Yes, if your customer is a business. The law lets you add statutory interest (currently 11.75% a year) and fixed compensation of £40, £70 or £100 to any late business invoice, even if your terms never mention it. A flat late fee of your own design is different: it only works if your customer agreed to it in advance and it isn't out of proportion to your interest in being paid on time.
In this article
The short version
- Yes, on business invoices: statutory interest and fixed compensation apply automatically.
- Interest is 11.75% a year now; compensation is £40, £70 or £100 per invoice.
- Your own flat late fee needs a term the customer agreed to and must be proportionate.
- A contract interest rate replaces statutory interest; you can't charge both.
- The Act doesn't cover consumers; you'd need a fair agreed term.
Which late fees does the law allow?
The Late Payment of Commercial Debts (Interest) Act 1998 gives you two charges on any business invoice paid late, and both apply automatically:
- Statutory interest at 8% above the Bank of England base rate. With the base rate at 3.75%, that's 11.75% a year, charged daily from the day after the due date.
- Fixed compensation, once per invoice: £40 under £1,000, £70 from £1,000 to £9,999.99, and £100 on £10,000 or more.
Say a customer pays a £1,800 invoice 30 days late. The interest is £17.38 and the compensation is £70, so you can claim £87.38 on top of the invoice.
If chasing the debt costs you more than the fixed sum, for example you pay a collection agency, you can also claim those reasonable costs above it. That covers real, evidenced spending, not a figure you choose because it looks discouraging.
You don't need a clause in your terms for any of this, because the Act writes it into every business contract. Putting a line on your invoices that you charge statutory interest on late payments won't change what you're owed, but it tells your customers you know the rules, so the charge is less of a surprise when it arrives.
Can you set your own late payment fee?
You can, but it has to be in the contract your customer agreed to before the work, and it has to stand up. There are two kinds.
A contractual interest rate replaces statutory interest. If your terms set your own interest rate for late invoices, that's the rate you charge, and you can't claim the statutory rate as well. The rate has to be a substantial remedy for late payment. A token rate risks being void, and then statutory interest applies instead, so a low rate can leave you no better off than saying nothing.
A flat late fee or admin charge is triggered by your customer breaking the payment terms, so it's tested against the rule on penalties. A charge that's out of all proportion to your legitimate interest in being paid on time is unenforceable. A modest fee that reflects the real cost of late payment is on safer ground than £150 added to a £400 invoice. If you've never agreed a fee with your customer, adding one when an invoice goes overdue has no legal footing, and it's likely to start an argument you didn't need.
For most businesses, the statutory route does the job without any drafting: it's already in your contracts, the amounts are set by law, and a customer can check them on GOV.UK.
What about consumers and public bodies?
The Act only covers business customers, which includes sole traders, partnerships and the professions, plus public authorities. If you invoice private individuals, you can't add statutory interest or the fixed compensation. You'd need a late payment term the customer agreed to in advance, and consumer law can treat a term as unfair if it makes a customer who pays late pay a disproportionately high sum.
Public authorities sit at the other end. They have to pay within 30 days, and a contract with a public authority can't set a lower late payment interest rate than the statutory one.
Should you charge it?
That's a commercial decision, and the law leaves it to you. One middle path is to state the right on every invoice, waive it for a reliable customer who slips once, and apply it every time to customers who are regularly late. Consistency is the hard part. Charging some customers and not others, or threatening a fee and never sending it, can leave slow payers thinking the warning doesn't mean much.
If you'd rather not decide invoice by invoice, Adfin lets you set the rule once: statutory interest goes on late business invoices after a grace period you choose, except for any customer you've switched it off for. The total on your customer's payment link rises as the interest builds. Its AI Customer Agents chase the invoice over email, SMS or WhatsApp at the same time, so the fee isn't a separate job for anyone on your team.
Common questions
Can I charge interest on a late invoice if my terms don't mention it? Yes, if your customer is a business. The right to statutory interest and fixed compensation is implied into every business contract.
How much is the late payment fee in the UK? There's no single fee. You can claim interest at 8% above base rate (11.75% a year now) plus fixed compensation of £40, £70 or £100 depending on the invoice amount.
Can I charge a flat £25 admin fee on overdue invoices? Only if your customer agreed to it in advance and it isn't out of proportion to your interest in being paid on time. Without that, it has no legal footing.
Can I charge late fees to consumers? Not under the Late Payment Act. You'd need a fair late payment term the customer agreed to before the work.
Can I charge the fixed compensation on every reminder? No. It's once per invoice, though you can also claim reasonable recovery costs above it if chasing costs you more.
Is VAT charged on late payment interest? No. HMRC treats statutory interest for late payment as outside the scope of VAT.
Sources
- legislation.gov.uk - Late Payment of Commercial Debts (Interest) Act 1998 (accurate as of October 2026) https://www.legislation.gov.uk/ukpga/1998/20/contents
- GOV.UK - Late commercial payments: interest on late commercial payments (accurate as of October 2026) https://www.gov.uk/late-commercial-payments-interest-debt-recovery/charging-interest-commercial-debt
- GOV.UK - Late commercial payments: claim debt recovery costs (accurate as of October 2026) https://www.gov.uk/late-commercial-payments-interest-debt-recovery/claim-debt-recovery-costs
- legislation.gov.uk - Consumer Rights Act 2015, Schedule 2 (accurate as of October 2026) https://www.legislation.gov.uk/ukpga/2015/15/schedule/2
- HMRC - VAT Supply and Consideration manual, VATSC06810 (accurate as of October 2026) https://www.gov.uk/hmrc-internal-manuals/vat-supply-and-consideration/vatsc06810
