Commercial Payments Bill 2026: A Subcontractor's Guide

If you are a subcontractor, you already know the pattern. You complete the work, submit the application, wait out the payment period, and then wait some more. The cash that should be funding your next job, your wages, and your own suppliers sits on someone else's balance sheet instead of yours.

In May 2026 the Government introduced the Commercial Payments Bill to Parliament, the legislative vehicle for the late payment reforms announced in the "Time to Pay Up" response on 24 March 2026. According to GOV.UK (2026), late payments cost the UK economy £11 billion every year and contribute to 38 businesses shutting their doors every single day. Construction is hit harder than any other sector.

This guide explains what is actually in the bill, leads with the one change you can start using straight away, and sets out the practical steps to take now. The detail of the construction retention ban is still being consulted on, so the focus here is what subcontractors should do today, not in 2027.

What is the Commercial Payments Bill?

The Commercial Payments Bill is proposed UK legislation, introduced to Parliament in May 2026, that sets hard limits on how businesses pay each other and makes late payment more expensive and harder to hide. It builds on the Late Payment of Commercial Debts (Interest) Act 1998 and, for construction, amends the Construction Act. The Government has called it the most ambitious crackdown on late payments in over 25 years.

For a subcontractor, four parts of it matter, and they are covered one by one below.

The four changes that matter to subcontractors

• Mandatory statutory interest on every late payment, set at 8% above the Bank of England base rate, with limited room to contract out of it.
• A 60-day cap on payment terms when large firms pay smaller suppliers, with a planned reduction to 45 days later.
• A retention ban, prohibiting the deduction and withholding of retention under construction contracts.
• A fixed sum and stronger enforcement when a payer disputes an invoice late or without good reason, backed by new powers for the Small Business Commissioner.

Mandatory statutory interest: the change you can use now

The most useful part of this reform is the one most subcontractors never use: statutory interest. When a commercial payment is late, you are entitled to charge interest at 8% above the Bank of England base rate, plus a fixed compensation sum. The Bank of England base rate has been held at 3.75% since April 2026 (Bank of England, 2026), so the current statutory rate is 11.75% a year.

This right already exists under the Late Payment of Commercial Debts (Interest) Act 1998. The problem is that almost nobody claims it, partly out of fear of souring a relationship and partly because the old regime had no real teeth. The Commercial Payments Bill changes that by making statutory interest mandatory in commercial contracts, so it cannot simply be written out of the small print, and by giving enforcement to the Small Business Commissioner.

The Government's own worked example: on £10,000 paid 60 days late, you would be owed £10,293.15 in total, made up of £193.15 in interest plus a £100 fixed sum (GOV.UK, 2026).

Here is a subcontractor scale example. Say your net payment due is £48,000 and it is paid 40 days late:

• Interest: £48,000 x 11.75% x (40 / 365) = £618.08
• Fixed compensation: £100 (the top band for debts of £10,000 or more under the 1998 Act)
• Total you can recover: £718.08

The fixed compensation is tiered: £40 for debts under £1,000, £70 for debts between £1,000 and £9,999.99, and £100 for debts of £10,000 or more. You do not need permission to apply it, and you do not need to wait for the bill to pass to start charging interest under the existing 1998 Act. For a deeper look at the remedies available today, see our guide to late payments in construction.

The 60-day payment cap

The bill imposes a 60-day maximum payment term on large firms paying smaller suppliers, with strictly limited exemptions (GOV.UK, 2026). The Government has signalled a further reduction to 45 days after about five years, subject to consultation.

For context, many subcontractors currently work to 30, 45, or 60-day terms depending on the contract, and some main contractors push terms far longer down the supply chain. A statutory ceiling stops the worst of that. It does not override the shorter periods already set by the Construction Act and the Scheme for Construction Contracts, which remain the baseline for most construction work. If your contract is silent or unfair on timing, the Construction Act framework still governs your right to be paid. See our explainer on Construction Act payment terms for how the default timescales work.

The retention ban

The headline change for construction is the proposed retention ban. The Government has chosen to prohibit the deduction and withholding of retention payments under construction contracts, amending Part 2 of the Housing Grants, Construction and Regeneration Act 1996, the Construction Act (GOV.UK, 2026). The aim is to stop subcontractors' cash being tied up for months or years, and to remove the risk of losing retention entirely if a contractor up the chain becomes insolvent.

