Our Employment Consultant Clayton Williams discusses the new guidance on the duty to report on payment practices and performance. 

The New Year sees the Department for Business, Energy & Industrial Strategy (BEIS) publish guidance on the duty to report on payment practices and performance. Its aim is to resolve late payment and assist small businesses with its cash flow and ability to trade.

Companies and LLP’s must comply with regulations made under section 3 of the Small Business, Enterprise and Employment Act 2015 (for LLP’s, the limited Liability Partnerships Act 2000). It introduces a duty on the UK’s largest companies and LLP’s to report on a half-yearly basis on their payment practices, policies and performance for financial years beginning on or after 6th April 2017. The information must be published through an online service provided by the government and made available to the public.

Who needs to report?

The reporting requirement applies to large companies and large LLP’s which exceed a ‘size criteria’. The size criteria thresholds relate to turnover, balance sheet total and average number of employees. 

The current thresholds are:

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

The thresholds are periodically updated and businesses will need to check where the thresholds are via the BEIS to ensure they are within the scope of the reporting requirement. There is no requirement for a company to report in its first financial year with companies being in scope in its second financial year (if, in its first financial year it exceeded two or all of the thresholds described above).

What needs to be reported?

Those businesses ‘in scope’ must prepare and publish information about their payment practices and performance in relation to qualifying contracts- for each reporting period in the financial year. 

A qualifying contract is one which satisfies all of the following: 

  • It is between two (or more) businesses
  • It has a significant connection with the UK
  • It is for goods, services or intangible property (including IP)
  • It is not for financial services.

The report must include the following:

Descriptions of the business payment terms must include the standard contractual length of time for payment of invoices, maximum contractual payment period and any changes to the standard payment terms in the reporting period. It should also include how suppliers have been notified or consulted on these changes and the business’ process for resolving payment disputes.

Statistics on:

  • the average number of days taken to make payments in the reporting period, from the date of receipt of invoice or other notice
  • the percentage of payments made within the reporting period which were paid in 30 days or fewer, between 31 and 60 days and in 61 days or longer
  • the percentage of payments due within the reporting period which were not paid within agreed terms.

Statements about:

  • whether suppliers are offered e-invoicing
  • whether supply chain finance is available to suppliers
  • whether the business’ practices and policies cover deducting sums from payments as a charge for remaining on a supplier’s list and whether they have done this in the reporting period
  • whether the business is a member of a payment code and the name of the code.

The information should be prepared on an individual company or LLP basis and not at a group level.

The report must be published on a web-based service provided by or on behalf of the government within 30 days of the end of the reporting period.

Failure to comply is a criminal offence punishable on summary conviction by a fine. The risk of prosecution extends to every director of the company or designated member of an LLP.  Similarly, if anyone publishes a report which is misleading, false or deceptive, commits an offence if they knew or were reckless in doing so.

For further information about the duty to report and its sanctions, please contact Clayton Williams at Capital Law on: 029 2047 4475.