On December 2, 2016, the Department for Business, Energy and Industrial Strategy (BEIS) published a document explaining how the Government will implement the duty on large businesses to report on their payment practices, policies and performance, as required by section 3 of the Small Business, Enterprise and Employment Act 2015. Proposals for implementing the reporting requirement and draft secondary legislation were published in November 2014 and the summary of responses was published in March 2015. Following consideration of the written consultation responses and additional views received through ongoing stakeholder discussions and research, BEIS has published a new, revised set of draft regulations, together with draft regulations relating to limited liability partnerships (LLPs).
The draft regulations cover the following:
Businesses to be covered
The duty to report will be mandatory and will apply to large UK companies and large LLPs. This means individual companies, whether private, public or quoted and LLPs which exceeded two or all of the following thresholds on both of their last two balance sheet dates will have to report:
- Over £36,000,000 annual turnover
- Over £18,000,000 balance sheet total
- Over 250 employees
Contracts to be covered
Large companies and LLPs must publish information about their payment practices and policies in relation to contracts for goods, services or intangible assets (including intellectual property) and connected to the carrying on of the business. Other kinds of contracts, including business to consumer contracts and contracts for financial services will not be covered. Contracts will also have to have a significant connection with the UK to be covered by the duty to report.
Frequency of reporting
Businesses will have to report every six months. The first report will be due 30 days after the end of the first six months of their financial year, and the second reporting period will end at the same time as the financial year of the business, with the second report due 30 days afterwards.
Formal location of report
Businesses will have to publish their reports on a web based service to be provided by the Government which is currently being developed, rather than on their own website.
Enforcement and criminal sanctions
While the main enforcement of the duty to report will be through “behavioural change” mechanisms such as public pressure and companies, suppliers and other third parties comparing the reports and publicising information, the draft regulations provide that failure to publish a report is a criminal offence, with the company and directors liable to a fine on summary conviction. All directors will be liable unless they can show they took all reasonable steps to ensure the requirement would be met and it will also be an offence to publish false or misleading information.
Director approval will be required to ensure the accuracy of the information. A director (or designated person for an LLP) will be responsible for signing off the report.
The report will need to include the payment terms of the business, including the standard contractual length of time for the payment of invoices, the maximum contractual payment period and any change to standard payment terms and whether suppliers have been notified or consulted on these changes. The process of dispute resolution related to payment will also need to be reported on.
Statistics to be provided
Businesses will have to report on the average time taken to pay invoices from the date of receipt of the invoice, on the percentage of invoices paid within the reporting period which were paid in 30 days or fewer, between 31 and 60 days and over 60 days, and the proportion of invoices due within the reporting period which were not paid within agreed terms.
Statements to be included
The report will need to set out whether the business offers e-invoicing, whether it offers supply chain finance, whether its practices and policies cover deducting sums from payments as a charge for remaining on the supplier’s list and whether the business has done this in the reporting, and whether the business is a member of a payment code, and the name of the code.
BEIS expects the regulations to come into force in April 2017.
Responding to requests from respondents to the consultation that the Government issue guidance on how to comply with the reporting requirements, BEIS notes that this guidance will be published at the same time as the regulations are laid in Parliament.
(BEIS, Duty to Report on Payment Practices and Performance: Government response and draft regulations, 02.12.16)