Interest on a late construction payment: the rate everyone gets wrong, the fixed sum you are owed on top, and the costs limb almost nobody claims

Published 18 September 2026 · VariationFlow

Statutory interest on late payment for UK construction firms: how the Late Payment of Commercial Debts (Interest) Act 1998 works, why the rate is fixed at the half-year reference date and not the base rate on the day, the £40, £70 and £100 fixed sums under section 5A, the further limb that lets you recover recovery costs above the fixed sum, when a contractual interest clause displaces the Act, and how to put it in a letter without wrecking the relationship.

Nine invoices, all paid, all late. Not spectacularly late, just the sort of late that has become normal: forty days here, fifty five there, one at seventy two. Nobody disputed a penny of it. Ask most subcontractors what that cost them and they will say cash flow and leave it there. It also cost a specific, calculable, legally recoverable amount, and the reason it is almost never claimed is not that firms are relaxed about money. It is that the rules are counterintuitive in three places and the commonest version of the calculation is wrong.

What the Act does

The Late Payment of Commercial Debts (Interest) Act 1998 implies a term into a contract for the supply of goods or services between businesses that any qualifying debt created by the contract carries simple interest. Simple, not compound: interest runs on the debt and not on the interest. It is an implied term rather than a discretionary award, so it does not depend on anyone deciding to be generous, and it applies to construction work like any other commercial supply.

Interest starts to run the day after the relevant day, which for most construction accounts means the day after the final date for payment under the contract. Getting that date right matters more here than the arithmetic does, because it decides not only how many days you count but which rate applies, for the reason below.

The rate is base rate plus eight, but not today’s base rate

This is where nearly every letter goes wrong. The rate is set by article 4 of the Late Payment of Commercial Debts (Rate of Interest) (No. 3) Order 2002, and its words are worth reading slowly: eight per cent per annum over the official dealing rate in force on the 30th June, in respect of interest which starts to run between 1st July and 31st December, or the 31st December, in respect of interest which starts to run between 1st January and 30th June, immediately before the day on which interest starts to run.

So there are two reference dates a year and the rate is fixed by reference to the half-year in which interest STARTS to run. It is not the Bank Rate on the day you write the letter, it is not the Bank Rate on the invoice date, and it does not move when the Monetary Policy Committee moves it. A debt that fell due in March takes the rate in force on the previous 31 December, and it keeps that rate for the life of that debt even if the Bank changes it in April. A debt that fell due in September takes the rate in force on the previous 30 June.

Two practical consequences. First, a schedule of late invoices spanning a 30 June or a 31 December is not one calculation, it is two, because the debts that started running either side of the reference date carry different rates. Second, if you are going to state a rate in a letter, state the reference date you took it from, because a debtor who checks and finds you used the current base rate will use it to dismiss the whole letter.

The fixed sum, per debt

Section 5A of the 1998 Act: once statutory interest begins to run in relation to a qualifying debt, the supplier is entitled to a fixed sum in addition to the interest. The amount depends on the size of the debt:

• A debt of less than £1,000: £40.
• A debt of £1,000 or more but less than £10,000: £70.
• A debt of £10,000 or more: £100.

It is per qualifying debt, not per relationship and not per letter. Nine late invoices are nine entitlements. On a run of monthly applications that is not a rounding error, and it is the part of the claim that is hardest to argue with, because it does not depend on proving anything beyond that the debt was late.

And the limb above the fixed sum

Section 5A(2A) is the provision almost nobody uses. If the reasonable costs of the supplier in recovering the debt are not met by the fixed sum, the supplier is also entitled to a sum equivalent to the difference between the fixed sum and those costs. In other words the £40, £70 and £100 are a floor rather than a cap. Where recovering a debt genuinely cost you more than the fixed sum, in credit control time, in a solicitor’s letter, in the fee for an adjudication nomination, the difference is recoverable in principle.

The qualifier is “reasonable”, and reasonable means evidenced. A line saying recovery costs were £900 will not survive contact with a quantity surveyor. Dated attendance notes, the invoice from whoever wrote the letter, the time actually spent chasing: that is the difference between a claim and an assertion.

When the contract displaces the Act

The Act gives way to a substantial contractual remedy for late payment. If the subcontract carries its own interest clause, that clause may govern instead, and many main contract forms do carry one. Read yours before writing to anybody: claiming the statutory rate where a contractual rate applies is the same class of error as claiming today’s base rate, and it has the same effect on your credibility. Where the contractual remedy is not substantial, the Act’s implied term is not ousted, but whether a given clause clears that bar is a legal question rather than a commercial one.

Whether to claim it at all

The honest answer is that most firms decide not to, on repeat work, and that is a commercial judgement rather than a legal one. Two things are worth separating, though. Reserving the entitlement costs nothing and preserves it: a line in the covering email saying the sum is paid late and the right to statutory interest and the fixed sum is reserved keeps the option open without escalating anything. Claiming it is a different act with a different effect on the relationship, and it is usually the right move when the relationship is ending, when the account is going to adjudication anyway, or when lateness has become the other side’s working capital policy rather than an accident.

What loses the entitlement is neither of those. It is not knowing which invoices were late, by how many days, against which final date. That is a records problem rather than a legal one.

VariationFlow holds the dates the calculation needs: the due date and final date for every valuation, computed from your contract profile, what was paid and when, and a letter before action that assembles the debt, the days, the rate at the right reference date and the fixed sum for each invoice from the record rather than from memory. This guide is general information about the 1998 Act, not legal advice, and whether a contractual interest clause displaces the statutory one on your subcontract is worth checking with a solicitor before you send anything.