In the first of a special two-part exploration, EASY SOFTWARE UK’s Howard Frear explains an important piece of compliance that companies – including your customers – don’t seem aware of

If you’re a UK company due to report this year, you may be surprised to learn that the government not only expects you to pay your tax on time – it now expects you to prove you’ve paid your suppliers on time as well.

That’s in the shape of new regulation which came into force in April.

That means that as of now, large companies and limited liability partnerships (LLPs) will have to report twice a year on their payment practices and performance – including the average time taken to pay supplier invoices.

And failure to report, warns the government, will be a criminal offence, while there will be a special performance league table on the GOV.UK website where anyone can see how they are progressing. Obviously, that ‘anyone’ could include your shareholders to employees, your supply chain, rivals, new graduates looking for the right place to begin their careers in business.

In this discussion, I want to spell out the details of these new rules and then share some perspective on what companies need to start doing to get ahead of this issue. So first, the specifics of the new rules.

What’s going to happen?

The regulations under section 3 of the Small Business, Enterprise and Employment Act 2015 (and, for limited liability partnerships (LLPs), the Limited Liability Partnerships Act 2000) were brought in by Parliament to oblige the country’s largest companies to report on a half-yearly basis on their payment practices, policies and performance for financial years beginning on or after 6 April 2017. And as many organisations have October year-ends, the deadline is approaching.

You get snared by this if any two of the following three criteria are true for you: you have £36m turnover and above, your balance sheet is over £18m and you have at least 250 employees.

What is it I need to do?

First off, in narrative form, you need to collate your standard payment terms, which must include your standard contractual length of time for payment of invoices, the maximum contractual payment period and any changes to the standard payment terms in the reporting period, plus how suppliers have been notified or consulted on these changes.

You also need to provide details on the specific practices you have in place for resolving disputes related to payment. This data report will have to be published on a web-based service provided by or on behalf of HMG within 30 days of the end of your reporting period.

Next, you will need to offer up data in the form of

• 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 agreed terms.

The government is also going to be looking for statements about whether your suppliers are being offered e-invoicing, whether supply chain finance is available to them and if you have a policy for deducting sums from payments as a charge for remaining on a supplier’s list (and whether you have done this in the reporting period). Finally, is the business a member of a payment code, and what is the name of the code?

What happens if I don’t do this?

What’s the penalty if you don’t provide all this? It will be a criminal offence for all Directors and anyone else the authorities can prove “knowingly providing false information”.

That’s a pretty strong motivation to address this important issue; and, as I hope to convince you in my next article on this important issue, not the only one.

Howard

The author is Howard Frear, Sales and marketing Director at EASY SOFTWARE UK