Jacob Austin 00:00:00 Hi there all Jacob Austin here and welcome to episode 160 of The Subcontractors Blueprint, the show where subcontractors learn how to ensure profitability, improve cash flow and grow their business. Today's episode is all about statutory interest, something that you've probably never charged and almost nobody ever does. But you are legally entitled to charge it when the main contractor pays you late. So let's dig in. So let's start with a number. Let's say you rode £80,000 and the final date for payment comes and it goes. And then the money lands 90 days later. No defects. argument, no dispute about work, no real dispute about entitlement at all. It's just damn slow payment. At today's statutory rate, the interest that you could be charging is worth £2,300 on that one payment on one job. Now, think about that across the last 2 to 3 years of your business and have a think about what the total that you could have been owed or you could have claimed looks like, because that money isn't a favour. It's not something that the main contractors should decide whether you've earned its debt, it's contractual entitlement, it accrues daily, and it sits in some solid legislation that says on most jobs, it's already yours, whether you've asked for it or not.
Jacob Austin 00:01:50 I bet everybody listening to this has probably never charged a penny. I spent 18 years in main contracting before I started this show, and in that time I don't recall receiving one. Maybe I'm forgetting a rare occasion, but rare occasions tend to stand out. But the reality is you not charging that interest. It's costing you money. It costs you money not to have the cash in your account. And so you should pass that cost on. The contractor wouldn't think twice about charging you if it was the other direction. So today we will be covering where that entitlement comes from, what it can be worth in pounds and pennies. Why the rates return to your subcontractor might not be the rate that applies the point at which a claim would genuinely fail, and how to build interest into your month end without blowing up a relationship that you rely on. So let's start with that all important mechanism. And that comes from the Late Payment of Commercial Debts Act, 1998. If there is an interest in there that I'm missing.
Jacob Austin 00:02:57 But this applies to commercial contracts for the supply of goods or services where both parties are acting in the course of a business. So your subcontract qualifies under that. Your supply agreement, if you have one, qualifies as well. A labor only package would also qualify. And what that act would do is imply a term into your contract, whether it's written there or not. To say that late payment of what it calls a qualifying debt carries statutory interest. A qualifying debt is an obligation to pay all or part of the contract price, and that includes interim payments under a construction contract. The TCC confirmed that in Tata Consultancy Services against the Disclosure and Barring Service in 2024. So this is not a final account remedy that you have to wait around for. Every late interim payment is its own unique debt. The rate is 8% above the Bank of England base rate, and it's charged in simple interest, not in Compound. The reference rate is fixed twice a year, which catches people out because for debts falling due in the first half of the year, you use the base rate as at the 31st of December for debts falling in the second half of the year.
Jacob Austin 00:04:15 You take the rate from the 30th of June, so it's not going to go up and down each month. It's tracked from two points. Today's base rate is 3.75%. Adding your 8% to that, that puts statutory interest at 11.75%. Now go and look at what your overdraft costs you or your invoice factoring facility. And then ask yourself, why are you funding our main contractors working capital for nothing. Interest starts running the day after a payment was due. In construction, that means the final date for payment from your subcontract, not the date of your application or the date that you might have sent an invoice. The final date for payment. If you get that wrong, then you can throw out the whole schedule because any competent SHS will throw that out as that clown lands. Then there's an additional part that nobody uses as well. Section five eight of that act gives you a fixed lump sum on top of the interest, purely for the nuisance of chasing £40 for a debt under £1,000, £70 for a debt of 1000 or more, but under 10,000 and £100 for anything £10,000 or more.
Jacob Austin 00:05:32 That is per debt, not per job. So if every payment is made late across 12 months on a debt of £10,000 or more per time, there's another £1,200 that you should be charging. And actually, if your reasonable costs of recovering the money come to more than that fixed sum, you can claim the difference as well. Now there is a catch because section eight and nine of that act deal with contracting out and contracting out is not allowed unless your subcontract gives you what the act calls a substantial remedy for late payment. And if it doesn't, then your subcontract has the act or the relevant parts of the act implied into it. So that means in this case, you have to ask the question, what does my subcontract give me? And does that survive the test of it being a substantial remedy for late payment? Most standard forms give you something. The JC 24 suite carries interest at 5% above base rate, which on today's base rate would be 8.75%. It is real money and the courts agree with it.
