Duty to report on payment practices and performance
Both the Reporting on Payment Practices and Performance Regulations 2017 and the Limited Liability Partnerships (Reporting on Payment Practices and Performance) Regulations 2017 (Regulations) came into force on 6 April 2017. These impose new obligations on large companies and limited liability partnerships to report their payment practices and performance for a given financial year.
The new Regulations
The Regulations apply only to companies that meet two of the three thresholds below:
- annual turnover of £36 million
- total balance sheet of £18 million or
- average number of 250 employees.
The Regulations oblige any qualifying companies to report on all contracts for goods, services, or intangible assets (including IP) that have been entered into in connection with carrying on the companies' business. The contract will, however, have to have a significant connection with the UK, for example involving performance in the UK or by UK-based parties. Any contracts for financial services are excluded from the Regulations.
All of the reports will be hosted on a web-based government service.
According to the Government's guidance, the above thresholds will be updated periodically, with the Companies Act's thresholds under section 465, if changed, applying to the preceding years retrospectively (and could therefore catch companies that weren't included in a given year).
Overseas companies will not have to report under the Regulations; however, any UK subsidiaries will have to do so if they meet the thresholds as above.
Details that companies would have to report are payment terms including narratives on standard payment terms, any changes to these over the last reporting period and maximum payment periods. Outside of contractual details, companies will also have to publish statistics on invoice payment times, and percentages on average payment times for invoices in general.
Why is this important?
Companies, their directors and LLP members can be fined if the reports are not on time, which have to contain all of the necessary information when published. Additionally, anyone who makes a related statement, which is misleading, false or deceptive, commits a criminal offence if they knew or were reckless about it being false or misleading, punishable by a fine.
Any practical tips?
Know these regulations exist! Keep records of all possibly relevant contracts and prepare for the publication of the details for this financial year. Also remaining on top of any new or altered contracts in the following years will help in the preparation and publication of subsequent reports. Directors need to heed their responsibilities in this regard, as ultimately it's them who will face the consequences should the information not be reported on time.