The new statutory obligation to report on payment practices
In April 2017 new regulations are expected to come into force which will require businesses to report on their payment practices, policies and performance twice per financial year on a new government web service.
The regulations (which are in draft form at present) are titled: "The Reporting Payment Practices and Performance Regulations 2017" and a copy can be found here.
The government has also published guidance for businesses likely to be caught by these regulations, a copy of the guidance can be found here.
The regulations and guidance are essential reading for those that are likely to be caught by the new regulations (which will include many in the construction industry) as it will be a criminal offence by the business, and every director of the company or designated member of an LLP, if the business fails to publish a report containing the necessary information.
Some key points (based upon the current draft regulations and guidance) are noted below:
- The regulations will apply to a company which exceeds two of the three conditions on both of the last two balance sheet dates set out at section 465 of the Companies Act 2006. Currently those are:
- turnover of £36million
- balance sheet total of £18million
- 250 employees
- For group business it is notable that the requirement to report applies to each business entity in its own right so each entity will need to report individually.
- Businesses incorporated overseas do not have to report but any UK subsidiaries (to whom the reporting requirements apply) will have to.
- Reports have to be published on a web based service provided by the government which is still being developed and will be available from April 2017 (some businesses will need to start submitting information from October 2017).
- Businesses will have to report information on their payment terms including narratives on standard payment terms, any changes to these over the last reporting period and maximum payment periods.
- Statistics will also need to be provided in the report including the average time taken to pay invoices, what percentage of invoices are paid in less than 30 days, between 31 and 60 days, and over 60 days and what percentage of payments are not paid within agreed terms. Statements will also be required regarding the measures (such as e-invoicing) the business has.