Can I charge interest when my main contractor pays late?
Usually yes: your subcontract may set its own interest, and if it does not, the law gives you statutory interest.
Updated: . By Jack Butler-Kettle, Construction Claims Consultant.
Once you know the rate, see why to put the interest in every chaser from the first.
The answer
The law is the Late Payment of Commercial Debts (Interest) Act 1998. It adds interest to a late payment between businesses, whether you asked for it by application or by invoice. Statutory interest runs at 8% a year above the Bank of England base rate. It runs from the day after the payment was due until the day it is paid. For a subcontract, that usually means the day after the final date for payment. Your subcontract can replace it with its own interest clause, but only if that clause is a substantial remedy. If it is not, statutory interest applies instead. So read your subcontract first. Then, for each late payment, record the sum, the date it was due, the date it was paid and the rate. Show the calculation payment by payment, and keep the interest on its own line of your demand. Do not count the same interest or cost twice. If it is unclear whether your subcontract's own clause is a substantial remedy, ask your solicitor. A figure from a formula is a claim, not proof that you are owed it.
Example
Illustrative example. The scenario and figures are invented.
The facts
£50,000 owed to you under a subcontract with no interest clause fell due on 1 April and was paid on 1 July. Assume the base rate for the period was 4%.
What happens
- The subcontract is read. It has no interest clause of its own, so statutory interest applies.
- The rate is 12% a year: 8% above the assumed 4% base rate.
- Interest runs for the 91 days from 2 April to 1 July: £50,000 × 12% × 91 ÷ 365 = £1,495.89.
- The fixed sum the law adds for a debt of £10,000 or more, £100, goes on its own line.
The interest in figures
| Item | Amount |
|---|---|
| Paid late | £50,000 |
| Statutory interest for 91 days at 12% | £1,495.89 |
| Fixed sum | £100 |
| Added to the demand | £1,595.89 |
The outcome
The demand claims £1,595.89 on top of the £50,000, each line with its working, so your main contractor can check it rather than argue about it.
To have the interest calculated from the day after each final date and added to the demand, see our Late Payment Claim service.
Sources
- Late Payment of Commercial Debts (Interest) Act 1998. legislation.gov.uk.