You've done the work. Sent the invoice. And now the payment is weeks — maybe months — overdue. You know you're entitled to charge interest, but how much exactly?

This guide shows you the exact formula for calculating late payment interest under UK law, with worked examples. Or skip straight to our free late payment interest calculator and get your answer in seconds.

The Legal Basis: Late Payment of Commercial Debts Act 1998

If you're a UK business (freelancer, sole trader, limited company, partnership) and you've supplied goods or services to another business, the Late Payment of Commercial Debts (Interest) Act 1998 automatically gives you the right to charge interest on overdue invoices.

Key points:

The Formula: How to Calculate Statutory Interest

The statutory interest rate is 8% per year above the Bank of England base rate.

As of March 2026, the Bank of England base rate is 4.50%, making the total statutory rate 12.50% per annum.

The daily formula is:

Daily interest = Invoice amount × 12.50% ÷ 365

Then multiply by the number of days overdue:

Total interest = Daily interest × days overdue

Worked Example 1: £2,000 invoice, 30 days late

Worked Example 2: £500 invoice, 60 days late

Worked Example 3: £15,000 invoice, 90 days late

Fixed Compensation: The Bit Most People Forget

On top of interest, the Late Payment Act entitles you to fixed compensation based on the size of the debt:

Debt Size Compensation
Up to £999.99 £40
£1,000 – £9,999.99 £70
£10,000+ £100

This is per invoice, not per debt. If a client owes you three separate invoices of £800 each, you can claim £40 compensation on each — that's £120 in compensation alone.

When Does Interest Start?

Interest starts accruing from the day after the payment due date. If your invoice doesn't specify payment terms, the default under UK law is 30 days from either:

What About the Bank of England Base Rate?

The base rate changes periodically. You should use the rate that was in effect on the date the debt became overdue. As of March 2026:

Check the Bank of England website for the current rate.

Can You Claim Interest AND Compensation?

Yes. They're separate entitlements under the Act. Interest compensates you for the time value of money. Fixed compensation covers the cost of chasing the debt. You're entitled to both.

Do You Need to Warn the Client First?

No. Your right to statutory interest is automatic. You don't need to have warned the client, included it in your terms, or even mentioned it on the invoice. However, in practice, sending a clear breakdown of interest + compensation owed often prompts immediate payment — most businesses don't want a formal debt claim on their record.

Skip the Maths — Use Our Free Calculator

Don't want to calculate it manually? Our Late Payment Interest Calculator does it instantly:

Calculate what you're owed now →

Frequently Asked Questions

Does this apply to sole traders and freelancers?

Yes. If you're a sole trader, freelancer, or contractor operating as a business and you've invoiced another business, you're covered by the Act.

What if my contract says "no interest on late payments"?

A contract clause that tries to exclude your right to statutory interest may be void if it's not a "substantial remedy" for late payment. The Act was specifically designed to prevent larger businesses from imposing unfair payment terms on smaller suppliers.

Can I charge interest on debts from months or years ago?

Yes. The limitation period for claiming statutory interest is 6 years from when the debt became due (in England and Wales). You can go back and claim interest on old unpaid invoices.

Is this different from contractual interest?

If your contract specifies an interest rate, that takes precedence — but only if it qualifies as a "substantial remedy." If the contractual rate is unreasonably low, you may still be able to claim statutory interest instead.