Can a builder charge interest on a late business payment?
Yes, if the customer is another business. The Late Payment of Commercial Debts (Interest) Act 1998 lets you claim interest at 8% a year over the Bank of England base rate, plus a fixed sum of £40, £70 or £100 for each late payment. It does not cover work for a homeowner.
When the Act applies
The Act covers contracts for supplying goods or services where the buyer and the supplier are each acting in the course of a business. A subcontractor invoicing a main contractor is covered. So is a builder invoicing a local authority, because the Act counts public authorities as businesses.
A homeowner paying for work on their own house is a consumer, not a business, so the Act does not apply.
When a payment counts as late
- If a payment date is agreed, that is the date. GOV.UK says an agreed date should usually be within 60 days for business transactions and 30 days for public authorities.
- A longer period than 60 days between businesses is allowed, but GOV.UK says it must be fair to both. The Act's test is that the date is not grossly unfair to the supplier. If it is, the 60-day limit applies instead.
- If no date is agreed, the payment is late 30 days after the customer gets the invoice or you deliver the goods or provide the service, whichever is later.
Interest starts to run on the day after the payment was due.
The rate, and how to work it out
The rate is 8% plus the Bank of England base rate. The order that sets it fixes which base rate to use: the rate in force on 30 June for interest starting between 1 July and 31 December, or the rate in force on 31 December for interest starting between 1 January and 30 June. It is simple interest, not compound.
Work it out as the debt, times the yearly rate, divided by 365, times the days late. As an assumed example, if the combined rate were 12%, a £10,000 invoice paid 30 days late would carry about £98.63 in interest. Check the real base rate on the Bank of England site.
GOV.UK says to send a new invoice if you decide to add interest to what you are owed.
The fixed sums
On top of interest, you can charge a fixed sum for the cost of recovering a late payment:
- debt under £1,000: £40
- debt of £1,000 to under £10,000: £70
- debt of £10,000 or more: £100
You can charge it once for each late payment. If your reasonable costs of recovering the debt come to more than the fixed sum, the Act lets you claim the difference.
How it sits with your construction contract
In England, Part II of the Housing Grants, Construction and Regeneration Act 1996 requires most construction contracts to say when payments fall due and to set a final date for payment. If the contract does not, the Scheme for Construction Contracts fills the gap. The Scheme's payment rules set dates, not an interest rate. The date your contract sets for payment is the one that matters for the 1998 Act, so find it before you work out any interest.
Many contracts have their own interest clause. That replaces statutory interest only if it is a 'substantial remedy'. A remedy counts as substantial unless it is too weak to compensate you or deter late payment and it would also be unfair to let the payer rely on it. A term that tries to exclude statutory interest is void unless the contract gives a substantial remedy instead. Interest can also be cut or removed if your own conduct means justice requires it.
Part II of the 1996 Act also does not apply to a contract mainly about work on a home that one party lives in or means to live in, so on a homeowner job write the payment terms and any interest clause into the contract.
The Commercial Payments Bill (proposed)
In May 2026 the government introduced a Bill in Parliament. It is called the Commercial Payments Bill, and GOV.UK also calls it the Small Business Protections Bill. GOV.UK says it would cap payment terms at 60 days for large firms paying smaller suppliers, make interest on late payments mandatory at 8% above the base rate, and ban the withholding of retentions under construction contracts.
These are proposals only. Until the Bill becomes law and comes into force, the rules above are the ones that apply, so check GOV.UK for the current position.
Sources
- GOV.UK: Late commercial payments, charging interest and debt recovery
- legislation.gov.uk: Late Payment of Commercial Debts (Interest) Act 1998
- legislation.gov.uk: Late Payment of Commercial Debts (Rate of Interest) (No. 3) Order 2002
- legislation.gov.uk: Housing Grants, Construction and Regeneration Act 1996, Part II
- GOV.UK: Largest crackdown on late payments in over 25 years as landmark Bill enters Parliament