Late Payment Interest Calculator for Overdue UK Invoices

Use the late payment interest calculator

Pop in the invoice amount, the date payment became due and the date you were finally paid (or today's date if it is still outstanding), and the tool above does the daily maths for you. It applies the statutory rate, counts the exact number of overdue days and adds the correct fixed compensation band. Below is how every figure is reached, so you can stand behind the number you send to a slow-paying customer.

Your right to charge interest on an unpaid invoice

If you supply goods or services to another business and they pay late, you do not need a clause in your contract to charge interest. The Late Payment of Commercial Debts (Interest) Act 1998 gives you a statutory right by default. It applies to business-to-business transactions, including sole traders, partnerships and limited companies, and to public-sector bodies. It does not apply to consumers, so you cannot use it against a private individual who bought from you in a personal capacity.

There are two separate amounts you can claim. The first is statutory interest, which runs day by day on the overdue sum. The second is a fixed compensation payment for each invoice, designed to cover the cost and hassle of chasing the debt. You can claim both at the same time, and on top of those you can also recover reasonable extra costs of recovery, such as a debt collection agency fee, if they exceed the fixed compensation.

The statutory interest rate: base rate plus 8%

Statutory interest is charged at 8 percentage points above the Bank of England base rate. So if the base rate is 4.25%, your statutory interest rate is 12.25%. The base rate used is the one in force on the relevant reference date: 31 December for invoices that became overdue between 1 July and 31 December, and 30 June for invoices that became overdue between 1 January and 30 June. Once that reference rate is set, it stays fixed for the whole six-month period, even if the base rate moves in the meantime.

The base rate is set by the Bank of England's Monetary Policy Committee and changes from time to time, so this is not a fixed number you can memorise. Always check the current base rate before you calculate, and use the correct reference-date rate for the period your debt fell overdue. The gov.uk guidance on late commercial payments, interest and debt recovery sets out the rule and links to the prevailing rate.

How the late payment interest calculator works

The formula behind the calculator is straightforward once you separate the two parts.

Statutory interest is worked out as a daily amount, then multiplied by the number of overdue days:

• Annual interest = Amount owed (including VAT) × (Base rate + 8%)
• Daily interest = Annual interest ÷ 365
• Total interest = Daily interest × Number of days the invoice is overdue

The overdue day count starts the day after payment was due and runs up to and including the day you are paid. If you agreed payment terms, the due date is the end of those terms. If you did not agree a payment date, the law sets a default: payment is due 30 days after the customer receives your invoice, or 30 days after you delivered the goods or service, whichever is later.

Fixed compensation is a flat sum per invoice that does not depend on how late the payment is. It is banded by the size of the debt:

• Debt under £1,000: £40 compensation
• Debt of £1,000 to £9,999.99: £70 compensation
• Debt of £10,000 or more: £100 compensation

You add the compensation once per overdue invoice, not once per customer, so if a client owes you on three late invoices you can claim three separate compensation amounts. The total you are owed is simply the original invoice plus the statutory interest plus the fixed compensation.

Worked example: a freelance designer chasing a late invoice

Say Priya runs a small design studio in Leeds as a sole trader. She invoiced a marketing agency £6,000 (VAT included) with 30-day payment terms. The agency paid 50 days after the due date. Assume the relevant Bank of England base rate for the period was 4.25%, giving a statutory rate of 12.25%.

• Annual interest = £6,000 × 12.25% = £735
• Daily interest = £735 ÷ 365 = £2.0137 per day
• Interest for 50 days = £2.0137 × 50 = £100.68
• Fixed compensation (debt £1,000–£9,999.99) = £70
• Total Priya can claim on top of the £6,000 = £100.68 + £70 = £170.68

So the agency now owes £6,170.68. The interest keeps accruing at £2.01 a day until they actually pay, so if they drag it out another fortnight Priya can revise the figure upwards.

Second example: a larger overdue debt

Now take a small limited company owed £18,500 (VAT included) on a single invoice, paid 90 days late, with the same 12.25% statutory rate.

• Annual interest = £18,500 × 12.25% = £2,266.25
• Daily interest = £2,266.25 ÷ 365 = £6.2089 per day
• Interest for 90 days = £6.2089 × 90 = £558.80
• Fixed compensation (debt £10,000 or more) = £100
• Total claimable on top of the invoice = £558.80 + £100 = £658.80

Notice the compensation band jumped to £100 because the debt is over £10,000, and the daily interest is much larger because it is a percentage of a bigger sum.

