New reporting requirements on payment practices for UK businesses
Every year, thousands of businesses experience serious financial difficulties, even insolvency, simply because they are not paid on time. Late payment is recognised by the UK government as a key issue for small and medium-sized enterprises (“SMEs”) as it can adversely affect cash flow and jeopardise the ability to trade.
This note is relevant to any UK business if it meets the thresholds set out below. If your group is based outside the UK but has a UK business, the group may be caught by the regime.
As of 6 April 2017, the Reporting on Payment Practice and Performance Regulations 2017 (the “Regulations”) came into effect, requiring certain UK companies and limited liability partnerships (“LLPs”) to publish twice-yearly reports on their payment practices and policies. The reports will be publicly available.
Objectives of the new regime
It is estimated that late payments are forcing approximately 50,000 businesses’ deaths each year, which would otherwise add £2.5 billion to the UK economy. The objective of the Regulations is to combat poor payment practices and to reduce the current balance of c.£26 billion tied up in late supplier payments owed to SMEs.
Businesses affected by the Regulations
The Regulations are directed at ‘large businesses’ in the UK, including overseas groups with UK subsidiaries. The Regulations do not apply to UK branches of overseas companies (so-called ‘UK establishments’).
The Regulations apply to “qualifying companies” and “qualifying LLPs” (collectively known as “qualifying businesses”) which individually satisfy two or all of the following thresholds on both of their previous two balance sheet dates:
- Threshold 1: over £36 million net annual turnover
- Threshold 2: over £18 million net balance sheet total
- Threshold 3: over 250 employees
The above thresholds apply on an individual company or individual LLP basis, not at a group level, and each applicable company within a group will need to report separately.
Modified thresholds apply to parent companies and parent LLPs.
Requirements under the Regulations
Qualifying businesses are obliged to publish a report about their payment practices and policies in relation to certain “qualifying contracts” including:
- payment terms (for example, the standard contractual length of time for payment of invoices);
- dispute resolution processes relating to payments;
- the average time taken to pay invoices from the date of receipt and the percentage of invoices paid within the reporting period which were paid in 30 days or less, between 31 and 60 days, and over 60 days;
- the percentage of invoices due within the reporting period which were not paid within the payment period; and
- statements on their capacity to provide e-invoicing, supply chain financing and other payment policies.
What is a qualifying contract?
A “qualifying contract” is a contract for goods, services, or intangible assets (including intellectual property) entered into in connection with the carrying on of a business and which has a significant connection with the UK. Whether a contract has a significant connection with the UK will depend on the circumstances. A contract will have a significant connection with the UK if:
- the contract is to be performed in the UK;
- one or more parties are established or carry on their business in the UK; or
- the contract is governed by UK law.
The Regulations do not apply to business to consumer (B2C) contracts or contracts for financial services.
When to report?
Reporting applies to financial years beginning on or after 6 April 2017. Reports need to be published twice a year unless the qualifying entity has shortened or extended its accounting period. The first report will be due 30 days after the first six months of the financial year, and the second report will be due 30 days after the end of the financial year.
Where to report?
The UK government has established a dedicated website where qualifying companies and LLPs are required to upload their reports. An entity may also publish reports on its website.
Who must sign the report?
The report has to be approved and signed by a named director of a company (LLP: designated member), before it is published.
Consequences of non-compliance
Failing to report, or intentionally publishing false or misleading information, is a criminal offence under the Regulations. Both the qualifying business itself and its directors (or designated members) may be liable to a fine. However, directors (or designated members) have a defence if they can show that they took all reasonable steps to ensure that the requirements under the Regulations were satisfied.
Next steps for qualifying businesses
In preparation for reporting, qualifying businesses should look to:
- seek advice on how to complete and upload reports;
- update internal policies to identify qualifying contracts;
- agree the approval process for the report prior to signing; and
- consider implementing processes that will facilitate the compilation of data (e.g. tracking the date of receipt of invoices from suppliers and other information needed for the report, as mentioned above).
Although compliance with the Regulations will be seen as an additional administrative burden on qualifying businesses in the short term, it is hoped that they will improve late payment issues and effectively combat poor payment practices. The Regulations should provide heightened transparency, shining a light on both good and bad payers.
Matthew Stratton/ Peter Prendiville
 Great Britain, Department for Business, Energy & Industrial Strategy (2017) Duty to report on payment practices and performance guidance
 Great Britain, Department for Business, Energy & Industrial Strategy and Margot James MP (2017) Late payment reporting guidance launched for large businesses
 HL Deb (2016-17) 09 March 2017 GC, Volume 779.
 The Companies Act 2006, section 465.
 The Companies Act 2006, section 466(4).
 “Payment period” means the period in which a company is required to pay a sum under a qualifying contract, expressed in days.