Silo 1 · Global Late Payment Law

UK Late Payment of Commercial Debts Act

By Santanu Sarma — Mathematical Economics & Public Finance · Updated June 2026

The Late Payment of Commercial Debts (Interest) Act 1998 does something most commercial statutes don't: it implies an interest and compensation term into every qualifying B2B contract, whether or not the parties wrote one. Unlike the contractual late fee covered elsewhere in this series, you don't need a clause — you need to know whether your contract has tried, lawfully or not, to displace it.

Statutory Rate: Base Rate + 8%

Section 4 of the Act, as amended by the Late Payment of Commercial Debts Regulations 2002, sets the rate at 8 percentage points above the Bank of England's base rate. The rate is not recalculated daily — it is fixed by reference date, mirroring the EU mechanism this Act predates:

• Debts becoming late between 1 January and 30 June: use the base rate as it stood on 31 December of the prior year.
• Debts becoming late between 1 July and 31 December: use the base rate as it stood on 30 June.

The Bank of England held Bank Rate at 3.75% at its 18 June 2026 meeting — unchanged since December 2025. That means both reference dates relevant to 2026 land on the same figure:

That figure only holds while Bank Rate stays put through both reference dates — if the Bank moves before 30 June or 31 December, the second half of the year recalculates independently.

The Fixed Compensation Bands

Alongside interest, the Act gives the supplier a fixed debt-recovery sum the moment statutory interest starts to run — no invoice required, no proof of cost needed:

If your actual, reasonable recovery costs (legal fees, a collection agency) exceed the fixed sum, you can claim the excess on top — the fixed sum is a floor, not a cap, once those costs are documented.

Payment Term Defaults

• No date agreed: 30 days after the later of delivery, invoice receipt, or completion of any acceptance procedure (for contracts from 14 May 2013 onward).
• Date agreed contractually: can extend beyond 30 days, capped at what is not "grossly unfair" to the supplier — there is no automatic 60-day safe harbor as in the EU Directive.
• Public authority as buyer: always 30 days, regardless of what the contract says.

Contracting Out: The "Substantial Remedy" Test

Section 8 allows parties to displace the statutory rate — but only if the contract substitutes a remedy that is genuinely equivalent. The Act's own language sets the bar:

a contractual remedy is not a substantial remedy unless it is sufficient for compensating and deterring

Courts assess "substantial" against the circumstances at the time the term was agreed — including the relative bargaining strength of the parties and whether the term was simply imposed by the buyer. A contract clause that sets, say, 1% per month with no other late-payment remedy is unlikely to survive this test where the statutory rate would have been far higher; the statutory terms get implied back in regardless of what the contract says.

The Formula

Worked example: A £5,000 invoice, 45 days overdue, at the 2026 statutory rate of 11.75%.

How This Sits Alongside the EU Directive

The Act predates Directive 2011/7/EU — it was introduced in 1998 and later amended by the 2002 and 2013 Regulations specifically to transpose the EU's late-payment rules into UK law. Brexit did not repeal it: as a domestic Act of Parliament rather than directly-applicable EU law, it remained in force unchanged after the UK's withdrawal and continues to apply on its own statutory terms, independent of whatever the EU does with its 2023 recast proposal.

This article is informational and reflects published UK statutory mechanics as of June 2026. It is not legal advice. The statutory rate resets on 1 January and 1 July based on the Bank of England base rate at the preceding reference date — confirm the current published rate via the Bank of England before relying on a specific figure.