The government has published its response to the late payments consultation that ran from July to October last year.
It is estimated that late payments cost the UK economy £11 billion every year, and most businesses are familiar with the pain of dealing with late payments.
Here we summarise the changes that the government intends to legislate for to help address the problems created by late payments.
Powers for the Small Business Commissioner
The Small Business Commissioner will be given powers to: - Investigate businesses suspected of poor payment practices or inaccurately reporting payment performance. - Settle payment disputes outside of the court process. - Fine businesses, including significant potential fines for large companies that persistently pay their suppliers late or fail to comply with late payment legislation.
Maximum payment terms and mandatory interest
Other than for strictly limited exemptions, maximum payment terms of 60 days will be imposed.
A requirement will be introduced that all commercial contracts will contain a right to statutory interest at 8% above the Bank of England base rate.
Disputing invoices deadline
A statutory time limit will be introduced for raising disputes and compensation required when deadlines are not met.
Scrutiny of payment practices
Boards or audit committees of any persistently late-paying large company will need to publish a commentary on why payment performance is poor and what actions are being taken to improve this.
Construction retention payments
The practice of deducting and withholding retention payments under construction contracts will be banned.
What happens next?
The government have said that they intend to legislate these changes as soon as Parliamentary time allows.
In the meantime, take a look at our accompanying article that gives you three practical tips that can make a real difference to reducing late payments.
UK businesses are facing a “cost of business crisis”, according to the British Chambers of Commerce (BCC). Its new cost-stack calculator shows government policy alone has pushed up an average firm's expenses by 70% over the past decade, adding roughly £827,000 a year in costs for a typical mid-sized business. About a quarter of the rise stems from the increase in employer National Insurance contributions, with the higher minimum wage and mandatory pension auto-enrolment also major contributors.
Under Making Tax Digital (MTD) for Income Tax, sole traders and landlords with income of more than £50,000 have been required to keep digital records and send quarterly updates to HMRC since 6 April 2026.
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