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

 

 

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:

 

• That the debt was incurred in the course of a contract where both parties are acting in the course of their respective businesses

 

• That payment is overdue - if there is a contractual date for payment, the debt will be overdue if that date has passed; if there is not, then it will be overdue it the debt remains unpaid 30 days after the later of (i) invoice, (ii) provision of the goods / services, (iii) acceptance (though where delaying until acceptance would be ‘grossly unfair’ on the supplier, there is a maximum of a further 30 days for acceptance).

 

• That there is no express contractual provision for interest (or, if there is, that the contractual provision is 'not a substantial remedy' for late payment).

 

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 1^st July to 31^st December, then the ‘official dealing rate’ for these purposes is the rate that applied on the preceding 30^th June.

 

If the date on which the statutory interest started to run was 1^st January to 30^th June, then the ‘official dealing rate’ for these purposes is the rate that applied on the preceding 31^st 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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