How to Calculate Statutory Late Payment Interest on Overdue Invoices (UK)

If a business owes you money and has missed the payment deadline, UK law gives you the right to charge statutory interest on the outstanding amount. Many freelancers, contractors and small business owners either don’t know this right exists or find the calculation too complicated to pursue. This guide explains exactly how it works and how to calculate what you are owed.

Our free UK late payment interest calculator computes interest under the Late Payment of Commercial Debts (Interest) Act 1998, including the fixed compensation fee, with a full breakdown of the rate periods applied.

Note: this guide covers statutory interest on overdue commercial invoices under the Late Payment Act 1998. If your situation involves a loan or agreement with a contractual interest rate, see the Contractual Interest Calculator instead.

What Is Statutory Late Payment Interest?

Statutory late payment interest is a legal right established under the Late Payment of Commercial Debts (Interest) Act 1998. It applies to commercial transactions between businesses – so if you are a sole trader, freelancer, limited company or any other business entity, and another business owes you money, this law applies to you.

The Act was introduced specifically to protect smaller businesses from the damaging effects of late payment by larger ones, though it applies equally to businesses of any size.

Importantly, this is not something you have to negotiate for. It is a statutory right, meaning it exists by law whether or not your contract mentions it.

How Is the Interest Rate Calculated?

The statutory interest rate is set at 8% above the Bank of England base rate that was in force on either 1st January or 1st July, whichever is the most recent reference date before the debt became due.

The rate is updated twice a year – on 1st January and 1st July – using the base rate that applied on those dates. Interest is calculated on a simple basis, not compound, meaning it does not accumulate on itself over time.

Example calculation

Suppose you are owed £5,000 on an invoice that was due on 1st March 2024. The Bank of England base rate on 1st January 2024 was 5.25%, making the statutory rate 13.25%. If you are calculating interest up to 1st March 2025 – 366 days later – the calculation would be:

£5,000 × 13.25% ÷ 365 × 366 = £664.32

That is £664.32 in interest on top of the original £5,000 debt, simply for being paid a year late.

What About Statutory Compensation?

In addition to interest, the Act entitles you to claim a fixed compensation fee. This is separate from the interest and is charged as a flat amount per invoice:

Invoice Value	Fixed Compensation
Up to £999.99	£40
£1,000 to £9,999.99	£70
£10,000 and above	£100

This compensation is intended to cover the administrative cost of chasing the debt. You can also claim reasonable debt recovery costs on top of this if they exceed the fixed amount.

When Does the Clock Start?

Interest starts accruing from the day after the payment was due. If your invoice did not specify a payment date, the Act provides a default of 30 days from the date of invoice or delivery of goods and services, whichever is later.

Many contracts specify 30, 60 or even 90 day payment terms. Whatever your agreed terms say, that is the date from which interest begins if payment is not received.

Does This Apply to Consumer Debts?

No. The Late Payment Act applies only to commercial transactions – that is, transactions between two businesses. If you are owed money by a private individual rather than a business, this Act does not apply. You would need to pursue that through other means.

Can You Claim This in Court?

Yes. Statutory late payment interest can be included in a claim through the County Court, either as part of a Money Claim Online (MCOL) submission or a formal Letter Before Action. Having a properly formatted calculation document significantly strengthens your position and demonstrates that your figures are based on the correct statutory formula.

A court-ready report should set out the principal amount, the calculation period, the base rates applied for each period, the daily interest accrual and the total amount due including compensation. This is exactly what our PDF report provides.

How to Calculate It Quickly and Accurately

Calculating statutory interest manually is straightforward for a single rate period, but becomes complicated when the Bank of England base rate changes during the period you are calculating. Each rate change creates a new segment with its own daily rate, and all of these need to be added together correctly.

Our free calculator handles all of this automatically. You simply enter:

• The original debt amount
• The date payment was due
• The date you want to calculate up to

The calculator applies the correct statutory rates for each period, adds the fixed compensation, and displays a full breakdown instantly.

Frequently Asked Questions

Do I have to tell the debtor I am charging interest?

You do not need to notify them in advance – it is a statutory right. However it is good practice to include a reference to the Late Payment Act on your invoices so there are no surprises, and to itemise the interest clearly in any demand letter.

What if my contract already specifies an interest rate?

If your contract specifies a contractual interest rate, that rate takes precedence over the statutory rate – provided it is a substantial remedy. If your contractual rate is lower than the statutory rate and a court considers it not to be a substantial remedy, the statutory rate may apply instead. For contractual interest calculations, see our Contractual Interest Calculator.

Is there a time limit for claiming?

Yes. The general limitation period for contract claims in England and Wales is six years from when the debt became due. After six years the claim may be statute-barred.

Can I claim interest on partial payments?

Yes. If the debtor has made partial payments, interest is calculated on the outstanding balance after each payment is applied. The calculation becomes more complex with multiple payment dates, which is another reason to use a dedicated calculator.

Summary

Statutory late payment interest is a legal right that many businesses simply do not use, leaving money on the table. The calculation is based on 8% above the Bank of England base rate, applied on a simple interest basis from the day after payment was due. You are also entitled to a fixed compensation fee per invoice.

Whether you are sending a demand letter, preparing a court claim, or simply want to know what you are owed, an accurate calculation is essential. Use our free calculator below to get your figures in seconds.