Late Payments Bill 2026: new protection for freelance and limited company contractors
Direct Answer
The Small Business Protections (Late Payments) Bill — announced in the King's Speech 2026 — is the biggest shake-up to UK payment rules in over 25 years. It caps payment terms at 60 days when large companies pay small suppliers, entitles contractors to charge statutory interest at 8% above the Bank of England base rate on overdue invoices, and gives the Small Business Commissioner new powers to investigate, fine, and exclude persistent late payers from public sector contracts. Reforms are phased in from late 2026. To enforce these rights, your invoices must be compliant and your records must be accurate.
Why late payment is a critical issue for contractors
Late payment is not a minor inconvenience — it is a structural problem in the UK economy. According to government data cited in the bill's introduction, late payment costs the UK economy an estimated £11 billion per year, and an average of 38 businesses close every day as a direct result of non-payment or delayed payment from clients.
For limited company contractors, who typically have no guaranteed salary and operate on invoice cycles, a single large client paying 30–60 days late can create serious cash flow pressure. Multiple late payments in the same period can make it impossible to pay personal salary, VAT bills, or corporation tax on time — even when the underlying business is profitable.
The existing Late Payment of Commercial Debts Act 1998 gave small businesses the right to charge statutory interest on overdue invoices — but enforcement required either the creditor to chase the debt actively or, in more serious cases, to go to court. In practice, most contractors chose not to exercise these rights for fear of damaging the client relationship. The new bill changes the enforcement landscape significantly.
What the Small Business Protections (Late Payments) Bill actually does
The bill introduces several interlocking measures:
- 60-day payment cap: Large companies must pay small and medium-sized suppliers within 60 days. This will tighten to 45 days within five years of the legislation taking effect. Any contractual payment terms beyond 60 days (for large-to-small transactions) will be unenforceable.
- Statutory interest: Interest at 8% above the Bank of England base rate accrues automatically on overdue invoices. With the base rate currently at 3.75%, this means approximately 11.75% per annum on late amounts — without needing a court order.
- Small Business Commissioner enforcement: The Commissioner gains new investigative powers to look into firms that routinely pay late, resolve disputes between small suppliers and large buyers, and impose financial penalties on persistent offenders.
- Prompt Payment Code consequences: Persistent late payers can be removed from the Prompt Payment Code and stripped of eligibility for public sector contracts — a significant commercial sanction for larger firms.
What this means for contractors in practice
The bill strengthens your rights — but rights are only as useful as your ability to enforce them. To enforce late payment interest and refer clients to the Small Business Commissioner, you need to demonstrate two things:
- You issued a compliant invoice. The invoice must include your company name and number, your VAT number (if registered), the invoice date, a clear description of services, the payment due date, and your bank details. Invoices missing key fields can complicate late payment claims.
- You have a clear record of when payment was due and when it was received. Without accurate records, calculating overdue periods and statutory interest becomes disputed territory.
For contractors whose invoicing is managed through a proper accounting system — with consistent templates, automated due date tracking, and clear records — the new rules represent a genuine improvement in their position. For contractors using ad hoc invoicing methods, the reforms are an incentive to get organised before they take effect.
Timeline: when do the changes take effect?
The bill was included in the King's Speech 2026, making it a government legislative priority. The current expected timeline:
- Late 2026: Initial provisions phased in following Royal Assent, including the 60-day payment cap for large-to-small transactions and the strengthened Commissioner powers
- 2027: Full implementation, including the start of the phased tightening towards a 45-day cap
- Within five years of commencement: Payment terms reduce to a maximum of 45 days
Contractors do not need to wait for full implementation to benefit. The existing statutory interest rights under the Late Payment of Commercial Debts Act 1998 apply now. The new bill adds enforcement muscle and extends coverage — it does not replace the existing framework.
How to prepare now
The most important steps contractors can take before the new rules fully take effect:
- Audit your invoice templates. Check that every invoice you issue contains the legally required information. A missing company number or absent payment due date can undermine your ability to enforce late payment rights.
- Set clear payment terms on every invoice. Do not rely on verbal agreements or vague "30 days" conventions. State the exact due date on the face of each invoice.
- Keep records of when invoices are sent and when payment is received. This is the evidence base for any late payment claim. A proper accounting system does this automatically.
- Understand the statutory interest calculation. 8% above the BoE base rate, calculated daily on the outstanding amount from the day payment was due. At current rates, a £10,000 invoice 90 days late accrues approximately £290 in statutory interest — money you are entitled to claim without going to court.
- Review your contracts. If existing client agreements contain payment terms beyond 60 days, these will become unenforceable once the cap takes effect. Flag this before it becomes a dispute.
The Small Business Commissioner: using the new enforcement route
The Small Business Commissioner (SBC) is an independent body that already handles complaints from small businesses about late payment by larger companies. Under the new bill, the Commissioner's powers expand significantly:
- The SBC can investigate firms proactively — not just in response to individual complaints
- Fines can be imposed on persistent late payers without requiring contractors to litigate
- The SBC can require companies to produce payment records and justify their payment practices
For contractors, this means there is now a low-cost, non-litigious route to escalate a dispute with a large client who is consistently paying late. Using the SBC does not require a solicitor and does not carry the same commercial relationship risk as court action.
The key practical requirement: you need a paper trail. An accounting system that captures invoice dates, due dates, and payment receipt dates provides exactly this.
Make sure your invoicing is watertight before the new rules take effect.
AutoBooks handles compliant invoicing, statutory interest tracking, and records-keeping from just £89+VAT/month. Start your free trial.