unfair-terms rules apply. Prefer deposits, clear terms, and easy payment methods.

Is statutory interest compound?

No. It is simple interest on the overdue invoice amount (including VAT per OSBC). It does not compound onto previously accrued interest.

Which Bank Rate do I use if the rate changed last week?

Use the six-month reference date rule above — 31 December or 30 June — not necessarily “whatever Bank Rate is today.” Confirm on the BoE Bank Rate history.

Does the fixed £40 / £70 / £100 apply per customer or per invoice?

Per payment (each late invoice), according to GOV.UK’s debt recovery costs page.

Can I claim if we never agreed payment terms?

Yes for eligible B2B debts. GOV.UK: if you do not agree a payment date, payment is late 30 days after the customer gets the invoice or you deliver (whichever is later).

Can I claim statutory interest when my contract already sets 2% per month?

Usually no — GOV.UK says you cannot claim statutory interest if a different rate is already in the contract. Enforce the contractual rate instead (if it is a substantial remedy and lawful).

How long do I have to claim?

OSBC guidance: interest for up to 6 years from the date following the end of the contracted payment terms. Do not leave old debts until year five without advice.

Do I charge interest if the buyer paid part of the invoice?

Charge statutory interest on the overdue unpaid balance for the days that balance remained unpaid, unless your contract says otherwise. If they paid £2,000 of a £2,400 invoice on time and left £400 late, interest runs on £400 for the late period — not on the full £2,400 after the partial payment. Document the dates of each receipt.

Should I threaten court on the first reminder?

No. State the facts, the daily rate, and the compensation band. Offer an easy way to pay. Save MCOL language for when reminders and an interest invoice have been ignored. Aggressive first contact often hardens a dispute; a clear statutory reminder often unlocks a BACs payment the same week.

Will InvoiceAdept calculate and chase this for me?

The late payment calculator helps with the arithmetic. Pro can send reminders and card links. You still decide whether to issue an interest invoice or go to MCOL. We do not pretend otherwise.

About this guide

Written for UK trades and small suppliers by InvoiceAdept Editorial (Tech Me Today Ltd 15917255, ICO ZB944663). Last reviewed 1 September 2026 against GOV.UK late-payment pages, Bank of England Bank Rate (3.75%, held 30 July 2026, next MPC 17 September 2026), BoE rate history (31 Dec 2025 reference 3.75%), and OSBC interest-calculator guidance (reference dates; include VAT; 6-year outer limit; no interest-on-interest invoice).

Not legal advice. If the debt is large, disputed, cross-border, or close to limitation, take advice from a solicitor or a qualified debt adviser before you issue a claim.

Useful official links

• GOV.UK — Late commercial payments hub

• GOV.UK — Interest on late commercial payments

• GOV.UK — Claim debt recovery costs

• Bank of England — Bank Rate

• Bank of England — Bank Rate history

• OSBC — Interest calculator guidance

• InvoiceAdept late payment calculator

• InvoiceAdept pricing

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