Every year, thousands of businesses experience severe administrative and financial burdens, simply because they are not paid on time. Late payment is a key issue for business, especially smaller businesses as it can adversely affect their cash flow and jeopardise their ability to trade. In the worst cases, late payment can lead to insolvency.
Regulations made under section 3 of the Small Business, Enterprise and Employment Act 2015, introduce a duty on the UK’s largest companies to report on a half-yearly basis on their payment practices, policies and performance for financial years beginning on or after 6 April 2017. The information must be published through an online service provided by the government, and will be available to the public.
Who needs to comply ?
Businesses are in scope of the requirement for a financial year if, on their last two balance sheet dates, they exceeded two or more of the thresholds for qualifying as a medium-sized company under the Companies Act 2006 (section 465 (3)). The thresholds relate to turnover, balance sheet total and average number of employees.
Currently these thresholds are:
- £36 million annual turnover
- £18 million balance sheet total
- 250 employees
What are the obligations?
Businesses in scope of the reporting requirement (see pages 4-9) must prepare and publish information about their payment practices and performance in relation to qualifying contracts (see paragraphs 34-39), for each reporting period in the financial year. The information for each reporting period must reflect the policies and practices which have applied during that period, and the business’s performance for that period.
The report must be published on a web-based service provided by or on behalf of government within 30 days of the end of the reporting period.
The report must contain the information required by the regulations and must be approved by a named company director or (for LLPs) a designated member.
What is a Qualifying Contract ?
A qualifying contract is a contract which satisfies all of the following:
- It is between two (or more) businesses
- It has a significant connection with the United Kingdom (as explained in paragraph 36-39 below).
iii. It is for goods, services or intangible property, including intellectual property.
- It is not for financial services.3
Information to be disclosed
For each reporting period businesses are required to report on the following, in relation to qualifying contracts:
Narrative descriptions of:
- the business’ standard payment terms, which 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, and how suppliers have been notified or consulted on these changes
- the business’ process for resolving disputes related to payment
- 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
iii. the percentage of payments due within the reporting period which were not paid within agreed terms
Statements (i.e. a tick box) about:
- whether suppliers are offered e-invoicing
- whether supply chain finance is available to suppliers
iii. 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
For normal 12 month accounting periods there will be 2 reporting periods, of six months each, starting on the first day of the accounting period and ending at the end of the first six months and starting on the first day of the 7th accounting period and ending on the last day of the 12th accounting period. The information above must be published within 30 days of the end of the reporting period.
First Year Reports
|Table 2: First year reports Financial Year beginning||What is the first reporting period?||When must the first report be published on the web service?|
|1st January||1st January 2018 to 30th June 2018||On or before 30th July 2018|
|1st April||1st April 2018 to 30th September 2018||On or before 30th October 2018|
|5th April||5th April 2018 to 4th October 2018||On or before 3rd November 2018|
|6th April||6th April to 5th October 2017||On or before 4th November 2017|
|After 6th April||First six months of the business’s 2017-18 financial year||Within 30 days starting on the day after the end of the business’s first reporting period.|
Need Help ?
TES have created a series of reports and screens to allow you to comply with these new requirements with minimal work from you.
For more information please contact Samantha.email@example.com
Would you like to read more about this legislation or the document this article refers to, you can find it here.