Who the Act covers
The Late Payment of Commercial Debts (Interest) Act 1998 applies to contracts for the supply of goods or services where the purchaser and the supplier are each acting in the course of a business. "Business" includes a profession and the activities of government departments and public authorities. Consumer credit agreements and contracts operating as a mortgage, pledge or charge are excluded.
Under section 1, any qualifying debt under such a contract carries simple interest as an implied term of the contract. You do not need to have written anything about it on your invoices or terms, although stating it clearly helps.
The 2013 regulations that added the current payment-period rules extend to England, Wales and Northern Ireland and apply to contracts made on or after 16 March 2013; Scotland made its own Late Payment of Commercial Debts (Scotland) Regulations 2013. For a consumer customer, see the options in our guide to what to do when a customer is not paying.
When interest starts to run
Interest runs from the day after the "relevant day" (section 4):
- If you agreed a payment date, that date is the relevant day, subject to the limits below.
- If no date was agreed, it is the last day of a 30-day period starting from the latest of: the day you performed the contract, or the day the purchaser received notice of the amount of the debt (usually your invoice). Where there is an acceptance or verification procedure, its completion can also start the period.
Two limits apply to agreed dates. A public authority cannot push the relevant day beyond 30 days. A private-sector purchaser can agree a date beyond 60 days only if it is not grossly unfair to the supplier, taking account of good commercial practice and good faith. GOV.UK's guidance puts it simply: longer terms may be agreed if they are fair to both businesses.
The rate: 8% over Bank Rate, fixed each half-year
The rate is set by the Late Payment of Commercial Debts (Rate of Interest) (No. 3) Order 2002: 8% a year over the Bank of England's official dealing rate (Bank Rate). The reference rate is the one in force on:
- 31 December, for interest that starts to run between 1 January and 30 June;
- 30 June, for interest that starts to run between 1 July and 31 December.
The rate is set by the date interest starts, so a debt keeps the same rate however long it stays unpaid, even if Bank Rate moves later.
| Interest starts | Reference date | Bank Rate on that date | Statutory interest |
|---|---|---|---|
| 1 Jan to 30 Jun 2026 | 31 December 2025 | 3.75% | 11.75% |
| 1 Jul to 31 Dec 2026 | 30 June 2026 | 3.75% | 11.75% |
| 1 Jan to 30 Jun 2027 | 31 December 2026 | Not yet known | Bank Rate + 8% |
Bank Rate has been 3.75% since 18 December 2025; the Monetary Policy Committee maintained it on 18 June, 30 July and 17 September 2026, and its next decision is due on 5 November 2026.
Worked example: daily interest
GOV.UK's method is simple: work out a year's interest, divide by 365 to get the daily interest, then multiply by the number of days overdue.
Interest = amount owed × 11.75% ÷ 365 × days late (for interest starting in 2026)
An invoice for £4,200, due on 15 September 2026, is paid on 15 October 2026: 30 days late. Interest starts on 16 September, in the second half of 2026, so the reference rate is Bank Rate on 30 June 2026 (3.75%), giving 11.75%.
- Yearly interest: £4,200 × 11.75% = £493.50.
- Daily interest: £493.50 ÷ 365 = about £1.35 a day.
- Interest for 30 days: £493.50 × 30 ÷ 365 = £40.56.
- Fixed sum for a debt between £1,000 and £9,999.99: £70.
- Total you can add to the £4,200: £110.56.
| Invoice | Days late | Interest at 11.75% | Fixed sum | Total extra |
|---|---|---|---|---|
| £850 | 45 | £12.31 | £40 | £52.31 |
| £4,200 | 30 | £40.56 | £70 | £110.56 |
| £12,000 | 60 | £231.78 | £100 | £331.78 |
GOV.UK advises sending a new invoice if you decide to add interest to the money you are owed. If the debt goes to court, the court fee is based on the amount claimed plus interest.
