Late payment interest calculator

Owe HMRC? This is not that

This page is for charging interest to a customer who paid you late. If you owe HMRC and want to know its interest, HMRC uses its own rates: see HMRC interest rates for late and early payments↗ (opens in a new tab).

How do you calculate late payment interest?

Invoice amount × the yearly rate ÷ 365 × the number of days late. For a £3,000 invoice at 11.75%, that is £0.97 a day. Late from 15 August 2026 to 18 September 2026 is 34 days: £32.84 of interest, plus the £70 fixed sum for an invoice of that size. Work it on the full amount including VAT, as the Small Business Commissioner's calculator does.

If they pay part of it, the interest runs on what is left. £5,000 late from 1 June 2026, with £2,000 paid on 1 July 2026: £48.29 on £5,000 for 30 days, then £76.29 on £3,000 for 79 days, £124.58 in all.

How much interest can I charge on a late payment?

• Another business, with nothing about interest in your terms: 8% over the base rate, set by the law.
• Another business, where your contract sets its own rate: that rate, as long as it is a fair remedy.
• A homeowner: only what your quote or terms said, at a fair rate they could see. Nothing is added automatically.

The Late Payment of Commercial Debts (Interest) Act 1998, in plain English

The Act gives a business the right to charge interest when another business pays it late for goods or services. It does not cover sales to consumers, so a homeowner customer is outside it. It applies across the UK.

The rate is 8% a year over the Bank of England base rate, and it is simple interest, not compound. Which base rate? The Rate of Interest Order 2002 fixes it by when interest starts to run: the rate on 30 June for debts that become late between 1 July and 31 December, and the rate on 31 December for debts that become late between 1 January and 30 June. That rate then stays with the debt. A debt that became late on 15 August 2026 uses the 3.75% rate of 30 June 2026, so 11.75% a year.

When is a payment late? On the date you agreed. If nothing was agreed, 30 days after the customer got the invoice or you did the work, whichever is later. Agreed terms between businesses are usually no more than 60 days, and public authorities should pay within 30.

Section 5A adds a fixed sum for each late invoice, and you can also claim reasonable recovery costs above it. Your contract can set its own late payment interest instead, as long as that is a substantial remedy. You can still claim the interest after the invoice is paid, and in England and Wales a claim on a contract can usually be brought for up to six years (Limitation Act 1980, section 5).

The fixed compensation: £40, £70 and £100

It is once per invoice, not per reminder. If recovering the debt costs you more, you can claim reasonable costs on top.

Can you legally charge interest on overdue invoices?

To another business, yes, even with nothing about it in your terms: the Act adds it. To a homeowner, only if your terms said so before the work started. GOV.UK suggests sending a new invoice when you add the interest.

Late payment interest and homeowner customers

Many tradespeople work mostly for homeowners, and the Act does not apply to them. Without a clause in your quote or terms you cannot add interest to the bill. If you go to court for the money, the claim can usually include interest at 8% a year (GOV.UK): on £3,000 over 34 days, about £22.36. The fix is in your paperwork: say in every quote when payment is due and that late payments carry interest, and get a signed job sheet when the work is done, so nobody can argue it was not. If a late payer is costing you margin, the markup calculator shows what is left.

How to write a late payment letter

• A friendly reminder, just before or just after the due date: the invoice, the amount, how to pay.
• An overdue notice to a business customer: the Act, the rate, the date interest started, the daily amount, the fixed sum, and 7 days to pay.
• A letter before claim, if it still is not paid. The court expects one before a claim is issued. If the debtor is a person or a sole trader, including a homeowner, the Pre-Action Protocol for Debt Claims applies: the letter must set out the debt, the interest, the agreement and how to pay, enclose a statement of account, the Information Sheet, the Reply Form and a Financial Statement, and give them 30 days to reply. If the debtor is a company, the Practice Direction on pre-action conduct applies instead: a shorter letter and 14 days to reply.

The calculator writes all three from your figures. If the customer disputes the quality of the work, take advice before sending anything. What comes before and after the letters, from the first reminder to a small claim and enforcing the judgment, is in the guide to a customer refusing to pay.

What is changing: the Commercial Payments Bill

A Bill introduced in the House of Lords on 19 May 2026 would cap payment terms at 60 days, make interest on late payments mandatory at 8% over base, ban retentions under construction contracts, and give the Small Business Commissioner new powers. It is not law yet: until it is, the rules above apply.