HMRC crackdown on late payments: what businesses need to know
If you have seen headlines about an HMRC crackdown on late payments, the first thing to understand is that the latest push is wider than HMRC alone. The main action announced this week comes from the UK government’s response to its late payment consultation, backed by an expanded role for the Small Business Commissioner and new legislation that ministers say will be introduced as soon as Parliamentary time allows.
The goal is clear: speed up business-to-business payments, protect smaller suppliers, and put more pressure on persistent late payers.
That matters because late payment is not a minor admin issue. The government says it costs the UK economy almost £11 billion a year, contributes to the closure of 38 UK businesses a day, and leaves affected business owners wasting an average of 86 hours a year chasing invoices.
At any given time, businesses are estimated to be owed £26 billion in late payments. For many firms, especially smaller ones, that can mean cash flow stress, delayed hiring, postponed investment, and more time spent chasing money instead of growing the business.
For you, the practical takeaway is simple. If you send invoices, rely on prompt payment from customers, or manage a company that buys from smaller suppliers, the rules and expectations around payment practices are tightening.
This is a good time to review your systems, your contracts, and how well your records stand up under scrutiny. Strong bookkeeping, reliable VAT return services, and clear annual statutory accounts can all help you stay in control when payment behaviour becomes a bigger compliance issue.
What has the government actually announced?
The government’s consultation response, published on 24 March 2026, sets out a package of measures aimed at tackling poor payment practices. These are not all in force yet, but they show the direction of travel very clearly.
The main proposals include stricter maximum payment terms, mandatory statutory interest on late payments, more reporting for large businesses, fines for persistent late payers, stronger Small Business Commissioner powers, and a deadline for disputing invoices.
One of the biggest proposed changes is a hard 60-day maximum payment term for certain business-to-business contracts, replacing the current flexibility that can allow longer terms if they are not considered grossly unfair.
The government says this would apply no earlier than 2027, with a possible reduction to 45 days after 5 years, subject to further consultation. It also says the restrictions will focus on payment terms between businesses of different sizes, while allowing some exemptions, including contracts where both parties are large companies, where the purchaser is the smaller party, and where goods or services are being imported or exported.
That point is important. This is not yet a blanket 60-day rule for every commercial arrangement in the UK. It is a planned reform aimed mainly at protecting smaller suppliers from being pushed into long and unfair terms by larger customers.
If you are a small or medium-sized business, that could be positive news. If you are a larger business, it is a sign that payment terms and supplier governance are moving much higher up the agenda. Support with company tax returns, company secretarial services, and an outsourced finance department can make it easier to keep those processes under control.
Mandatory interest could change the way overdue invoices are handled
Another major proposal is mandatory statutory interest on late payments. Right now, the Late Payment of Commercial Debts legislation gives businesses the right to claim interest on overdue commercial invoices, but in practice many smaller suppliers do not pursue it because they do not want to damage customer relationships. The government now intends to make that interest mandatory, at the statutory rate of 8% above the Bank of England base rate, so businesses would no longer be able to negotiate alternative remedies or lower rates for late payment.
For you, that could change the tone of credit control quite quickly. If you are usually paid late, this reform could strengthen your position. If you are regularly the payer, it raises the cost of weak payment discipline. It also means your ledger needs to be accurate.
You need to know exactly when an invoice was issued, what the agreed terms were, whether a dispute was raised on time, and whether interest should now be accruing. This is where good Xero bookkeeping and day-to-day payroll services support can free up time so your internal team is not constantly firefighting.
Large businesses could face more scrutiny and bigger penalties
The consultation response also confirms plans to require qualifying large businesses to report more information about statutory interest on late payments. That would include the value of interest they are liable to pay and the value they have actually paid. The government says the point of this is transparency and to make it easier to spot persistent poor behaviour.
On top of that, the Small Business Commissioner is set for a much stronger role.
According to the government response and the Commissioner’s own announcement, the office is expected to gain powers to investigate businesses suspected of poor payment practices or inaccurate reporting, settle payment disputes outside court through adjudication, and issue financial penalties to persistent late payers.
The government says it wants the fines to be significant but proportionate, while the Commissioner says the penalties could amount to a percentage of turnover for some of the worst offenders.
That is a meaningful shift. Late payment has often been seen as frustrating but low-risk. The direction now is towards a more enforceable framework with clearer consequences. If your finance processes are still heavily manual, or if aged debt reporting is inconsistent, this is the time to tighten things up.
Invoice disputes are likely to face stricter timing rules
The government also intends to introduce a time limit for raising disputes on invoices. The consultation proposed a 30-day window for disputing a good or service. If a dispute were raised after that point, the invoice would still need to be paid within the agreed terms, with late payment interest accruing if it remained unpaid.
The government says it still intends to introduce a dispute window, but it wants to refine the detail, especially for sectors like construction where existing payment notice rules already apply.
For you, that means invoice approval processes may need to become faster and more disciplined. If you buy from suppliers, you may need clearer internal sign-off deadlines. If you supply clients, you may want better evidence trails showing delivery, acceptance, and communication around any disputed work. Businesses in the property sector may find this especially relevant where service charges, maintenance costs, and management invoices can become complex.
In that case, commercial property management accounting, service charge accounting, landlord accountants, and property tax accountants support can help reduce ambiguity before it turns into a payment problem.
Do these changes apply now?
Not all of them. That is an important distinction. The government has confirmed the policy direction and says it will bring forward legislation as soon as Parliamentary time allows, but several key measures are still proposals rather than live law. For example, the 60-day cap is intended to start no earlier than 2027.
So this is not a case of waking up to a completely new late payment regime overnight. It is a warning that the enforcement climate is becoming tougher and that businesses should prepare now rather than wait until the rules are finalised.
There is also a voluntary side to this wider culture shift. The Fair Payment Code, launched in December 2024 and run by the Small Business Commissioner, is designed to reward businesses that pay suppliers fairly and quickly. By March 2026, the Code website showed 566 awardees, including 267 gold, 107 silver, and 192 bronze.
That does not replace the proposed legal changes, but it shows the wider pressure on businesses to improve payment behaviour and demonstrate good practice publicly.
What should you do now?
The smartest response is not to panic. It is to get organised. Review your payment terms, tighten your invoicing process, monitor aged debt more closely, and make sure your contracts, systems, and reporting are all aligned. If you are a smaller business, these reforms could improve your position over time.
If you are a larger business, this is the moment to check whether your payment practices would stand up to greater transparency and tougher enforcement.
If you want help getting your records, reporting, and payment processes in better shape, FHP Accounting can support you with practical, clear advice. To talk through your business and where the risks may sit, visit the contact page and speak to the team.
I lead FHP Accounting, an accountancy practice specialising in Commercial and Residential Property Accounting. Our goal is to make the administration of running property portfolios easier for landlords, managers, and investors — allowing you to focus on what you do best, while we take care of everything behind the scenes.
