Yes, for most UK business invoices you can charge interest on late payment by law, with no court order and no clause in your contract. The Late Payment of Commercial Debts (Interest) Act 1998 gives you 8% above the Bank of England base rate per year, plus a fixed compensation sum of £40, £70 or £100 depending on the size of the debt, from the day after the agreed due date.
- Statutory interest is 8% above the Bank of England base rate.
- Fixed compensation adds £40, £70 or £100 by debt size.
- Interest starts the day after the due date, no court needed.
- Written terms you both agreed can replace the statutory rate.
- Add interest and compensation to a new invoice line, not the old one.
Can you charge interest on overdue invoices in the UK?
The Late Payment of Commercial Debts (Interest) Act 1998 sets a default that applies whether or not you wrote anything in your terms:
| Element | What you get | When |
|---|---|---|
| Interest rate | 8% per year above the Bank of England base rate | Every day from the day after the due date |
| Fixed compensation | £40 (debts under £1,000) | Added once per invoice, per debt |
| Fixed compensation | £70 (debts £1,000–£9,999.99) | Added once per invoice |
| Fixed compensation | £100 (debts £10,000 and over) | Added once per invoice |
| Right to charge | Automatic under the Act | Business-to-business contracts by default |
The rate is fixed for each debt: the Bank of England base rate on 31 December or 30 June, whichever came last before the invoice fell overdue, plus 8%. Use that figure, not today’s rate or one you looked up months ago.
| Worked example: £2,400 invoice, 45 days late | Amount |
|---|---|
| Original invoice | £2,400.00 |
| Compensation (debt £1,000–£9,999.99) | £70.00 |
| Interest at, for example, 8% + base: illustrative 11.75% total, daily rate 0.0322% | £34.77 |
| Total now due | £2,504.77 |
That is the shape of a statutory claim: one compensation sum, daily-accruing interest, nothing else invented. The compensation is per invoice, not per month: a client with twelve overdue invoices owes you twelve compensations, which is often what moves them.
When your right to charge starts
The clock is set by the due date, and the due date is set by your terms, or by law if you have none:
- With stated terms: the due date is whatever you wrote, 7, 14 or 30 days from the invoice date. Payment terms wording and due dates shows how to state it so the date is unambiguous.
- Business-to-business, no terms: the law supplies a default of 30 days: either 30 days after delivery of the goods or service, or 30 days after the invoice, whichever is later.
- Interest begins: the day after the due date. One day late is enough.
- Public-sector clients are different by statute: the public sector must pay within 30 days by law, and interest runs from day 30 even if the contract allows longer.
If the job finished in March and you invoiced in May, the 30-day default runs from your invoice, because it is the later of the two: late invoicing costs you weeks of interest.
Business clients vs consumers
The Act covers debts between businesses only. Its interest (8% plus base rate) and its £40/£70/£100 sums belong to business-to-business contracts, and a homeowner paying for work on their own home is not covered by them at all. With a domestic client, you can charge interest only if your written terms say so, and the rate has to be fair under consumer law. If it goes to court, the court can also award interest on the debt, usually at 8%.
If your client is a limited company, a partnership or a sole trader buying for their business, the full statutory package applies. If it is a homeowner for their own home, rely on your own terms and on firm reminders, not the Act.
How to actually charge it
Interest is claimed, not silently applied. The sequence that works:
- Chase the original invoice first. Most late invoices clear after a firm reminder email. Interest is for the stubborn tail.
- State your intention in writing. A short letter or email naming the Act, the days late and the sum now due. This alone collects most debts.
- Issue a new invoice for the interest and compensation, each as its own line, referencing the original invoice number. Do not alter the original invoice. In Sendinvo, an overdue sterling invoice to a business client shows the interest and compensation to date, and Create interest invoice drafts that new invoice for you to check and send. A client statement then shows everything the client still owes.
- Keep the calculation. Note the base rate you used and the dates you applied, in case the client disputes it or HMRC asks why the income differs from the invoice.
- Waive the interest if the debt is then paid in full within the same period: many businesses do once the principal arrives, which keeps the relationship.
VAT matters here. Statutory interest and compensation are outside the scope of VAT, so you do not add VAT to them, unlike the original supply.
What if the contract says something different?
Your written terms can replace the statutory regime, but only if they were genuinely agreed and are not a sham:
- A contract term can set a different rate or period, but it must be a substantial remedy: enough to compensate you and deter late payment, and fair in the circumstances, or it is void and the Act applies anyway.
- A token rate fails that test (the High Court has held 0.5% above base too low); one at or above the statutory rate generally stands.
- Absent any clause, the statutory rate applies automatically: silence in your terms never removes your right.
Construction subcontracts often carry their own interest clauses, sometimes above the statutory rate. Check the contract before defaulting to the Act: you charge whichever the contract validly provides.
Related questions
Does statutory interest apply to CIS deductions held too long?
Not directly: a contractor deducting the correct CIS rate is not late-paying you. But if the contractor pays the net amount later than agreed, interest runs on the net sum due. Deductions are dealt with through HMRC, not the interest Act.
Can I add interest to a disputed invoice?
Interest runs from the due date on whatever turns out to be owed. If the client disputes £500 of a £2,000 invoice, claim interest on the £1,500 they accept now; if the £500 is found to be owed, it carried interest from the due date too. Resolve the dispute, then charge interest on whatever was unpaid past the due date.
Do I have to warn the client before charging interest?
No. The right exists from the day after the due date without notice. A polite mention in the first reminder is still good practice: it collects the debt without souring it.
FAQ
Can you charge interest on overdue invoices in the UK?
Yes. The Late Payment of Commercial Debts (Interest) Act 1998 entitles you to 8% above the Bank of England base rate plus a fixed compensation sum of £40, £70 or £100 on late business-to-business invoices, from the day after the due date.
How much compensation can I charge on a late invoice?
£40 for debts under £1,000, £70 for debts from £1,000 to £9,999.99, and £100 for debts of £10,000 or more, added once per overdue invoice. The fixed sums apply to debts between businesses; the Act doesn’t cover debts owed by consumers.
How is statutory interest calculated on a late invoice?
Annual interest is 8% plus the Bank of England base rate on 31 December or 30 June, whichever came last before the invoice fell overdue. Divide by 365 for the daily rate, multiply by the invoice amount and the days overdue, and add the compensation sum. See the worked formula and examples.
When can I start charging late payment interest?
The day after the due date: one day late qualifies. With no agreed terms between businesses, the law sets a default 30-day period from delivery or invoice, whichever is later.
Can I charge interest on an invoice to a homeowner?
Not under the Late Payment Act, which only covers debts between businesses. You can charge interest to a homeowner only if your written terms say so, and the rate has to be fair under consumer law. If it goes to court, the court can also award interest on the debt, usually at 8%. Sendinvo shows statutory interest only on invoices to clients marked as a business.
Do I add VAT to late payment interest?
No. Statutory interest and the fixed compensation sums are outside the scope of VAT, so you do not add VAT to them.
One last thing
The compensation sums are the part businesses underuse. On a £450 unpaid invoice, a year of interest is worth about £50, but the £40 compensation takes the claim to £90, and on ten small unpaid invoices the compensation alone is £400. It is the fixed sums, not the interest, that make chasing small debts worth the letter.