Last updated November 6, 2026
Rules and figures from other sources checked on November 6, 2026. They change, so confirm with the source before you rely on them.
General information, not tax or legal advice. The rules depend on your country and your situation, so check anything with a tax or legal consequence with your accountant.
To charge a late fee, state your late-payment terms before you start, wait until the due date passes, work out simple interest on the overdue amount, add any fixed compensation you're owed, and bill it on a new invoice quoting the original. For business customers, EU and UK law give you this right automatically.
Can you charge a late fee on an invoice?
You can charge a late fee on an invoice to a business or public body in the EU or UK, even if your contract says nothing about it. A private consumer is a different matter.
| Customer | What you can charge | Source |
|---|---|---|
| Business, EU | Statutory interest and at least €40 per late invoice, with no reminder needed | Late Payment Directive 2011/7/EU, Articles 3 and 6 |
| Public authority, EU | The same, with stricter limits on how long they can take to pay | Directive, Article 4 |
| Business or public body, UK | Statutory interest and a fixed sum of £40, £70 or £100 | Late Payment of Commercial Debts (Interest) Act 1998 |
| Private consumer | Only what a valid contract term provides | Directive 93/13/EEC, Consumer Rights Act 2015 |
The UK's fixed sum depends on the debt: £40 up to £999.99, £70 from £1,000 to £9,999.99 and £100 from £10,000, claimed once per payment. In both places you can also claim reasonable recovery costs above the fixed sum, such as a lawyer or a collection agency (Article 6(3); section 5A of the Act).
The EU right comes with conditions. Under Article 3 you must have met your own obligations, and interest isn't due if the customer isn't responsible for the delay. If the invoice is late because yours had the wrong address on it, leave the fee alone.
What is the late payment interest rate right now?
The late payment interest rate is the central bank's reference rate plus 8 percentage points in the UK, and plus at least 8 points in the EU. For the second half of 2026 that gives:
| Where | How it's worked out | Rate, 1 July to 31 December 2026 |
|---|---|---|
| UK | Bank Rate on 30 June (3.75%) + 8 | 11.75% |
| The Directive's formula, euro countries | ECB main refinancing rate on 1 July (2.40%) + 8 | 10.40% |
| Estonia, Ireland, Spain | As listed by the Commission | 10.40% |
| Germany | As listed by the Commission | 10.52% |
| France | As listed by the Commission | 12.40% |
The national figures come from the Commission's Your Europe table. Use your own country's entry rather than the formula, because national law decides the rate and some listed figures differ from it. The table also warns that a member state may not yet have confirmed a rate, so check before you bill a large sum. Non-euro countries use their own central bank's equivalent rate.
The trap is using today's central bank rate. The Bank of England moved to 4% on 5 November 2026 and the ECB to 2.65% on 16 September 2026, and neither changes the figures above, because the rate is set at fixed dates. In the UK, the rate order takes Bank Rate on 30 June for interest that starts to run from July to December, and on 31 December for interest that starts from January to June. In the EU, Article 3(2) of the Directive uses the rate on 1 January and 1 July for each half-year. So if Bank Rate is still 4% on 31 December 2026, the UK figure for debts going overdue in the first half of 2027 will be 12%.
How do you calculate late payment interest?
You calculate late payment interest as the overdue amount, times the annual rate, times the days late, divided by 365. It's simple interest, so interest never earns interest. The clock starts the day after the due date, and in the EU the Commission says it runs on the gross amount including VAT.
Here's an invented example: an invoice for 3,600 including VAT, due 15 July 2026 and paid on 29 August, which makes it 45 days late.
| UK | Estonia | |
|---|---|---|
| Invoice total including VAT | £3,600.00 | €3,600.00 |
| Annual rate | 11.75% | 10.40% |
| A full year's interest | £423.00 | €374.40 |
| 45 days of interest (× 45 ÷ 365) | £52.15 | €46.16 |
| Fixed sum | £70.00 | €40.00 |
| Total late charge | £122.15 | €86.16 |
Round only at the end. GOV.UK's method gets you a daily figure, which is fine as a guide, but if you round it first you drift: £1.16 a day for 45 days gives £52.20 rather than £52.15. In a spreadsheet, with the overdue amount in B2, the rate in B3, the due date in B4 and the payment date in B5:
=ROUND(B2*B3*(B5-B4)/365,2)
If the customer pays part of the invoice, work out each stretch on the balance outstanding during that stretch, and add them up.
Can you set your own late fee?