Jacob Austin 00:06:43 Any C works differently with the rates stated in the contract data and the interest compounded annually rather than simple interest. So you need to check your contract data on that. The problem, however, is not the standard forms as it never tends to be. It's the amendment. Because if you're on a main contractor's own bespoke subcontract or a JCT with a schedule of amendments bolted on, that's longer than the original contract, that 5% has a habit of turning into 2%, or 1%, or -1%, or who knows? And that's where section nine of the Act has to earn its keep. And section nine has a test with two pronged approach in it. Both of those prongs have to be satisfied before the provisions of the act are implied to your contract. Firstly, the remedy has to be insufficient either to compensate you for late payment or to deter the contractor from making late payment. And secondly, it has to be unfair or unreasonable to let the other side rely on it to displace the statutory rate. This is where it gets slightly more complicated, because in working out what's fair and reasonable, the court looks at the circumstances of when the terms were agreed, the bargaining strength of the two parties, whether the term was imposed through one side's standard terms, and whether you got anything in return for accepting a reduction.
Jacob Austin 00:08:16 So you give a bit of case law in Uganda against WW gear construction. In 2010, the TCC struck down a contractual rate of half a percent above base because it wasn't enough. But in the same judgment, the court said there was no reason why a 5% of a base rate shouldn't count as a substantial remedy, even though that is 3% points below the statutory rate. And that is why the figure in the JCT contract is deemed safe. To add to that, in 2024, in an V building solution against Jab Hopkins, the TCC found that 2% above base in a subcontract was not a substantial remedy. And pay attention to why. Because the reasoning reads probably like a description of your working week. The main contractor's bargaining power was greater than the subcontractors by a substantial margin. The rate came out of the main contractor's standard terms issued on a take it or leave it basis, and the clause only ever ran in one direction against the main contractors. Failure to pay with no equivalent cap on what the main contractor could charge the other way.
Jacob Austin 00:09:33 To add to that, the base rate was fixed on the date of non-payment, so the rate stayed frozen even if interest rates climbed whilst your money was set there in somebody else's account. And add to that, the subcontract contained express wording to say the subcontractor acknowledged that the rate was a substantial remedy under the act, but the court treated that as some competent or sharp drafting by the main contractor's lawyer. Not as evidence that anybody had actually looked at that rate and decided that it was fair. So if you signed an acknowledgement that may not be the end of the argument on this one. But if you put all those cases together, you get a rule of thumb somewhere between 2 to 3% is the tipping point. And below that in standard terms, that the main contractor is forcing on you. Then there is a genuine argument that the clause falls away, and the 8% plus base statutory interest rate would apply. Now there's a couple of misconceptions here. The first one is that interest is something you ask for nicely, and the main contractor decides whether to allow it or not.
Jacob Austin 00:10:46 But that shouldn't be the case. This is an express term written into almost all subcontracts, and if it isn't there, it's implied under the act we mentioned earlier. So it's a debt in the same way that the principal amount that you're owed is a debt as well. You can decide not to pursue it, and that's a perfectly reasonable commercial choice. But nobody grants it to you as a favour. Misconception number two is that the rate is in your subcontract, and that's it. So remember back to the AMV case that we touched on earlier. If your rate is set below 2% in a set of standard terms that you never get to haggle against, then the 8% plus base rate should apply instead. Misconception three I've signed the acknowledgement, so I've waived my entitlement. But remember again, back to the A and B case we mentioned earlier, the judge looks straight past that signing doesn't settle the question. Misconception four interest running from when you've invoiced. Now that's incorrect. It runs from the day after the final date for payment.
Jacob Austin 00:11:57 So if the trigger for your payment is your invoice state and it's on 30 day terms. Interest starts at day 31. If you're not certain what your final date for payment is on every live job you're working on, then you have a problem that is bigger than just the interest. And it's worth sorting out this week because more than likely, somebody else out there has your money. Misconception number five this is an honest limit on interest accruing, and that is that interest is owed on everything you've asked for. And that might not be the case. So if there are some properly disputed sums, then no debt will arise against those sums until the dispute resolution process has run its course. If there's no debt, then there's no statutory interest. And the court is clear on this. That act is aimed at casual or reckless, feckless non-payment. It's not there to throw a spanner in the works on genuine disputes. So if a contractor has issued a valid pay less notice and there's a real argument about valuation. Don't expect to charge interest on that.
