19 January 2017

Large companies and limited liability partnerships (LLPs) will soon be required to report on their payment practices and policies for suppliers.

On 2 December 2016, the Department for Business, Energy and Industrial Strategy (the BEIS) published its response to the government’s 2014 consultation paper seeking views on the duty to report on payment practices and performance.

The BEIS response contains draft regulations which give effect to the duty contained in section 3 of the Small Business, Enterprise and Employment Act 2015, and which are expected to come into force on 6 April 2017.

What is the reporting period?

The draft regulations provide that large businesses will have a duty to publish details of their payment policies and practices and report on performance against their policies twice a year.

The reporting will relate to the financial years beginning on or after April 2017. The duty will not apply to a new company in its first financial year.

What is the definition of ‘large’ businesses?

Individual companies – whether private, public or quoted – and LLPs which exceed two or all of the following thresholds on both of their last two balance sheet dates:

• over £36 million annual turnover;
• over £18 million balance sheet total; and
• over 250 employees.

Where are reports to be published?

Businesses must publish their reports twice a year on a government web service.

Which contracts fall within the scope of the reporting requirements?

The contracts:

• must have a connection with the UK.
• include contracts for goods, services, or intangible assets (including intellectual property) which are entered into by parties in connection with the carrying on of a business.

Which contracts do not fall within the scope of the reporting requirements?

• Contracts for financial services
• business to consumer contracts will also not be covered.

Under the new rules, what information will businesses be required to disclose?

Among other things:

• their standard payment terms, including the period for payment and any changes made to those terms over the last accounting period;
• the average time taken to pay invoices from the date of receipt;
• the percentage of invoices paid within the reporting period which were paid in fewer than 30 days, between 31 and 60 days, and over 60 days;
• their process for resolving payment-related disputes;
• the percentage of invoices due within the reporting period which were not paid within agreed terms; and
• whether they offer e-invoicing, supply chain finance, and whether they are signed up to a voluntary payment code.

Who will ensure accuracy?

Company directors (or designated persons in the case of LLPs) will be required to approve the information in the report before publication, in order to ensure that the information provided is accurate.

What happens if you fail to report?

If a business fails to report, or publishes false or misleading information, both the company and its directors will be liable to a fine on summary conviction, unless they can show that they took all reasonable steps to ensure that the reporting requirements would be met.

Start preparing now!

Businesses that will be subject to the new rules should start preparing for the changes now by reviewing and considering their current payment terms and practices in advance of the implementation date. The government has announced that it will publish guidance on how to comply with the reporting requirements but as yet the date of publication is unknown.

Link to BEIS response: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/574312/duty-to-report-on-payment-practices-and-performance-government-response.pdf

Contact: Jeremy Glen, Partner jsg@bto.co.uk T: 0141 221 8012.