Late payment compensation in the UK is fixed by debt size: £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, charged once per overdue invoice under the Late Payment of Commercial Debts (Interest) Act 1998, alongside interest at 8% above the Bank of England base rate.
- £40 for debts under £1,000; £70 for £1,000–£9,999.99; £100 for £10,000+.
- Compensation is charged once per invoice, not per month.
- It stacks with statutory interest at 8% above the Bank of England base rate.
- The fixed sums apply to business debts; consumers get reasonable costs instead.
- Add compensation to a new invoice line. Never alter the original invoice.
Late payment compensation by debt size
The compensation sums are set in law and do not move with inflation: they have been £40, £70 and £100 since the legislation was consolidated. What changes with debt size is only which bracket you fall into:
| Debt size | Fixed compensation | Example claim |
|---|---|---|
| Under £1,000 | £40 | £450 invoice → £40 compensation |
| £1,000 to £9,999.99 | £70 | £2,400 invoice → £70 compensation |
| £10,000 or more | £100 | £18,500 invoice → £100 compensation |
| Worked example: £7,200 invoice, 60 days late | Amount |
|---|---|
| Original invoice | £7,200.00 |
| Compensation (£1,000–£9,999.99 bracket) | £70.00 |
| Interest at, for example, 8% + base: illustrative 11.75%, daily rate 0.0322% | £139.20 |
| Total now due | £7,409.20 |
The bracket is decided by the size of the original debt, not by how much has been paid since. A £1,200 invoice that has been part-paid down to £900 still sits in the £70 bracket, compensation follows the original sum due.
How the brackets work in practice
Three rules do all the work:
- Once per invoice. A customer with eight overdue invoices owes you eight compensations. On a portfolio of small unpaid invoices the compensation alone is often worth more than the interest. That is why the fixed sums matter most for trades invoicing many small jobs.
- Per debt, not per chase. Sending three reminders about the same invoice does not triple the compensation. If the debt is repaid and goes late again on a genuinely separate invoice, that is a new claim.
- Calculated from the original amount. Interest runs on the unpaid principal; compensation is the flat sum for the bracket the original invoice fell into.
Stacking compensation with interest
The full statutory claim on a late business invoice is:
- The original invoice amount.
- Statutory interest: 8% per year above the Bank of England base rate, accruing daily from the day after the due date. How to calculate and charge it covers the formula and wording.
- The fixed compensation sum for the debt bracket.
VAT does not apply to either the interest or the compensation: they are outside the scope of VAT, unlike the original supply.
| Example: five overdue invoices for one client | Debt | Compensation |
|---|---|---|
| Invoice A | £420 | £40 |
| Invoice B | £580 | £40 |
| Invoice C | £1,150 | £70 |
| Invoice D | £2,300 | £70 |
| Invoice E | £12,000 | £100 |
| Total compensation | £320 |
That £320 is claimable before a single penny of interest, and it is often what makes chasing a batch of small invoices worthwhile at all.
Who you can charge it to
The fixed sums are a business-to-business entitlement. The buyer’s legal shape decides the bracket rules:
- Companies, partnerships and sole traders buying for their business, the full package: interest plus £40/£70/£100.
- Public sector customers. Interest applies, and the fixed sums generally apply too; the Act covers contracts with public authorities, which must pay within 30 days by law.
- Consumers, a homeowner buying for their own home is a different regime: statutory interest can apply to the debt, but the fixed compensation sums do not; you are limited to reasonable debt-collection costs instead.
A tradesperson’s typical mix (a main contractor on one invoice, a homeowner on the next) means checking which regime each invoice falls under before adding compensation.
How to claim it
Compensation is claimed, not silently added. The sequence that collects most debts:
- Chase the invoice first with a firm reminder email, most late invoices clear at this stage.
- Name the entitlement in writing when the debt persists: the Act, the days overdue, the interest and compensation now due. A short letter citing the Act collects the majority of remaining debts without escalation.
- Issue the claim as a new invoice referencing the original invoice number: a separate line for compensation, a separate line for interest. A customer statement is the cleanest way to show the running position.
- Keep your calculation (the base rate used, the dates, the bracket) in case the customer disputes it or HMRC asks why your income differs from your invoices.
- Waive it if the debt is then paid promptly and the relationship matters. The threat of the fixed sums collects; enforcing against a good client is a commercial choice, not a legal necessity.
When compensation does not apply
- Contractual terms that replace it. Your written terms can set a different remedy, but only if it is a substantial remedy, broadly comparable to the statutory entitlement. A token clause does not remove your right to the statutory sums.
- Disputed debts. Interest and compensation run only on the undisputed part of an invoice.
- Consumer contracts, as above, the fixed sums are not available; reasonable collection costs are.
Related questions
Is the £40/£70/£100 compensation the same as interest?
No, they are separate. Compensation is the fixed sum for the debt bracket, added once per invoice. Interest is 8% above the Bank of England base rate, accruing daily. A claim includes both.
Can I charge compensation on a deposit invoice that was paid late?
Yes, if it was a business-to-business debt and past the due date. The bracket is set by the deposit amount: a £500 deposit is the £40 bracket.
Does compensation apply to CIS subcontract payments?
If the contractor paid the net sum late, the late payment rules apply to the net amount due. The CIS deduction itself is a tax matter handled through HMRC, not a late-payment claim.
FAQ
How much compensation can I charge for a late invoice in the UK?
£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 under the Late Payment of Commercial Debts (Interest) Act 1998.
Is late payment compensation per invoice or per month?
Per invoice. Each overdue invoice carries one compensation sum; a customer with several overdue invoices owes one sum for each. It does not accrue monthly.
Which debt bracket applies if the invoice was part-paid?
The bracket is set by the original amount due, not the remaining balance, a £1,200 invoice part-paid to £900 still carries £70 compensation.
Can I charge compensation to a homeowner?
The fixed £40/£70/£100 sums are a business-to-business entitlement. For consumer debts you can claim reasonable debt-collection costs instead; the 8% above base rate interest itself still applies.
Do I add VAT to late payment compensation?
No. Statutory interest and the fixed compensation sums are outside the scope of VAT.
How do I actually collect the compensation?
State it in writing once the invoice is overdue, citing the Act, then issue it as a separate invoice line referencing the original invoice. Most debts are paid at the letter stage.
One last thing
The fixed sums were designed for exactly the situation trades live in: many small invoices, none individually worth suing over. £40 on a £300 unpaid job, ten times a quarter, is £1,200 a year, more than most invoicing subscriptions and far more than the interest on small debts. Claim the compensation; it is the part most businesses forget exists.