What rate of interest can be charged?

At the start of a six-month period the official dealing rate of the Bank of England (the base rate) will be made a fixed "reference rate" for the subsequent six months. The table below shows how this works.

To determine what interest rate you should use when calculating interest on a late payment, you need to add 8% to the "reference rate" that covers the six-month period in which your debt became late.

How do I find the correct base rate to use?

The correct interest rate to be used can be found by viewing this reference rate table.

How do I calculate the interest charge?

The interest owed on a late payment is simple, not compound, interest. It is calculated like this:

Debt times interest rate divided by 365 times the number of days late

Do I calculate inclusive or exclusive of VAT?

You charge interest on the gross amount of the debt (including any element of VAT), but you do not pay VAT on the interest.

Example
If the base rate is 4% for the six-month period when the debt became late, then the statutory interest rate is 12% (4% base rate plus 8%)

Debt is £851.06 plus £148.94 VAT = total £1,000
If this debt is 30 days late, then the interest owed is: £1,000 x 12% = £120 (the annual rate)
£120 ÷ 365 = 32.9p (the daily rate)
32.9 pence x 30 days = £9.86 (the interest owed to date)

When does the interest stop running?

Interest stops running on a debt once the principal has been paid i.e. once payment is received but not yet cleared if relevant. If the purchaser owes the principal, interest and compensation, unless payment is accepted on other terms, any part payment of the debt will go to reduce the amount of the interest and compensation first.

Compensation arising from late payment

How much compensation am I allowed?

The table below shows how much compensation you are entitled to.