Late payment is a key issue for businesses, especially smaller businesses and the government has introduced legislation which imposes a requirement on larger businesses of transparency to try and tackle the problem. As highlighted in our Informed Counsel Newsletter in January 2015 (the implementation timetable for which was updated in our August 2015 Informed Counsel Newsletter) and included in our corporate timeline from January 2017, for financial years beginning on or after 6 April 2017, large companies and large LLPs (regardless of whether they are private, public or quoted) are required to report on their payment practices, policies and performance in relation to qualifying contracts. The report is to be made half yearly on a government web-based service which can be viewed by the public, suppliers and other interested parties.

The obligation arises under the Reporting on Payment Practices and Performance Regulations 2017 and the Limited Liability Partnerships (Reporting on Payment Practices and Performance) Regulations 2017.

The Department for Business, Energy and Industrial Strategy (BEIS) has published guidance on the reporting obligation, which was revised in October 2017.

Only companies incorporated in the UK are caught by the regulations, provided they are not in their first financial year. The reporting requirement is on an individual company or LLP basis, not at a group level.

A company or LLP is subject to the reporting requirement if on its last two balance sheet dates it exceeded at least two of the three thresholds below.

The thresholds are:

  • annual turnover: £36 million or more
  • balance sheet total: £18 million or more
  • average number of employees: 250 or more.

The above are derived from CA 2006 s 465(3), being the thresholds for qualifying as a medium-sized company. These thresholds will be periodically adjusted. If the company's financial year is longer or shorter than one year, the figures are adjusted. No business is required to report in its first financial year.

A second condition applies to parent companies and parent LLPs; it must exceed at least two of the thresholds above and, in addition, the group of which it is the parent must also exceed at least two of the group thresholds ('net' or 'gross'). The net thresholds are the same as above and the gross thresholds are: annual turnover: £43.2 million; balance sheet total: £21.6 million; and average number of employees: 250. Net means after any set offs or adjustments to eliminate group transactions and gross means the opposite. Each company in a group owes a separate duty to report.

A parent company or LLP must firstly consider whether its figures for the last two financial years (as an individual company or LLP) meet the basic thresholds. If not, then it will not need to report on its own payment practices and performances. If the threshold requirements are met, then the group thresholds must be considered. The aggregate group figures are calculated by adding the figures for each member of the group. If the group thresholds are met, then the parent must report.

Businesses subject to the reporting requirement must report in relation to qualifying contracts for each reporting period in the financial year. The information 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 government within 30 days of the end of the reporting period.

The reporting requirement covers the following in relation to qualifying contracts:

Narrative descriptions of:

  • the business's 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
  • how suppliers have been notified or consulted on these changes
  • the business's process for resolving disputes related to payment.

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 the agreed payment period.

Statements (a tick box) about:

  • whether suppliers are offered e-invoicing
  • whether the business's 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.

In a financial year there are normally two reporting periods. The first is the six calendar months starting on the first day of the financial year. The second reporting period starts on the day after the first period ends and runs until the end of the financial year.

BEIS has in its guidance published a table of when first reports under the new regime will be due (extracted below).

Financial year beginning

What is the first reporting period?

When must the first report be published on the web-service?

1 January

1 January 2018 to 30 June 2018

On or before 30 July 2018

1 April

1 April 2018 to 30 September 2018

On or before 30 October 2018

5 April

5 April 2018 to 4 October 2018

On or before 3 November 2018

6 April

6 April to 5 October 2017

On or before 4 November 2017

After 6 April

First six months of the 2017-2018 financial year

Within 30 days starting on the day after the end of the first reporting period

Information to be published must be approved by a named director. For an LLP, the information must be approved by a named designated member.

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

  1. It is for goods, services or intangible property, including intellectual property.

Having a sufficient link to the UK depends on the circumstances and whether the law of a part of the UK would normally govern the contract, irrespective of the governing law chosen by the parties.

Anyone who is concerned that a business might not have complied, or may have made a false statement, can raise this by contacting the business directly or by contacting BEIS. If a concern is raised with the department, the business will usually be contacted to remind them to comply and to seek an explanation for non-compliance or discrepancies. The business could be prosecuted if they do not comply, or if they provide false information.

It is 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, within the specified filing period of 30 days. Anyone who publishes a report or information, or makes a related statement, which is misleading, false or deceptive, commits a criminal offence if they know, or were reckless about it being false or misleading at the time it was made.

The guidance published by BEIS gives more detailed information about the reporting requirements and is available on their website.

Reporting systems

In addition to the need to review payment practices in light of the requirement for transparency, internal systems will need to ensure that the necessary information can be generated on a regular basis.