You can set your own late fee if the customer agreed it before the work began, within limits on both sides. A contract rate replaces statutory interest: GOV.UK says you can't claim statutory interest if the contract has a different rate.
| Statutory interest | Your own interest rate | Flat fee, such as €25 if late | |
|---|---|---|---|
| Needs agreement in advance? | No | Yes | Yes |
| Covers consumers? | No | Only if the term is fair | Only if the term is fair |
| VAT | None on the interest | None on interest for late payment | May be different. See below |
| Main risk | A customer who objects | Too low can be void, too high can be challenged | Challenged as a penalty |
The rules that set those limits:
- In the UK, a contract term is void if it doesn't give a "substantial remedy" for late payment, so you can't bargain the right away to almost nothing. A charge far above your real loss can also be unenforceable as a penalty.
- In the EU, a term excluding interest altogether is treated as grossly unfair, and one excluding the €40 is presumed to be (Article 7).
- For consumers, a term requiring a disproportionately high sum from someone who fails to pay is on the list of terms that can be unfair, in both the EU directive and the UK Act linked in the first table.
For most small businesses the statutory rate is the easy choice: it's high enough to matter, and nobody can call it excessive.
What should your terms and invoices say?
Your terms and invoices should mention late charges up front, even where the law doesn't require it, because a customer who has seen the line is far less likely to argue later. These are starting points to adapt, and a lawyer can check them against your own contract.
For your terms, in the EU:
Payment is due 14 days after the invoice date. If payment is late, we may charge interest from the day after the due date at the statutory rate for commercial transactions, plus compensation for recovery costs of at least €40 per invoice.
For your terms, in the UK:
Payment is due 14 days after the invoice date. If payment is late, we may claim interest and compensation under the Late Payment of Commercial Debts (Interest) Act 1998.
On each invoice:
Late payment: statutory interest and compensation may be charged from the day after the due date.
For the lines on the late-fee invoice, using the UK example above:
Late payment interest on invoice INV-2026-0117 (£3,600.00): 45 days, 16 July to 29 August 2026, at 11.75% a year. £52.15
Fixed compensation under the Late Payment of Commercial Debts (Interest) Act 1998, invoice INV-2026-0117. £70.00
Is there VAT on a late fee?
There is no VAT on late payment interest in the EU or UK. The Commission's Your Europe page says you don't pay VAT on the interest, and HMRC's manual says interest awarded or agreed because of late payment is outside the scope of VAT, as compensation for delay.
A flat fee may not get the same treatment. HMRC's guidance on compensation payments says how a fee is described doesn't decide whether it's a supply, and cites EU case law finding that some payments labelled compensation were in fact payment for a supply. Neither source deals directly with the fixed sums of €40 or £40 to £100. So confirm both with your accountant before you set the tax on the line.
Should you actually charge it?
You should charge a late fee when it will change behaviour or when the relationship is already over. The European Commission itself notes that businesses, especially small ones, are reluctant to claim for fear of damaging the relationship, and that's a commercial decision you're entitled to make.
| Situation | Usual approach |
|---|---|
| Good customer, a few days late for the first time | Don't charge. Keep the reminder friendly |
| Repeat late payer | Warn once, then charge, or offer to waive it for payment by a date |
| Customer you've stopped working with, debt going to collection | Claim everything you're owed |
| Invoice genuinely disputed | Settle the dispute first |
A waiver offer often collects the debt faster than the fee does:
Invoice INV-2026-0117 is now 45 days late, which entitles us to £122.15 in interest and compensation. If we receive the £3,600.00 by 5 September 2026, we'll waive that charge this time.
The steps before this point are in the overdue reminder sequence, and it helps to have agreed clear payment terms from the start. If the customer never pays, see write-down vs write-off.
Are the late payment rules changing?
The UK's late payment rules are set to change, but the current law applies until new rules commence. The Commercial Payments Bill, now in the House of Commons, would cap business payment terms at 60 days with limited exemptions and mandate interest at 8% above base rate. It isn't law yet, and no start date has been set.
In the EU, the Commission proposed replacing the Directive with a regulation in 2023. That hasn't been adopted, so the Directive as written into each country's law still applies.
Adding a late fee in ERPFlow
ERPFlow has no late-fee calculation and doesn't add interest to an invoice. An issued invoice is final, so the fee can't go on the original either.
So work out the amount with the formula above, then create a new invoice for the same customer, with a line for the interest and a line for the fixed sum, and the original invoice number in each description. Each line takes its own tax rate, or none, so you can set it as your accountant advises. Then Issue it and send it as usual.
It's an ordinary invoice, so it takes the next number, counts towards your plan's monthly invoice limit, and shows in revenue once paid. Tell your accountant how you want that treated.
Send payment reminder states the days overdue and the amount due on the original invoice. Its wording is fixed and doesn't mention interest, so a demand for the fee goes in your own email or on the new invoice.