The Late Payment Calculator is a tool designed to help UK businesses calculate the statutory interest and compensation on overdue invoices. This tool is essential for any business dealing with delayed payments, ensuring they receive the correct amount owed.
How Late Payment Calculator works in 2026
The Late Payment Calculator uses the statutory interest rate set by HMRC, which for 2026 is anticipated to be 8% above the Bank of England base rate. As of now, the base rate stands at 4%, making the total interest 12%. The calculation involves applying this rate to the overdue amount from the date the payment was due until the date it is received. Additionally, compensation for debt recovery costs can be claimed, which varies depending on the size of the debt. These rates are specified under the Late Payment of Commercial Debts (Interest) Act 1998.
For example, if an invoice of £1,000 was due on 1st January 2026 and is paid on 1st March 2026, the interest would be calculated for 60 days. This is done by multiplying the daily interest rate (12% per annum divided by 365) by the number of overdue days. HMRC provides guidelines ensuring businesses apply these calculations accurately to claim the correct compensation.
When to use Late Payment Calculator
This tool is useful in various business scenarios:
- Scenario 1: A small business owner waiting on payment for a delivered service.
- Scenario 2: A contractor dealing with delayed payments from multiple clients.
- Scenario 3: An accountant calculating interest for overdue invoices for business clients.
- Scenario 4: A supplier chasing payment from a retailer who consistently pays late.
Key UK rates / thresholds for 2026
Here are the essential UK rates and thresholds for using the Late Payment Calculator in 2026.
| What | Rate / threshold | Notes |
|---|---|---|
| Statutory Interest Rate | 12% | 8% above the Bank of England base rate |
| Base Rate | 4% | Set by the Bank of England |
| Compensation for £1,000 debt | £40 | Varies with debt size |
| Compensation for £10,000 debt | £70 | Higher debts attract higher compensation |
Worked example
Imagine a UK sole trader, Jane, who issued an invoice of £2,500 due on 15th January 2026. The client pays on 15th February 2026. The payment is 31 days late. The interest calculation is as follows: £2,500 x 12% / 365 x 31 = £25.48. Jane can also claim a £40 compensation fee for the debt recovery. Therefore, the total owed becomes £2,565.48.
Common mistakes
- Calculating interest based on a monthly rather than a daily rate. Always divide the annual rate by 365.
- Not including weekends and holidays. All calendar days count as per HMRC guidelines.
- Overlooking compensation entitlement. Ensure you add the correct fee based on the debt size.
- Incorrect base rate usage. Verify the current rate as it can change during the year.
Related calculations
Businesses often need to calculate VAT on overdue invoices, which is separate from interest. Additionally, understanding credit control processes can assist in avoiding late payments altogether. Many use cash flow forecasts in tandem with late payment calculations to manage finances better.
What HMRC checks
HMRC advises keeping detailed records of all invoices and payment dates. Maintain records for at least six years, as this period aligns with the requirements for VAT and other financial audits. Discrepancies or frequent late payment claims may trigger HMRC inquiries.
Bottom line
The Late Payment Calculator is a practical tool for ensuring businesses receive due compensation on overdue invoices. By understanding the statutory interest and compensation rules, businesses can improve cash flow. Regular use of this tool can prevent errors and ensure compliance with HMRC requirements.