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Interest and fixed sum ‘compensation’ on unpaid debts

 

This article applies to debts between businesses, where the debts constitute obligations (whole or partial) to pay the contract price – and not to other debts, or to debts where one party or both are consumers.

 

Where statutory interest becomes due on a contract, 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 in the supplier’s interest 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.

 

Minor changes introduced by The Late Payment of Commercial Debts Regulations 2013 in relation to contracts made on or after 16th March 2013 have the effect of making the maximum contractual credit period, for the purposes of these regulations, 60 days (30 days where the purchaser is a public authority), unless the longer period is not ‘grossly unfair to the supplier’.

 

Additional changes from that date introduce an implied contractual right to be paid the reasonable costs of recovering the debt, less the fixed sum (which appears to have been intended to cover administrative and internal costs).

 

 

Rates

 

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’ was also called the ‘MPC rate’ and is now called the 'Official Bank Rate';  and can be found on http://www.bankofengland.co.uk (historic information can be found in this file).

 

Past rates:

 

Date

Official Bank Rate change

5th March 2009

decrease to 0.5%

4th August 2016

decrease to 0.25%

2nd November 2017

Increase to 0.5%

2nd August 2018

Increase to 0.75%

11th March 2020

Decrease to 0.25%

19th March 2020

Decrease to 0.1%

15th December 2021

Increase to 0.25%

3rd Feb 2022

Increase to 0.5%

17th March 2022

Increase to 0.75%

5th May 2022

Increase to 1%

16th June 2022

Increase to 1.25%

4th August 2022

Increase to 1.75%

22nd September 2022

Increase to 2.25%

3rd November 2022

Increase to 3.0%

15th December 2022

Increase to 3.5%

2nd February 2023

Increase to 4.0%

23rd March 2023

Increase to 4.25%

11th May 2023

Increase to 4.5%

22nd June 2023

Increase to 5.0%

3rd August 2023

Increase to 5.25%

1st August 2024

Decrease to 5.00%

7th November 2024

Decrease to 4.75%

6th February 2025

Decrease to 4.5%

8th May 2025

Decrease to 4.25%

7th August 2025

Decrease to 4.0%

19th December 2025

Decrease to 3.75%

 

Thus statutory interest:

 

Debt due date on or after between

And no later than

Statutory rate

1st January 2009

30th June 2009

8.50%

1st July 2009

31st December 2009

8.50%

1st January 2010

30th June 2010

8.50%

1st July 2010

31st December 2010

8.50%

1st January 2011

30th June 2011

8.50%

1st July 2011

31st December 2011

8.50%

1st January 2012

30th June 2012

8.50%

1st July 2012

31st December 2012

8.50%

1st January 2013

30th June 2013

8.50%

1st July 2013

31st December 2013

8.50%

1st January 2014

30th June 2014

8.50%

1st July 2014

31st December 2014

8.50%

1st January 2015

30th June 2015

8.50%

1st July 2015

31st December 2015

8.50%

1st January 2016

30th June 2016

8.50%

1st July 2016

31st December 2016

8.50%

1st January 2017

30th June 2017

8.25%

1st July 2017

31st December 2017

8.25%

1st January 2018

30th June 2018

8.5%

1st July 2018

31st December 2018

8.5%

1st January 2019

30th June 2019

8.75%

1st July 2019

31st December 2019

8.75%

1st January 2020

30th June 2020

8.75%

1st July 2020

31st December 2020

8.1%

1st January 2021

30th June 2021

8.1%

1st July 2021

31st December 2021

8.1%

1st January 2022

30th June 2022

8.25%

1st July 2022

31st December 2022

9.25%

1st January 2023

30th June 2023

11.5%

1st July 2023

31st December 2023

13.0%

1st January 2024

30th June 2024

13.25%

1st July 2024

31st December 2024

13.25%

1st January 2025

30th June 2025

12.75%

1st July 2025

31st December 2025

12.25%

1st January 2026

30th June 2026

11.75%

 

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This is the Interest and fixed sum ‘compensation’ on unpaid debts page - This page is primarily relevant to all sectors

 

 

Links to:  Index - Welcome / What We Do - Contact Details & Availability - Contact usTerms of Business

 

This page was last updated 16th February 2024.

 

 

Egos Legal Limited is a company incorporated in England (company no 12049156, VAT no 328-0411-32), registered office Suite 2A1 Northside House, Mount Pleasant, Barnet EN4 9EB is licensed to use the registered trade mark egos in connection with the provision of services within UK.   Egos Legal Limited provides documentation packages, primarily to Umbrella, Engagement Intermediary Service Providers, and Management Companies, and to Agencies and Employment businesses. 

Office address:  Eastside, Kings Cross Station, London N1C 4AX

 

 

Egos Consultancy Limited is a company incorporated in England (company no 06990745;  VAT no 144-9869-63).  Its registered office is Suite 2A1 Northside House, Mount Pleasant, Barnet EN4 9EB. Egos Consultancy Limited provides services under the registered trade mark egos.

Office address:  Eastside, Kings Cross Station, London N1C 4AX

 

 

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