UK Late Payment Interest Calculator: The 8% + Base Rate Formula (With Invoice Wording)

If a UK business pays your invoice late, the law says you can charge them interest — and you don't need a late fee clause in your contract to do it. The rate is fixed by statute: 8% plus the Bank of England base rate, plus a fixed compensation fee on top.

If you came here looking for a UK late payment interest calculator, here's the good news: the formula is simple enough to do on the back of an envelope. This post walks through it step by step, with a worked example, the compensation fee table, and the exact wording to put on your invoices.

The formula in 30 seconds

Statutory interest under the Late Payment of Commercial Debts (Interest) Act 1998 works like this:

1. Annual rate = 8% + the Bank of England base rate
2. Daily rate = (invoice amount × annual rate) ÷ 365
3. Interest owed = daily rate × number of days late

Then add the fixed compensation fee (£40, £70, or £100 depending on the debt size — table below).

That's it. No court order needed, no contract clause needed. It's a statutory right for business-to-business transactions.

Which base rate do you use?

This trips people up. You don't use today's base rate — you use the reference rate, which is the Bank of England base rate on one of two fixed dates:

• Debt became overdue between 1 January and 30 June → use the base rate from 31 December
• Debt became overdue between 1 July and 31 December → use the base rate from 30 June

So the rate locks in for six months at a time, even if the Bank moves rates mid-period. Check the current base rate at bankofengland.co.uk before you calculate — it changes, and using the wrong figure is the most common mistake with this calculation.

A worked example

Say you invoiced a client £2,500, they're 60 days past the due date, and the reference rate is 4% (check the actual rate for your period — this is just an example).

Step 1 — annual rate: 8% + 4% = 12%

Step 2 — annual interest: £2,500 × 0.12 = £300

Step 3 — daily interest: £300 ÷ 365 = £0.82 per day

Step 4 — interest owed: £0.82 × 60 days = £49.32

Step 5 — add compensation: the debt is between £1,000 and £9,999.99, so add £70

Total you can charge: £119.32 on top of the original £2,500.

If you'd rather not do the arithmetic by hand, a late fee calculator will run the numbers for you — just plug in the invoice amount, due date, and rate.

The fixed compensation fee

This is the part most freelancers don't know about. On top of interest, you're entitled to a one-off compensation payment per invoice:

| Debt amount | Compensation |

|---|---|

| Up to £999.99 | £40 |

| £1,000 to £9,999.99 | £70 |

| £10,000 or more | £100 |

Two things worth knowing here. First, it's per invoice — if a client has five late invoices of £800 each, that's 5 × £40 = £200 in compensation before you've counted a penny of interest. Second, if your actual recovery costs exceed the fixed fee (say you paid a debt collector), you can claim the reasonable difference too.

When statutory interest on late commercial payments applies (and when it doesn't)

The Act covers business-to-business transactions in the UK — sole traders, limited companies, partnerships, all of it. If you're a freelancer invoicing a company, you're covered.

It does not cover consumers. If your client is a private individual buying for personal use, statutory interest doesn't apply — you'd need a late fee term in your contract instead.

A few more details that matter:

• When does the clock start? If you agreed payment terms (say, net 30), interest runs from the day after the due date. If you never agreed terms, the law defaults to 30 days after the invoice or delivery of the goods/services, whichever is later.
• Can the client contract out of it? Only if the contract provides a "substantial remedy" for late payment — i.e. their own interest clause that isn't laughably low. A contract that just says "no interest on late payments" won't hold up.
• How far back can you claim? Up to six years in England, Wales and Northern Ireland (five in Scotland). Yes, you can invoice statutory interest on debts a client paid late two years ago. Whether you want to is a relationship question, not a legal one.
• Do you calculate interest on the VAT-inclusive amount? Yes — interest runs on the gross debt including VAT. But the interest itself isn't a VATable supply, so you don't add VAT on top of the interest.

The exact wording to put on your invoice

You don't have to say anything to earn the right — it's automatic. But putting clients on notice works wonders for payment behaviour. Here's standard wording, ready to paste into your invoice footer or terms:

We understand and will exercise our statutory right to interest and compensation for debt recovery costs under the Late Payment of Commercial Debts (Interest) Act 1998 if we are not paid according to agreed credit terms.

And here's what to say when an invoice actually goes overdue and you're applying the charge:

Subject: Overdue invoice #1042 — statutory interest now applying

Hi [Name],

Invoice #1042 for £2,500 was due on [date] and remains unpaid. As of today it is 60 days overdue.

Under the Late Payment of Commercial Debts (Interest) Act 1998, statutory interest of £49.32 (8% + base rate, accruing daily) and fixed compensation of £70 now apply, bringing the total due to £2,619.32.

Interest continues to accrue at £0.82 per day until payment is received. Please settle the full balance by [date + 7 days].

If you want a full escalation sequence — friendly nudge through to final notice — the late payment email toolkit has copy-paste templates for every stage.

Should you actually charge it?

Honest answer: most freelancers use statutory interest as leverage, not revenue. A £49 interest charge won't change your year. But a client who knows you calculate and apply it pays faster next time.

A sensible middle path: mention the statutory right on every invoice, send a warning that interest is about to start accruing when the invoice goes 14 days overdue, and only actually apply the charge for repeat offenders or debts heading toward a dispute. If it does end up in small claims court (or Money Claim Online in England and Wales), having calculated the statutory interest correctly from day one makes your claim cleaner.

One more thing: the daily-accrual framing is quietly powerful. "This debt is growing by £0.82 every day" lands differently than a static late fee — it creates urgency without you having to be aggressive.

Quick recap

The UK late payment interest calculation is: invoice amount × (8% + Bank of England base rate) ÷ 365 × days late, plus £40–£100 fixed compensation per invoice. It applies automatically to B2B debts, runs from the day after the due date, and you can claim up to six years back.

Run your own numbers with a late fee calculator, get the wording onto your invoices today, and the next late payer is funding your coffee habit instead of their cash flow.