Fixed sums and reasonable recovery costs
Section 5A gives you a fixed sum once statutory interest starts to run:
| Size of the debt | Fixed sum |
|---|---|
| Up to £999.99 | £40 |
| £1,000 to £9,999.99 | £70 |
| £10,000 or more | £100 |
GOV.UK says you can charge the fixed sum only once per payment. If your reasonable costs of recovering the debt are higher than the fixed sum, the Act lets you claim the difference as well.
Can a contract exclude statutory interest?
Only if it replaces it with a substantial remedy. Section 8 makes contract terms void to the extent they try to exclude statutory interest, unless there is a substantial contractual remedy for late payment. In practice, GOV.UK notes that you cannot claim statutory interest if your contract already sets a different interest rate, and that you cannot use a lower rate in a contract with a public authority.
Under section 9, a remedy is substantial unless it is insufficient to compensate the supplier or deter late payment and it would be unfair or unreasonable to let it replace statutory interest. The factors include the benefits of commercial certainty, the parties' bargaining power, whether the term was imposed by one party to the other's detriment, and whether the supplier got something in return.
What is changing: the Commercial Payments Bill
On 19 May 2026 the government introduced a Bill in the House of Lords, announced on GOV.UK as the largest crackdown on late payments in over 25 years. The Commercial Payments Bill would introduce a 60-day cap on payment terms for large firms, keep interest at 8% above Bank Rate, let the Small Business Commissioner investigate poor payment practices, adjudicate disputes and fine the worst offenders, and ban retention payments in construction contracts.
As at 18 October 2026, the Bill was still in the House of Lords and had not received Royal Assent. None of these measures is law yet: the rules above still apply.
Frequently asked questions
What is the late payment interest rate in the UK in 2026?
11.75% a year for business-to-business debts where interest started to run in 2026: 8% plus Bank Rate of 3.75%, which was the rate on both 31 December 2025 and 30 June 2026.
Do I have to warn my customer before charging statutory interest?
No. It is an implied term of every qualifying business contract. It is still good practice to mention it in your terms and reminders, and GOV.UK suggests sending a new invoice when you add interest.
Can I charge the £40, £70 or £100 fixed sum on every reminder?
No. It is due once per late payment, according to the size of the debt. Reasonable recovery costs above the fixed sum can be claimed separately.
Does the Late Payment Act apply to consumers?
No. It only covers contracts where both purchaser and supplier act in the course of a business, including professions and public authorities.
Is there now a legal maximum payment term of 60 days?
Not yet. Today, terms beyond 60 days are allowed only if not grossly unfair to the supplier, and public authorities are held to 30 days. The Commercial Payments Bill would cap large firms at 60 days, but it was not law in October 2026.
Sources
- legislation.gov.uk — Late Payment of Commercial Debts (Interest) Act 1998 (legislation.gov.uk)
- legislation.gov.uk — Late Payment Act 1998, section 4 (when interest runs, 30 and 60-day rules) (legislation.gov.uk)
- legislation.gov.uk — Late Payment Act 1998, section 5A (fixed sums and reasonable costs) (legislation.gov.uk)
- legislation.gov.uk — Late Payment Act 1998, sections 8 and 9 (substantial remedy) (legislation.gov.uk)
- legislation.gov.uk — Late Payment of Commercial Debts (Rate of Interest) (No. 3) Order 2002, article 4 (legislation.gov.uk)
- legislation.gov.uk — Late Payment of Commercial Debts Regulations 2013 (SI 2013/395) (legislation.gov.uk)
- legislation.gov.uk — Late Payment of Commercial Debts (Scotland) Regulations 2013 (SSI 2013/77) (legislation.gov.uk)
- GOV.UK — Late commercial payments: charging interest and debt recovery (gov.uk)
- GOV.UK — Late commercial payments: claim debt recovery costs (gov.uk)
- Bank of England — Bank Rate (bankofengland.co.uk)
- Bank of England — Official Bank Rate history (bankofengland.co.uk)
- GOV.UK — Largest crackdown on late payments in over 25 years as landmark Bill enters Parliament (19 May 2026) (gov.uk)
This article summarises the official texts to help you get organised. It is not a substitute for personalised advice from your accountant.