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Late payment compensation explained: the £40, £70 and £100 fixed sums

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

When a business customer pays you late, you may be able to claim a fixed sum of compensation on top of statutory interest. It is often called the "£40 late payment fee", but the amount depends on the size of the debt. This explainer covers what you can claim, when, and how to ask for it without damaging the relationship.

Where the compensation comes from

The fixed sums come from the Late Payment of Commercial Debts (Interest) Act 1998, as amended in 2013 to bring in the EU Late Payment Directive. The rules are set out on GOV.UK's page on claiming debt recovery costs. The idea is simple: chasing a late payment costs you time and money, so the law gives you a set amount to cover it without having to prove every cost.

How much can you claim?

The amount depends on the size of the unpaid debt:

• £40 for debts of up to £999.99
• £70 for debts of £1,000 to £9,999.99
• £100 for debts of £10,000 or more

The amount is fixed per invoice, not per day and not per reminder. If a client pays three separate £500 invoices late, you can claim £40 on each, so £120 in total.

Conditions for claiming

You can claim fixed compensation when:

• the debt is between businesses, which includes sole traders and public sector bodies but not consumers
• the payment is late, meaning after the agreed date or, if none was agreed, after the default 30 days
• your contract does not set out a different, substantial remedy for late payment

You don't need to mention compensation in your contract in advance. The right exists by law. You also don't need to have spent the money already, because it is a fixed sum.

Compensation plus interest

Compensation sits on top of statutory interest. Interest is currently 8% + the Bank of England reference rate of 3.75% = 11.75% a year, calculated daily on the unpaid amount. See our step-by-step guide on how to charge late payment interest for the formula.

Here's a quick example. A client owes you £800 and pays 30 days late.

• interest: £800 × 0.1175 ÷ 365 × 30 = about £7.73
• compensation: £40
• total extra: about £47.73

On smaller invoices, the compensation is often worth far more than the interest, which is why it's worth knowing about. Try your own figures here:

Can you claim more than the fixed sum?

Yes, in some cases. If your reasonable costs of recovering the debt are higher than the fixed sum, for example because you paid a debt collection agency or a solicitor, you can claim the extra reasonable costs. You need to be able to justify them, and a court will decide what is reasonable if it ends up there. GOV.UK explains this in more detail.

You can't claim your own time at a made-up hourly rate on top. The fixed sum is meant to cover the general hassle of chasing.

How to add compensation to an invoice

The cleanest approach is a separate invoice or a clear statement that references the original invoice. Include:

• the original invoice number, amount and due date
• the date of the claim and the number of days late
• the statutory interest, the rate used and the calculation
• the fixed compensation amount and the legal basis, for example "Fixed sum under section 5A of the Late Payment of Commercial Debts (Interest) Act 1998"
• the new total and a payment deadline

Here's some sample wording you can adapt:

"As invoice INV-104 for £2,400 was due on 1 August and remains unpaid, we are entitled under the Late Payment of Commercial Debts (Interest) Act 1998 to statutory interest at 11.75% a year and fixed compensation of £70. The total now due is £[amount]. Please pay by [date]."

For complete emails at each stage, see our polite to firm overdue invoice templates.

Should you always claim it?

That's a business decision. Some freelancers claim compensation every time, so that clients learn to pay on time. Others mention it in the 7-day reminder as a gentle warning and only add it if payment still doesn't come. Either way is legal. Some also use it as a bargaining chip, offering to waive the compensation if the original invoice is paid within a few days. What matters is being clear and consistent, and remembering that a good client who slips up once might deserve a friendlier approach than one who is always late.

Common questions

Can I charge £40 on an invoice to a consumer? No. The Act only covers business-to-business debts.

Does VAT apply to the compensation? HMRC generally treats statutory interest and compensation as outside the scope of VAT, because they are not payment for a supply. Check with your accountant if you're unsure.

Can I claim it if the client pays a day late? Technically yes. Whether it's wise is another matter.

Is there a time limit? In England and Wales, claims for debts are generally subject to a six-year limitation period, so act much sooner than that.

More answers are in our Late Payment Act FAQ for freelancers.

Automate it

LatePay UK adds the right fixed sum (£40, £70 or £100) to each overdue invoice, works out daily interest and puts both into the firm and formal reminders it sends for you.

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