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are you up to speed with the new duty to report on payment practices?

3 February 2017

Further changes to company and LLP reporting are currently expected to come into force on 6 April 2017.

New Regulations (once enacted) will require large companies and LLPs to publicly report twice a year on their payment practices and performance, including the average time taken to pay supplier invoices. This will apply in respect of financial years beginning on or after 6 April 2017. And failure to report as required by the Regulations will be a criminal offence.

The Regulations aim to tackle the administrative and financial burdens, experienced by small businesses in particular, as a result of not being paid on time – this can lead to cash flow issues, jeopardise their ability to trade and in some cases lead to insolvency. The government’s wider initiative to assist Small and medium-sized enterprises (SMEs) also includes the appointment of a Small Business Commissioner to support SMEs in resolving payment disputes – it is expected that this will be in place later this year.

Who is caught by the new requirement to report?

All UK large companies (whether private, public or listed) and LLPs are caught – currently a company or LLP will be ‘large’ if it exceeds two or all of the following criteria on both of its last two balance sheet dates:

  • £36m annual turnover
  • £18m balance sheet total
  • 250 employees.

Companies/LLPs incorporated outside of the UK are not currently required to report.

What contracts need to be reported on?

Companies/LLPs that are required to report must prepare and publish information about ‘qualifying contracts’.

A ‘qualifying contract’ is one that:

  • is between two or more businesses
  • has a significant connection with the UK (this will depend on the circumstances)
  • is for goods, services or tangible property (including intellectual property)
  • is not for financial services.

What information needs to be reported?

For each reporting period, companies/LLPs must provide the following in relation to qualifying contracts:

  • narrative descriptions of the business’:
    • standard payment terms; and
    • process for resolving payment disputes
  • statistics for the relevant reporting period on:
    • the average number of days to make payments
    • the percentage of payments made within 30 days or fewer, between 31-60 days and in 61 days or longer and the percentage that were not paid within the agreed terms
  • statements setting out whether:
    • suppliers are offered e-invoicing
    • supply chain finance is available to customers
    • the business’ terms cover deducting sums from payments as a charge for remaining on a supplier’s list and if any such deductions have been made
    • the business is a member of a payment code e.g. the Prompt Payment Code.

The information must be approved by a named company director or (for LLPs) a designated member.

What is a ‘reporting period’ for these purposes?

There will usually be two reporting periods in each year – the first one being the six months from the first day of the business’ financial year, and the second starting on the day after this first period ends and concluding at the end of the relevant financial year.

When and where must this information be published?

The required information must be published within 30 days of the end of the relevant reporting period. The government intends to make a web service available from April this year (this is not currently available but will be part of the www.gov.uk website) for businesses to publish this information – and information will be available for viewing as soon as it is published.

What are the consequences for getting it wrong?

Failure to publish a report containing the necessary information within the relevant time period will result in an offence being committed by the company/LLP and every officer or designated member. Anyone who knowingly or recklessly publishes a report or information or makes a related statement which is misleading, false or deceptive, also commits a criminal offence. These offences are punishable by a fine.

Is there any guidance to help?

On 31 January 2017 the Government published guidance to assist large companies and LLPs in complying with these new requirements, in particular the guidance explains how to report if you are part of a wider group and includes a helpful flowchart. This guidance can be accessed here.

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The content on this page is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.

Emma Grant

Emma Grant

Professional Development Lawyer

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