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Late Payment Act FAQ for UK freelancers

Updated 16 October 2026 · Sources: GOV.UK, legislation.gov.uk

The Late Payment of Commercial Debts (Interest) Act 1998 is one of the most useful laws a freelancer can know, and one of the least used. Here are plain-English answers to the questions we hear most. For the official version, see GOV.UK's late payment guidance and the Act itself on legislation.gov.uk.

What does the Late Payment Act do?

It gives businesses a legal right to claim interest and fixed compensation when another business pays an invoice late. You don't need to have mentioned it in your contract. The right exists automatically unless your contract sets out a different, substantial remedy.

I'm a sole trader. Does it apply to me?

Yes. The Act covers businesses of any size, including sole traders, limited companies and partnerships, and both as the supplier and as the client. What matters is that both sides are acting in the course of business.

Does it apply if my client is a consumer?

No. The Act only covers business-to-business transactions. If you sell to private individuals, you would need a contractual late payment clause instead, and consumer protection law limits what's fair.

What interest rate can I charge?

8% a year plus the Bank of England reference rate. The reference rate is the base rate on 31 December (for debts that become late from January to June) or on 30 June (for July to December). With the base rate at 3.75%, the statutory rate is 11.75% a year. It's simple interest, calculated daily. See our guide to charging late payment interest for the formula and examples.

How do I calculate it quickly?

Multiply the invoice amount by 0.1175, divide by 365, then multiply by the number of days late. Or use the calculator:

What is the £40 late payment fee?

It's fixed compensation for the cost of recovering the debt: £40 for debts under £1,000, £70 for £1,000 to £9,999.99, and £100 for £10,000 or more. You claim it once per invoice. Full details are in our compensation explainer and on GOV.UK.

When is an invoice legally late?

After the agreed payment date. If you didn't agree one, the default is 30 days after the client received the invoice or the goods or services, whichever is later. Businesses can agree longer terms, but terms over 60 days must not be grossly unfair. Public bodies generally have to pay within 30 days.

Can my client contract out of it?

A contract can replace statutory interest with its own late payment remedy, but only if that remedy is "substantial". A clause that sets a token rate, or removes the right entirely, can be overridden as unfair. If you write your own terms, the simplest option is to reference the Act directly.

Do I have to warn the client first?

The law doesn't require a warning. In practice it's good manners, and good business, to mention your right in a reminder before you add charges. Our overdue invoice templates do this at the 7-day stage.

Do I charge VAT on interest or compensation?

Statutory interest and compensation are generally outside the scope of VAT, because they aren't payment for a supply of goods or services. Ask your accountant if you're unsure. And remember to declare any interest you receive as income.

Can I claim interest on the VAT part of my invoice?

Interest is generally calculated on the full amount owed, which usually includes VAT if you charged it. Keep your calculation clear on the claim.

Will claiming interest ruin the relationship?

It depends on how you do it. Many freelancers find that a calm, factual mention of the Act gets them paid faster, with no drama. You can always choose to waive the interest if the client pays the original amount promptly. Waiving is your right too.

How far back can I claim?

In England and Wales, the limitation period for contract debts is generally six years. Interest builds up until payment, but realistically you should act within weeks, not years.

Can I include interest and compensation in a court claim?

Yes. When you make a county court claim, for example through Money Claim Online, you can include statutory interest and compensation and set out the calculation. Our guide on what to do when a client won't pay explains the full process up to small claims.

Does the Act apply in Scotland and Northern Ireland?

Yes, the Act applies across the UK. Court procedures for recovering debts are different in Scotland and Northern Ireland, though.

What if the client says they're disputing the work?

If the dispute is genuine, try to resolve it first, for example by fixing the issue or agreeing a partial payment. Interest generally runs on the amount that turns out to be owed. Don't use the Act to pressure someone over a genuine disagreement about quality.

Is the 11.75% rate going to change?

Yes, it moves with the Bank of England base rate, and the reference rate is reset every six months. Check the current base rate on the Bank of England website. LatePay UK updates its calculations when the reference rate changes.

Is LatePay UK a law firm?

No. LatePay UK is software that tracks your invoices, sends staged reminders at 1, 7 and 14 days overdue and calculates statutory interest and compensation for you. For legal advice on a specific dispute, speak to a solicitor or Citizens Advice.

General information, not legal advice. B2B debts only. Source: [GOV.UK](https://www.gov.uk/late-commercial-payments-interest-debt-recovery).