Jacob Austin 00:13:05 Misconception six is that claiming interest will cost you the relationship. I understand that one, and I'm not going to tell you that it's completely unfounded, but look at what the fear is actually doing. It's stopping you from even calculating the number, not just stopping you from demanding it. Those are two separate decisions, and you're collapsing them into one. Before we get to a worked example, let's just consider a stress test on claiming interest, because if you do put in an interest claim, you'll probably get some pushback. There's a few ways that I can see that playing out. First, we've never applied interest on this account. That's not an actor from the contractor. Just because you might not have claimed it before doesn't mean that the contract term isn't still there, and it isn't still valid. It just means that you've generously overlooked a charge that you could make. Second, assuming you're charging interest retrospectively, is that you didn't mention it at the time. Now, it would be better if you did. And I'll come to how later.
Jacob Austin 00:14:11 But silence doesn't extinguish you having a legal right to charge that debt. Technically, you would be able to bring a simple contract claim for six years from when you became entitled to. So a claim on a job from two years ago even is still potentially alive. But be careful of the terms that you've signed around, agreeing a final account where you might acknowledge that you're not owed any more money. It would be reasonable, though, to retrospectively look at how late you've been paid across the course of the job and include it in your final account. A third argument would be that sums were still disputed, but test that because there would have to be a valid payment notice that issued a reduction or a valid pay less notice showing the basis of calculation, and if there wasn't on the dates in question, then there's nothing in dispute. It would be. Quite often you get issued with a payment notice. The payment then goes to the contractor's accounts and they sit on it for an extra two, three, six weeks, whatever.
Jacob Austin 00:15:17 That's the scenario we're looking for here. And that will demonstrate that the sums weren't disputed. If there is one where there is a pay less notice, then take that payment out of your calculation and stand firmly behind the rest of it. A claim that you've acknowledged genuine knock out from is harder to dismiss than one that you've padded out with everything that you could fit in there. The fourth would be that your contract says 2%, and you've signed up to that, and that's when you can name the case we spoke about earlier. You don't need to be a lawyer about it. You just need to be able to say that. The TCC struck down a 2% rate in a subcontract in 2024 that contained facts that are similar to ours. So you'd rather deal with that here in the account than anywhere else? That last sentence is a strong statement, by the way. You're not threatening to sue anyone, but you're trying to make it cheaper to pay you today than argue with you. Now let's look at a knocked up scenario.
Jacob Austin 00:16:20 Let's say you're a fit out contractor, and you're on a 280 grand package for six months on site and main contractor that you've worked for 2 to 3 times before, and you want to work for them again. But payments go like this. Interim valuation 262 grand. And it was paid 38 days after the final date for payment. Interim for 74.5 grand. Paid 51 days late. Interim valuation 648 grand. Paid 29 days late. No Payless notices were issued anywhere. No dispute about the work. Just a contractor running his cash flow through your bank account. You've said nothing because you want the next job. But six months later, you're in the final account. They're 14 grand away from you, and variations are being picked over. Line by line. You're being told there's no more money in the job. Now is a great time to run the interest argument. At 11.75% today's interest rate, you would be owed £2,429 for those three late payments. And add to that another £300 for the three instances that you've had to ring up and chase a late payment, you're now not far off three grand that you'd already written off, probably without even writing it down.
Jacob Austin 00:17:48 Now let's just play around for a moment. If your subcontract had a rate of 2% over bass, then at 5.75%, those three same payments would only £189. Probably no fixed sums as well, because you'll be claiming under the contract rather than under the act. So the test over whether that's a reasonable interest rate is worth roughly £1,500 on a job of this size. And just think about that in context, because if you turn over, I don't know, £300 million with a handful of slow payers that are on your books, then you're not arguing about a rounding error. It's a big difference. Now you don't need a solicitor's letter to put a claim for this forwards. You put a simple schedule into the final account. It lists each payment, the final date for payment, the date the money actually arrived, calculate the days late, then the interest, and then add the fixed sum. You could even incorporate a statement to say you're prepared to discuss the interest line as part of an overall settlement of the account.
Jacob Austin 00:18:57 Now think about what that does. You've created something to trade that costs you probably nothing to produce. It costs you probably nothing to include at this point because you've taken the interest on the chin up to date. The contractor can't argue that it's made up because it's detailed in their own payment dates and the contract. You've got a proper entitlement. But it's more than that. A lot of subcontractors will walk into the final account meeting with nothing in their hand except variations that the contractors are already disputing. For. You're now throwing a second issue on the table. And on top of that, you're going to create some political pressure as well. A QZ can probably absorb a complaint about slow payment that's happened due to his own slow approach to his monthly to do list. But now what you've done is introduced a quantified interest claim with dates on it, something that he has to explain to his commercial manager that's leveraging its own right. What's it worth to him to withdraw that claim? It may be a couple grand more than you are going to get paid just to spare his own blushes.
