This
article applies to debts between businesses – and not to debts where one
party or both are consumers.
Where
statutory interest becomes due on a contract made after 7th August
2002, an additional fixed sum becomes payable - ₤40 where the debt is
under ₤1,000; ₤70, where the debt is between ₤1,000 and
under ₤10,000; and ₤100 in all other cases.
Under
the imaginatively entitled 'Late
Payment of Commercial Debts (Interest) Act 1998', a term relating to
interest is implied into certain contracts. The conditions you have to satisfy
are:
Satisfy these conditions, and you're entitled to interest at 8% over the 'official dealing rate' (see below), according to the date on which the statutory interest started to run.
So,
if you’re entitled to interest, invoice for it (don't forget interest is
zero-rated - so don't add VAT).
You
do not
need to make it a contract term that the provisions of the act will
apply - they will apply in any event unless there is some other
reasonable provision governing late payment. In my view it's generally
preferable to omit reference to interest completely from the contract.
When
it comes down to it though, unless you are a bank, interest is a poor
compensation for not having the money you've earned and doubtless need for your
own purposes. Before you enter a contract, satisfy yourself as best you can
that the other party has a good reputation for paying on time - you doubtless
intend to honour the terms of the contract yourself,
and are entitled to expect the other party to do likewise.
Rates
On
7th August 2002 the rules for calculation changed:
If
the date on which the statutory interest
started to run was 1st July to 31st December, then
the ‘official dealing rate’ for these purposes is the rate that applied on the
preceding 30th June.
If
the date on which the statutory interest
started to run was 1st January to 30th June, then the
‘official dealing rate’ for these purposes is the rate that applied on the
preceding 31st December.
The
‘official dealing rate’ is also called the ‘MPC rate’ and can be found on http://www.bankofengland.co.uk (the
last time I checked it was at the end of this file)
Past
rates:
|
Date |
MPC rate change |
|
5th
April 2001 |
Reduce to
5.50% |
|
10th
May 2001 |
Reduce to
5.25% |
|
2nd
August 2001 |
Reduce to
5.00% |
|
18th
September 2001 |
Reduce to
4.75% |
|
4th
October 2001 |
Reduce to
4.50% |
|
8th
November 2001 |
Reduce to
4.00% |
|
6th
February 2003 |
Reduce to
3.75% |
|
10th
July 2003 |
Reduce to
3.50% |
|
6th
November 2003 |
Increase to
3.75% |
|
5th February
2004 |
Increase to
4.00% |
|
6th May 2004 |
Increase to
4.25% |
|
10th June
2004 |
Increase to
4.50% |
|
5th August
2004 |
Increase to
4.75% |
|
4th August
2005 |
Decrease to
4.5% |
|
3rd August
2006 |
Increase to
4.75% |
|
9th
November 2006 |
Increase to 5.00% |
|
11th
January 2007 |
Increase to
5.25% |
|
10th
May 2007 |
Increase to
5.50% |
|
5th
July 2007 |
Increase to
5.75% |
|
6th Dec 2007 |
Decrease to 5.50% |
|
7th Feb 2008 |
decrease to 5.25% |
|
10th April 2008 |
decrease to 5.00% |
|
8th October 2008 |
decrease to 4.5% |
|
6th November 2008 |
decrease to 3% |
|
4th December 2008 |
Decrease to 2% |
| 7th January 2009 | decrease to 1.5% |
| 5th February 2009 | decrease to 1% |
| 5th March 2009 | decrease to 0.5% |
Thus
statutory interest:
|
Debt due date on or after between |
And no later than |
Statutory rate |
|
1st
January 2001 |
30th
June 2001 |
13.75% |
|
1st
July 2001 |
31st
December 2001 |
13.25% |
|
1st
January 2002 |
30th
June 2002 |
12.00% |
|
1st
July 2002 |
30th
June 2003 |
12.00% |
|
1st
January 2003 |
30th
June 2003 |
12.00% |
|
1st
July 2003 |
31st December
2003 |
11.75% |
|
1st
January 2004 |
30th
June 2004 |
11.75% |
|
1st
July 2004 |
31st December
2004 |
12.50% |
|
1st
January 2005 |
30th
June 2005 |
12.75% |
|
1st
July 2005 |
31st December
2005 |
12.75% |
|
1st
January 2006 |
30th
June 2006 |
12.50% |
|
1st
July 2006 |
31st
December 2006 |
12.50% |
|
1st
January 2007 |
30th
June 2007 |
13.00% |
|
1st
July 2007 |
31st
December 2007 |
13.50% |
|
1st January 2008 |
30th June 2008 |
13.50% |
|
1st July 2008 |
31st December 2008 |
13.00% |
| 1st January 2009 | 30th June 2009 | 10.00% |
I'd
really appreciate your feedback on this FAQ - so mail me and tell me what you think of it, if
it's been useful to you, or let me know of any specific problem you have where
I may be able to help.
This
page was last updated on
5th March 2009
No
liability is accepted for any inaccuracy in the information in these pages - see full disclaimer
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