The Department for Business, Energy & Industrial Strategy (BEIS) has published a new updated set of draft regulations requiring large UK companies to publicly report how quickly they pay their suppliers. The new rules are intended to come into force in April 2017.
The aim of the legislation is to increase transparency of payment practices by large companies and to give smaller suppliers better information about which companies are poor payers. The government hopes that these new reporting requirements will drive improvements in payment practices and, in particular, reduce late payment and cash-flow problems for small and medium sized businesses in the UK.
Which businesses will need to comply?
Only large UK companies and large LLPs (together ‘large businesses’) will have a duty to report. There are two sets of regulations, one for companies and the other specifically for LLPs. The calculation on whether a business is large will be based on the company size thresholds in the Companies Act 2006. A business will be large if it exceeds any two of the following thresholds:
- more than £36 million annual turnover;
- more than £18 million balance sheet total;
- or more than 250 employees.
What will the report need to disclose?
Companies will be required to publish information on:
- standard payment terms, or the most frequently used payment terms where there is no standard;
- the percentage of invoices paid in less than 30 days, paid between 31 and 60 days, and over 60 days;
- the percentage of invoices which were not paid within the agreed terms;
- the process for resolving payment related disputes;
- sums deducted from invoices to remain on a supplier list;
- availability of e-invoicing and supply chain finance; and
- membership of a payment code e.g. the Prompt Payment Code.
Which contracts are included?
Businesses will need to report on their payment practices for contracts for goods and services.
BEIS has stated that the duty to report is intended to focus on late payment culture in the UK and contracts need to have a significant connection to the UK.
Contracts for financial services, such as loans, are excluded from the duty to report although financial services businesses contracting for other goods or services still need to report on their payment practices for those contracts.
Frequency of reporting and where will the report be published?
The reporting requirement will apply to businesses whose financial year starts on or after 6 April 2017.
Reporting will be required every 6 months. The first report is due 30 days after the end of the first six months of a business’s financial year. The second report is due 30 days after the end of the business’s financial year.
The report will be published on a central website provided by the government. Suppliers will be able to search the website to find the information provided by each business that falls within the scope of the regulations.
Director approval and liability
A director will be required to approve the information before it is published on the website.
A failure to report, or publishing a false or misleading report is a criminal offence with the directors and company liable to a fine. If a company fails to publish a report by the required deadline then a director will not be liable if the director has taken all reasonable steps to ensure compliance. BEIS has stated that it will encourage businesses to comply with the reporting requirements before steps are taken to prosecute.
It was originally intended that the duty to report would be introduced in April 2016. However, the implementation process was delayed and BEIS has now published a revised set of regulations which it expects to come into force in April 2017.
The regulations will now be laid before parliament and BEIS will publish further guidance to help large businesses understand how they should comply with these new reporting requirements.
Co-authored by Doris Myles.