Under English law, whether you can charge interest on a debt depends on the terms of the agreement between you and the debtor, statutory provisions, and the type of debt involved. Here’s an overview of when and how interest can be charged on debts:

1. Interest as Per the Contract

The most straightforward scenario for charging interest on a debt is when it has been explicitly agreed upon in the contract between the creditor (you) and the debtor. This agreement might specify:

• The rate of interest: How much interest can be charged.
• The period for which interest is applicable: From when until when interest can be calculated.
• The method of calculation: How the interest should be calculated, i.e. simple or compound.

If your contract includes such terms, you are entitled to charge interest in accordance with those terms. Contracts without specific interest terms can't have interest imposed unilaterally unless other legal provisions apply.

If your contract prescribes an unusually high rate of interest, please bear in mind that the Court might hold that it is an unenforceable penalty.

2. Statutory Interest

In cases where the contract does not specify interest or there is no written contract at all, you may still be able to charge interest under various statutory provisions:

• Late Payment of Commercial Debts (Interest) Act 1998: This Act applies if both you and the debtor are acting within a business context. It allows you to charge interest on late payments at a rate of 8% above the Bank of England base rate. This statutory right is automatic and does not require a contractual agreement to charge interest.
• The County Courts Act 1984: For non-commercial debts, the County Courts can award interest on debts from the date of the claim to the date of the judgment. The current statutory rate is typically 8% per annum, but this can vary. After the judgment, the interest rate typically drops to a rate specified by the judgment, often around the same or lower.

3. Interest Post-Judgment

Once a Court has issued a judgment in your favour regarding the debt, you can charge interest on the unpaid amount of the judgment. This is governed by Section 17 of the Judgments Act 1838, which allows interest to be charged at a statutory rate of 8% per annum, unless the Court specifies a different rate. This type of interest accrues from the date of judgment until the debt is paid.

4. When Interest Might Not Be Chargeable

It's important to note that there are circumstances where charging interest may not be appropriate or enforceable:

• Consumer Credit Agreements: Special rules apply under the Consumer Credit Act 1974 and related regulations, which might restrict the ability to charge interest unless clearly agreed upon in the consumer credit agreement.
• Unfair Terms: If a term relating to interest in a contract is deemed excessively high or not clearly communicated, it might be considered an unfair term under the Consumer Rights Act 2015, or otherwise a penalty at common law, and thus unenforceable.

5. Practical Considerations

Before deciding to charge interest on a debt, consider the following practical aspects:

• Communication: Clearly communicate with the debtor about the interest, especially if it starts accruing due to late payment. Transparency can often facilitate payment before further measures are necessary.
• Documentation: Keep detailed records of all communications, payments received, and calculations of interest. This documentation will be vital if legal action becomes necessary.
• Negotiation and Settlement: Consider whether charging interest might impact your relationship with the debtor and whether a compromise might be more beneficial in securing payment.

Garfield can help you by automatically calculating the interest due to you and ensure it is included in your claim.

Conclusion

In summary, you can charge interest on a debt under English law if it is stipulated in your contract, or through applicable statutory provisions, or post-judgment. Always ensure that the terms in your contracts regarding interest are clear and fair, and consider practical implications when deciding to enforce such charges.