What Is Statutory Interest?
Statutory Interest
The interest the law adds to a late business payment: 8% over base rate, fixed for the life of the debt.
- What Is Statutory Interest?
- Statutory interest is interest that the Late Payment of Commercial Debts (Interest) Act 1998 lets a business charge when another business or a public sector body pays late and the contract sets no other rate. It runs daily from the day after payment was due, at 8% a year over the Bank of England base rate in force on the 30 June or 31 December before interest started.
- Statutory interest is 8% a year over the Bank of England base rate, charged daily on a late business payment.
- The base rate is the one on the 30 June or 31 December before interest started, and it stays fixed for that debt.
- It applies between businesses and to public sector buyers, not to consumers.
- A contract rate replaces it, as long as that rate is a substantial remedy.
When a business customer pays late, UK law gives the supplier a right to interest, whether or not the contract mentions it. That interest is statutory interest, created by the Late Payment of Commercial Debts (Interest) Act 1998. It is deliberately set well above normal borrowing rates, so that paying suppliers late is not a cheap way for a customer to borrow.
How the rate is set
The Late Payment of Commercial Debts (Rate of Interest) (No. 3) Order 2002 fixes the rate at 8% a year over the Bank of England base rate, known in the Order as the official dealing rate. The base rate used is not today's. It is the rate in force on the reference date immediately before the day interest starts:
| Interest starts between | Reference date |
|---|---|
| 1 January and 30 June | The previous 31 December |
| 1 July and 31 December | 30 June of the same year |
Once set, the rate stays the same for that debt until it is paid, even if the base rate changes.
Statutory interest rate by the half-year interest starts
- Jan to Jun 202413.25%
- Jul to Dec 202413.25%
- Jan to Jun 202512.75%
- Jul to Dec 202512.25%
- Jan to Jun 202611.75%
- Jul to Dec 202611.75%
The interest you can charge if another business is late paying for goods or a service is statutory interest: this is 8% plus the Bank of England base rate for business to business transactions.
How interest is calculated
Interest runs from the day after the payment was due until the day it is paid. GOV.UK sets out the method: multiply the debt by the rate to get a year's interest, divide by 365 to get a day's interest, and multiply by the number of days late.
| Step | £2,400 invoice due 31 March 2026, paid 30 April |
|---|---|
| Reference date | 31 December 2025 |
| Base rate on that date | 3.75% |
| Statutory rate | 11.75% a year |
| A year's interest | £282.00 |
| A day's interest | about £0.77 |
| Days late | 30 |
| Interest | £23.18 |
The late payment interest calculator does every step, and holds the Bank of England's base rate history so it picks the right rate for any due date.
Who it applies to
Statutory interest applies to contracts for goods or services where both the buyer and the supplier are acting in the course of a business, including public sector buyers. It does not apply to consumers. And it does not apply where the contract sets its own rate of interest for late payment: GOV.UK is clear that you cannot claim statutory interest if there is a different rate of interest in a contract. A contractual remedy must be substantial, and with a public authority you cannot agree a lower rate.
When a payment is late
Statutory interest needs a due date. If one was agreed, the payment is late the day after it. If none was agreed, a business customer's payment is late 30 days after it received the invoice or the goods or service, whichever was later. The invoice due date calculator works out the date for any payment terms.
Statutory interest and compensation
Alongside interest, the supplier can claim a fixed sum towards the cost of recovering the debt: £40, £70 or £100 depending on its size. That is late payment compensation, charged once per payment, and it does not grow with time. Together, interest and compensation are the supplier's standard remedies under the Act.
Statutory interest compared with other interest
| Interest | Who charges it | Rate | Applies to |
|---|---|---|---|
| Statutory interest | A supplier | 8% over base rate on the reference date | Late business and public sector payments |
| Contractual late payment interest | A supplier | Whatever the contract says | Where the contract sets its own rate |
| HMRC late payment interest | HMRC | Base rate plus 4% | Late tax |
| Court judgment interest | Set by the court | Varies | Unpaid court judgments |
Mixing these up is common. A supplier chasing a customer uses statutory interest; a taxpayer paying tax late pays HMRC's rate, which is different and moves whenever the base rate moves.
Claiming statutory interest
Send the customer a new invoice for the interest, with the fixed compensation if you are claiming it, and show the working: the original invoice number and amount, the due date, the day interest started, the reference date and base rate, the statutory rate, the days late and the daily figure. GOV.UK suggests sending a new invoice when you decide to add interest. If the debt goes further, include the same figures in a letter before action and, if needed, a court claim; the guide on small claims for an unpaid invoice explains how.