This is the part with the most uncertainty. The Government has said it will consult further on the timing and mechanism for implementation before a final decision, and likely alternatives for managing defect risk include performance bonds, project bank accounts, and retention held in trust. Until the rules are settled, retention is still being deducted on live contracts, so you still need to track every penny and chase release on time. We cover the practical detail in our guide to the UK construction retention ban 2026.

The late-dispute fixed sum and stronger enforcement

A common delay tactic is the tactical dispute: a payer queries an invoice at the last minute, or without saying what is actually wrong, to buy time. The bill gives suppliers a right to a fixed sum where a purchaser raises a dispute late or without sufficient information (GOV.UK, 2026).

Enforcement is the other half of the package. The Small Business Commissioner gains powers to investigate firms suspected of persistently poor payment practices, adjudicate payment disputes, and fine the worst offenders, with potential penalties described as running into tens of millions (GOV.UK, 2026). Boards of persistently late-paying large companies will also have to publish explanations for their poor payment performance. None of this works in your favour if your own records are weak, which is why notice discipline matters. Our guide to the notified sum explains how to lock down what you are owed before any dispute starts.

When does this take effect?

The bill was introduced to Parliament in May 2026 and is not yet law. The Government has committed to an appropriate lead-in time before the powers come into force, and confirmed the measures will not be applied retrospectively (GOV.UK, 2026). Parliamentary approval is required, so commencement is widely expected from 2027 onwards, and the construction retention ban will follow its own further consultation. The direction of travel, though, is settled, so the sensible move is to prepare now rather than wait.

What subcontractors should do now

• Start charging statutory interest on late payments under the existing 1998 Act. You do not need the bill to pass first.
• Record payment due dates precisely for every application, so you can prove the exact day a payment became late.
• Keep your payment and pay less notices tight, so a payer cannot manufacture a late dispute.
• Track retention line by line and diarise every release date, because retention is still being deducted until the ban commences.
• Forecast your cash on the assumption that payments arrive on the legal deadline, not when a client feels like paying.

How BuildQS helps you stay on top of payment terms

BuildQS is built around exactly these pressures. It calculates the gross value, retention, and net due on every payment application automatically, so the sum you apply for is right the first time. It records the date of every application and notice, which is the evidence you need to show when a payment became late and to calculate statutory interest. It tracks retention deductions and release dates across all your projects, so nothing slips through. And its cash flow forecasting combines pending applications with retention release dates to show what is actually landing in your account over the next 90 days. For the bigger picture on planning around slow payers, see cash flow forecasting for construction subcontractors.

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Frequently Asked Questions

What is the Commercial Payments Bill?

The Commercial Payments Bill is UK legislation introduced to Parliament in May 2026 that caps payment terms at 60 days, makes statutory interest on late payments mandatory at 8% above the Bank of England base rate, and prohibits retention deductions in construction contracts. It implements the "Time to Pay Up" reforms announced on 24 March 2026.

How much interest can I charge on a late payment?

You can charge statutory interest at 8% above the Bank of England base rate, plus a fixed compensation sum of £40, £70, or £100 depending on the size of the debt. With the base rate at 3.75%, the current rate is 11.75% a year. This right already exists under the Late Payment of Commercial Debts (Interest) Act 1998, and the bill makes it mandatory.

When will the construction retention ban start?

The retention ban is not yet in force. The Government has said it will consult further on the timing and mechanism before a final decision, and the measures will not apply retrospectively. Commencement is widely expected from 2027 onwards, so retention is still being deducted on current contracts and must be tracked.

Does the 60-day cap replace the Construction Act?

No. The 60-day cap is a backstop maximum across commercial contracts. The Construction Act and the Scheme for Construction Contracts still set the default payment framework for construction work, which is usually shorter, and continue to govern your right to be paid where a contract is silent or unfair.

Sources

• GOV.UK (2026). Time to Pay Up: Government unveils toughest crackdown on late payments in over 25 years. 24 March 2026.
• GOV.UK (2026). Commercial Payments Bill: overview (factsheets).
• GOV.UK (2026). Late payment consultation: time to pay up, government response.
• Bank of England (2026). Interest rates and Bank Rate. Base rate held at 3.75%, 30 April 2026.
• Late Payment of Commercial Debts (Interest) Act 1998.
• Housing Grants, Construction and Regeneration Act 1996 (the Construction Act), Part 2.