Statutory interest and compensation at a glance

These figures are set by the Late Payment of Commercial Debts (Interest) Act 1998 and its regulations, and apply across the UK. Full details are on the gov.uk page for late commercial payments, interest and debt recovery. The rules are UK-wide, so there is no separate version for Scotland, Wales or Northern Ireland, although debt recovery through the courts uses each nation's own court system.

How to claim late payment interest

Charging interest is your right, but it is sensible to flag it before you invoke it. A short, firm reminder usually works better than a surprise charge. Here is a practical order of play:

• Send a polite chase the day the invoice falls overdue, restating the amount and the original due date.
• If payment is still missing, send a letter or email stating that you are now applying statutory interest under the 1998 Act, showing the daily interest figure and the fixed compensation.
• Issue a revised statement or a separate interest invoice setting out the running total, and keep updating it as the days tick by.
• If it remains unpaid, you can pursue the debt through the small claims track (the Money Claim Online service in England and Wales), where you can include the statutory interest and compensation in your claim.

Keep your original invoice, your agreed terms and a copy of every chase. The clearer your paper trail, the stronger your position if it ends up in front of a judge.

Common mistakes to watch out for

A few errors crop up again and again when businesses try to calculate late payment interest themselves:

• Charging consumers. The 1998 Act only covers business-to-business and public-sector debts. If your customer bought as a private individual, you cannot use statutory interest against them.
• Using the wrong base rate. People often plug in today's base rate when the debt fell overdue months ago. Use the reference-date rate (the rate on 30 June or 31 December) that applied when the invoice became overdue, and keep it fixed for that six-month window.
• Counting from the invoice date. Interest runs from the day after payment was due, not the day you raised the invoice. If you gave 30-day terms, the clock starts on day 31.
• Forgetting the compensation band. The fixed amount steps up at £1,000 and again at £10,000. A £9,990 debt gets £70; a £10,010 debt gets £100.
• Charging interest on the net amount. Statutory interest is calculated on the full sum owed, including VAT, not the VAT-exclusive figure.
• Double-charging interest. If your contract sets its own late payment interest rate that is a substantial remedy, you use that instead of the statutory 8% above base, not on top of it.

It is also worth remembering that any interest you receive is taxable income for your business, so it feeds into your profit for corporation tax or, if you are a sole trader, your self-employed tax. The fixed compensation is treated the same way.

A note on cash flow and prevention

Interest is a remedy, not a cure. The better defence against late payment is tighter invoicing: clear terms on every invoice, prompt issue, and a habit of chasing on day one rather than day thirty. If late payers are a regular drag, build the cost into your pricing and keep a buffer so a slow month does not stall your payroll or your VAT return payment to HMRC. Knowing you can lawfully add interest gives you leverage in the conversation, even if you choose to waive it for a valued client.

This calculator and article provide estimates for general guidance only and are not personal tax, legal or financial advice. For a disputed or high-value debt, take professional advice before acting.

Related business calculators

If you are tidying up the money side of your business, these tools pair well with this one: work out what you owe HMRC with the Corporation Tax Calculator, check your figures before filing with the VAT Return Calculator, and run staff costs through the Payroll Calculator. Sole traders can estimate their bill with the Self-Employed Tax Calculator.

Who should use this calculator

UK businesses have a statutory right to charge interest on commercial invoices paid late — and most never do. The entitlement is Bank of England base rate plus 8%, running from the day payment was due, plus a fixed compensation sum per invoice on top.

You do not need it written into the contract; the right exists in law. Even where you would rather not charge it, calculating the figure and putting it in a chaser changes the conversation, because it turns a polite request into a quantified claim the other side can see accruing.

What this calculator assumes

• Interest runs at base rate plus 8% from the day after payment was due.
• Interest is calculated on the invoice amount excluding VAT.
• Fixed compensation is due per invoice, on a scale according to the debt size, in addition to interest.
• Where no payment terms are agreed, the default is 30 days.

Limitations — what it does not cover

• Business-to-consumer debts, which are not covered — this applies to commercial transactions.
• Contractual terms providing a substantial remedy, which can displace the statutory rate.
• Recovery costs beyond the fixed sum, which are claimable where reasonable.
• The commercial decision. Charging interest is a right, not an obligation, and may affect the relationship.
• Enforcement — the court process, and whether the debtor can actually pay.
• The six-year limitation period for recovering a debt.