Deciding whether to claim
Claiming is a right, not a duty. Many small businesses waive interest for a good customer who pays late once, and claim it from those who pay late repeatedly. Saying in your payment terms that late payments from business customers attract statutory interest and compensation is often enough to change behaviour. The guide on charging interest on late payments sets out how to decide.
Statutory interest in your accounts
Interest you receive from customers is part of your business income, so record it with your other income. For VAT, statutory interest and compensation are generally outside the scope of VAT, because they are not payment for a supply, so they are invoiced without VAT.
A second worked example
A £12,000 invoice to a company fell due on 15 August 2025. Interest started on 16 August, so the reference date is 30 June 2025, when the base rate was 4.25%. The statutory rate is 12.25%, about £4.03 a day. If the invoice is paid 45 days late, the interest is about £181, and the fixed compensation is £100 because the debt is £10,000 or more. The two debts in these examples carry different rates for their whole lives, because they started in different half-years.
Why the rate is set so high
At 11.75% for debts starting in 2026, statutory interest is far above what a business pays on most loans or overdrafts. That is deliberate. The Act was passed to stop larger businesses using their suppliers as free, or cheap, credit by paying late. A rate well above normal borrowing costs removes the incentive: a customer who could borrow at a few percent but pays a supplier late at nearly 12% is making an expensive choice. The fixed 8% margin keeps that gap in place whatever happens to the base rate.
How it fits with the rest of the late payment rules
Statutory interest is one part of a wider framework. The same law, as amended, limits agreed payment periods: GOV.UK says an agreed payment date must usually be within 60 days for business transactions and 30 days for public authorities. Where no date was agreed, it sets the 30-day default. It adds fixed compensation for recovery costs. And contracts cannot simply exclude these remedies with a term that is not substantial. Together, these rules give small suppliers the same basic protection as large ones.
Common mistakes
- Using today's base rate. The rate is fixed by the reference date before interest started.
- Starting interest on the due date. It starts the day after.
- Compounding it. Statutory interest is simple, not compound.
- Charging it to consumers. The Act does not cover them.
- Claiming it on top of a contract rate. A contractual rate replaces statutory interest.
- Forgetting the compensation. The fixed sum is separate and claimed as well.
- Confusing it with HMRC's rate. HMRC's late payment interest on tax is a different rate under different rules.
Statutory interest and disputes
Interest runs on money that is owed and late. If an invoice is genuinely disputed and the dispute is resolved in your favour, the money was owed from the original due date, and interest can be claimed from then. In practice, claiming interest while a real dispute is still open can harden positions, so many businesses resolve the dispute first and include interest in the final settlement. The guide on invoice disputes covers the process.
Time limits
Statutory interest is part of the debt, so it follows the debt's time limit. In England and Wales, a claim for a contract debt generally has to be brought within six years. Waiting that long is rarely wise: evidence fades, customers move on, and a company may be dissolved. Claim promptly, while the facts are fresh, your records are complete and the customer is still trading.
Checking the base rate yourself
The Bank of England publishes its full Official Bank Rate history, listing every change and the date it took effect. To find the rate for a debt, work out the day interest started, find the 30 June or 31 December before it, and look up the rate in force on that date. The late payment interest calculator on this site does that lookup for you, and flags any reference date after its rate table was last checked, so you know when to confirm the latest rate before sending a claim.
Related terms
Statutory interest comes from the Late Payment of Commercial Debts Act, and sits alongside late payment compensation. A letter before action is where both are usually stated formally, and payment terms set the due date they run from.
Statutory interest is simple to work out and, for business debts, available by default. Knowing how it is calculated is the first step to using it well.
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Frequently asked questions
What is the statutory interest rate?
8% a year over the Bank of England base rate on the 30 June or 31 December immediately before interest starts. For debts where interest starts in 2026, that is 11.75%, because the base rate was 3.75% on both 31 December 2025 and 30 June 2026.
Is statutory interest the same as HMRC late payment interest?
No. Statutory interest is charged by one business to another under the Late Payment Act. HMRC late payment interest is charged by HMRC on late tax, at base rate plus 4%.
Can I charge statutory interest to a consumer?
No. The Act only covers contracts between businesses, including public sector buyers.
Sources
Official guidance on GOV.UK.