Did you Know?

When calculating interest under the Late Payment of Commercial Debts (Interest) Act 1998 (Late Payment Act), the rate of statutory interest is reviewed twice yearly, on 31 December and 30 June, and not each time the Bank of England base rate is adjusted.

I did not know about this either and like most individuals I was calculating the statutory interest with reference to the dynamic Bank of England base rate on the day my interest starts running. Until an adjudicator corrected my approach.

Let me elaborate.

The Late Payment Act applies to business (B2B) contracts for the supply of goods and services.

Section 1 of the Late Payment Act provides that it is an implied term in a contract to which this Act applies that any qualifying debt carries simple interest subject to and in accordance with this Part. This interest is called “Statutory Interest”

A “qualifying debt” is defined in Section 3 of the Late Payment act as:

“a debt created by virtue of an obligation under a contract to which this Act applies to pay the whole or any part of the contract price.”

Statutory interest runs in relation to a qualifying debt in accordance with section 4 of the Late Payment Act. Section 4(2) of the Late Payment Act states:

“Statutory interest starts to run on the date after the relevant date for the debt, at the rate prevailing under section 6 at the end of the relevant day.”

Section 6(1) of the Late Payment Act further provides:

“The Secretary of State shall by order made with the consent of the Treasury set the rate of statutory interest by prescribing—

(a) a formula for calculating the rate of statutory interest; or

(b) a rate of statutory interest.”

The Secretary of State has done so through the Late Payment of Commercial Debts (Rate of Interest) (No. 3) Order 2002 (SI 2002/1675).

Article 4 of the Order states:

“The rate of interest for the purposes of the Late Payment of Commercial Debts (Interest) Act 1998 shall be 8% per annum over the official dealing rate [Bank of England base rate] in force on 30 June (in respect of interest which starts to run between 1 July and 31 December), or the 31 December (in respect of interest which starts to run between 1 January and 30 June), immediately before the day on which statutory interest starts to run.”

Th above order simply means, for debts where statutory interest starts to run between 1 January and 30 June, the applicable Bank of England base rate is the rate in force on 31 December immediately preceding the date on which interest starts to accrue and for debts that start to run from 1 July to 31 December the applicable bank of England Base Rate is the rate in force on 30 June proceeding the date on which interest starts to run.

For example, in two invoices where statutory interest starts to run from 16 March 2025 and 4 May 2025, the applicable Bank of England base rate is the rate in force on 31 December 2024.

The Bank of England base rate on 31 December 2024 was 4.75%. When the statutory uplift of 8% is applied, this results in a statutory interest rate of 12.75% per annum.

Accordingly, the correct statutory interest rate applicable to both invoices is 12.75% per annum, notwithstanding any subsequent changes to the Bank of England base rate during the period of delay.

Myth vs Reality

Myth: Statutory interest changes every time the Bank of England base rate moves.

Reality: The base rate is snapshotted twice a year and applied for entire six‑month periods.

One line Recap

Did your invoice become late between Jan–Jun → use Dec base rate. Between Jul–Dec → use June base rate.

Author: Anjali Shrivastava