The Government has produced draft regulations that will require ‘large businesses’ to publish their payment terms. And by ‘large business’, it means any company or LLP that meets any two of the following tests:
- £36+ million turnover
- £18+ million balance sheet
- 250 employees or more
Originally intended to come into force this April, the law appears to have been postponed until the company’s next financial year beginning on or after 6th April 2017.The regulations will require the disclosure of the following information via an online Government portal within 30 days of the end of its financial year, and also within 30 days of the halfway point of each financial year:
- the business’s standard payment terms (including any changes when compared to the previous reporting period),
- the average time the business takes to pay its invoices
- the proportion of invoices that are paid by the business beyond the agreed payment terms
- what proportion of invoices are paid within 30 days, 60 days, or beyond 60 days
- how much ‘late payment interest’ the business owes, and has paid
And there’s more – businesses will also need to disclose other information regarding the possibility of e-invoicing, preferred supplier lists, available dispute resolution processes and membership of a relevant payment code.
In an effort to complicate things further, the duty of disclosure only applies to contracts for goods, services and ‘intangible assets’ such as intellectual property that have a significant connection with the UK. Contracts including business-to-consumer sales and financial services will be excluded.
A failure to do so will render each director or LLP member liable to a fine of up to £2,500, regardless of who was individually responsible for compliance. These proposals are driven by the Government’s desire to reduce payment terms for all large businesses to 60 days or fewer. The good news is that the Government has indicated that it will publish guidance to help businesses comply with the new requirements.
Although the new rules are still some way off, and it is possible that the draft regulations may change between now and then, it is still advisable for businesses to commence a review of their payment terms and practices now in order to ensure they have systems in place to collect the data required which will allow them to complete and submit the reports on time.
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This is not legal advice; it is intended to provide information of general interest about current legal issues