Pay on-time, or pay the price
March 2, 2017
UK based companies or LLPs that meet two of following thresholds:
- At least 250 employees.
- A net annual turnover of at least £36m.
- A balance sheet total of £18m or more (for two consecutive balance sheets).
Will need to observe new reporting requirements twice during each financial year, from the start of the 2017/18 tax year.
The above criteria also apply to companies operating within a group structure, and each company within the group must report its own payment practices (as opposed to only the parent company reporting on behalf of the group).
What are the new requirements?
Any UK company or LLP that falls within this reporting duty set by the new regulations must publish specific information relating to its payment practices and performance on publicly accessible government websites (to be provided from April 2017) twice during each financial year from 6 April 2017. This will be accessible to suppliers and other interested parties.
This information includes:
- Descriptions of standard payment terms and dispute resolution processes for invoices.
- Accurate statistics on average numbers of days to pay (including statistics relating to any disputed invoices.
- % of payments made during the following periods: 30 days; 31-60 days and over 61 days.
- % of payments not made in accordance with agreed payment terms.
- The total amounts of late interest paid and owed during the reporting period.
- Any standard terms relating to specific invoicing requirements, availability of supply-chain financing, set-off payment terms (if any) and whether the business is a member of a payment code (i.e. The Prompt Payment Code).
Any ‘pay-to-stay’ practices relating to deductions from payments for suppliers to remain on a preferred supplier list must also be published.
Such changes have been introduced to increase protections given to small and medium sized enterprises who are particularly vulnerable to late payments. The published information must relate to contracts for the sale of goods and services, including intangible assets (such as IP) taking place in the UK.
Any payment terms or processes relating to contracts for financial services, or without any significant UK connections (i.e. contracts governed by non-UK laws), are excluded. In addition, new companies or LLPs created as a result of a merger or takeover are exempt from reporting in their first financial year.
There will be two six-month reporting periods during each full financial year beginning on or after 6 April 2017.
Failure to comply within the specified filing period of 30 days after each reporting period, or for supplying false or misleading information, will be a criminal offence committed by the responsible directors or members (as applicable).
What other changes will this bring?
With relevant companies now required to provide accurate payment data, this will likely involve a re-think of internal payment processing strategies through a top down approach. This will require accurate data to be collected, stored, analysed, verified and presented in a user-friendly way. For companies who do not do this already, this may require the hiring of additional staff, outsourcing to third parties, and/or investing and training staff in how to operate appropriate data processing software.
Whilst contracts do not need to be in writing to be valid and enforceable, the new rules will also encourage organisations to deal on written standard terms to bring clarity and security to suppliers.
If you are interested in the contents of this article, or to get ahead on how the changing rules may affect you or your approach to payments, please feel free to get in touch with your usual contact at Kerman & Co who will be happy to explain the implications to you, or direct you to someone who is able to assist.
The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.