Confusion over‘calculation’ of interest owed on late debts

Businesses may find themselves confused when it comes to calculating interest owed on the late payment of commercial debt following a number of misleading explanations recently published in the press.
Contrary to previous information published, businesses calculating late payment interest are no longer required to find the Bank of England interest rate that applied to their debt. The system of searching for a ‘historic’ Bank of England interest rate was superseded by a six-month Fixed Reference Rate on 7th August 2002.

All commercial contracts made on or after 7th August 2002 will now benefit from the simplified Fixed Reference Rate system. Contracts made prior to 7th August 2002 will remain subject to the original method of calculation based upon the Bank of England interest rate.
The revised system was introduced in accordance with changes to the Late Payment of Commercial Debts [Interest] Act 1998.

The Fixed Reference Rate is based on the 8% statutory interest for the late payment of commercial debt, plus the Bank of England base rate as published on 31st December and 30th June.

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