Do you know where you stand re: the late payments act? – Guest Blog

The United Kingdom was one of the first countries in the European Union to implement late payment legislation to help promote a culture of prompt payment.

There has been a statutory right to interest for late payment for companies or individuals owed money between contracting parties since 1 November 1998, when the Late Payment of Commercial Debts (Interest) Act 1998 came into force. This applies to all late payments of commercial debt and is set at 8% above the “reference rate”.

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. The Bank of England base rate on 31 December, will be the “reference rate” for 1 January to 30 June and the Bank of England base rate on 30 June, will be the “reference rate” for 1 July to 31 December.

The date that your debt became late will depend on the details of your contract and indeed some contracts provide for their own applicable interest rate; for example 5% above the Bank of England base rate exists in many JCT contracts.

The interest owed on a late payment is simple, not compound, interest and is calculated as follows:

Debt x interest rate x (the number of days late/365)

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

In addition to the amount claimed for interest you are also entitled to claim compensation depending on the size of the debt being claimed. Currently for debts up £999.99 compensation is £40.00, between £1,000.00 and £9,999.99, £70.00 and for £10,000.00 or more, £100.00.

Guest Blogger: Nick Morris MCIArb, PGCertAdj, AInstIB

Nick’s background is in general commercial practice with particular expertise in the following areas:

• Construction adjudication
• Non-contentious contractual advice and interpretation

Nick provides advice on contract matters within the construction industry.  This involves not only advice on contracts and contract clauses, but also disputes, dispute resolution, mediation, arbitration and litigation. Nick can handle the complete adjudication proceedings as well as representing individuals in the presentation of their case.  He represents employers, contractors and professionals in all types of non-contentious and contentious work and has particular experience of disputes using Adjudication.

www.buildingperspectives.co.uk

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