Jacob Austin 00:20:11 So how do you action this going forward? First, find the interest clause in subcontracts before you sign them. It'll be in the payment section. Read the rate. If it's 5% of a base, that's probably good enough. If it's 2% or less than that, you now know two things. You know that that's vulnerable. And you probably know you're dealing with the contractor whose standard terms are built on the assumption that they will pay late, and they're trying to wriggle out of that, costing them a lot of money. Ask for that to be amended to 5% of a base. That's still less than the law would let you claim. So you can argue that that's good and reasonable. If they refuse, then that refusal is good to you. It's useful in the context. So keep the email. Second record how that terms come about. If it is arrived in a schedule of amendments with no discussion and no quid pro quo in return, that is a standard term that's imposed upon you, which is one of the exact factors that decided that A&V case we discussed earlier, two years later, that with the email chain is good evidence for you.
Jacob Austin 00:21:21 Third thing to do is to know your final date for payment on every live job. Write it on the front of your payment schedule. If you don't keep a payment schedule per contract, showing due date and final date for payment and the notice deadlines either side, then honestly, putting that schedule together is a real job for this week and interest is a bonus on top of it. Fourth is to keep an interest log. You can expand the schedule one line per payment amount, final date for payment, date received, days, late interest and the fixed sum to add to it. Those are your columns. It takes you minutes at month end just to populate each month as you go. If it even takes minutes, the discipline for you isn't the working out. It's doing it each month at the time rather than trying rebuild it 18 months later. Scratching around for your bank account statements that show when cash landed. Do it as it's current, when it's easy and you save all that effort later. Fifth, separate the calculation from the demand for the money.
Jacob Austin 00:22:34 Always do the calculation. Demand it when you get maximum commercial leverage. A good practice thing to do as well would be to email a reservation. Something along the lines of payment of interim application for was received 51 days after the final date for payment, and we reserve our entitlement to interest and compensation in respect of that late payment that tells the contractor that you've noticed you're counting in the background. It might even make them think ahead next time before they pay you late. That's probably wishful thinking, but who knows, it might have that effect. Worth a try, right? My sixth and final point if you end up in adjudication, make an express claim for interest adjudicators award what's put in front of them and what's been properly evidenced. If you've calculated that, schedule out like we mentioned earlier, that's a good basis for claiming interest. If interest isn't asked for without a calculation behind it, then don't be surprised if it isn't in the decision notice. One last thing to add, because this is a live issue as I'm recording this episode.
Jacob Austin 00:23:49 The Commercial Payments bill was introduced in the House of Lords in May 2026, and it completed its committee stage in July. It's not received Royal assent yet. So it's not law as it stands today, but based on current expectations, it could be next year. If it passes through in its current shape, then three things are going to change. The first of that is statutory interest at 8% of a base rate becomes mandatory, and terms that seek to exclude or vary that percentage are absolutely void. So even the JCS standard 5% wouldn't cut the bar and 8% plus base becomes the bar. The next thing is that maximum payment terms are capped at 60 days and reduced to 30. Where the payer is a public authority, or you're working on a contract that feeds in to a public authority. So if you're subcontracting or sub-sub-subcontracting to a contractor that's employed by the public, you should be on 30 day payment terms. Finally, there is the proposed prohibition of retention deductions. Albeit there will be a transition period attached to that.
Jacob Austin 00:25:09 And we'll keep you posted on movement on that. If you're following me on LinkedIn. A word of warning. Don't wait for that bill. Two reasons. It's a bill and bill. It can change. And the government definitely changes things. We've seen plenty on U-turns and changed decisions in the past. The government has also said the measures won't be applied retrospectively. So everything that you're owed on the jobs you're running right now, they get judged under the rules as they stand today. That brings us back to where we started. The entitlement that you have today is the one sitting in the act now or in your subcontract now. It's your entitlement, but you have to calculate what you're owed and ask for it. I hope that helps and good luck on getting hold of some interest payments. My mission with this podcast is to help the million SME contractors working out there in our industry. If you've taken some value away from today's episode, then I really need your help to share the show and pass that value on to somebody else who'd benefit from hearing it so that it can help as many people as possible.
Jacob Austin 00:26:20 And thanks for tuning in. If you like what you've heard and you want to learn more, then please do find us at www.subcontractorsblueprint.uk. And we're also on all your favourite socials again at @SubcontractorsBlueprint. And remember miss the contract detail and the commercial risk falls on you. Thanks all. I've been Jacob Austin and you've been awesome.
