Skip to content

New law requires large companies – including charitable companies – to report on their payment practices

News

Default-News-Image

In an attempt to encourage companies to settle invoices promptly, Parliament has passed The Reporting on Payment Practices and Performance Regulations 2017, which require large companies to publish information about their payment practices and performance twice a year. How will this affect charities?

Which companies are affected?

The duty will apply to companies (other than parent companies) if they exceed two or more of the medium-sized company thresholds in the Companies Act 2006, ie:

  • £36m annual turnover;
  • £18m balance sheet total;
  • average 250 employees in the financial year.

A company that is a parent (such as a charitable company with a trading subsidiary) will be caught if it exceeds two or more of the above thresholds and its group exceeds two or more of the thresholds below:

  • £36m aggregate turnover (net of intra-group transactions) or £43.2m gross turnover;
  • £18m net balance sheet total (or £21.6m gross);
  • 250 employees in aggregate.

The duty will not apply to any company in its first financial year, or in relation to any financial period that began before 6 April 2017.

 

What information must be published?

The Regulations split a company's financial period into two "reporting periods", the first being six months beginning with the first day of the financial year, the second being the remainder of the financial year. Information must be published twice a year – within 30 days of the end of each reporting period. Reports must be published on a web-based service, which the Government will provide.

The information requirements only relate to business contracts for goods, services and/or intangible assets that are subject to UK law, or that otherwise have a significant connection with UK jurisdictions. Governmental guidance on the rules (linked at the end of this article) says: "examples would include a contract which will be performed in the UK, or where one or both parties is established in the UK or carries on a relevant part of their business in the UK". So, for UK charitable companies that are large enough to be caught by the rules, every contract (insofar as it requires the charity to make a payment) is likely to be subject to the obligation.

The Regulations set out the in some detail the information that will need to be reported, such as the average time taken to pay invoices, the process for resolving payment-related disputes, whether suppliers are offered e-invoicing and whether the organisation is a member of the Prompt Payment Code or another payment code.

Before publication, the information must be signed off by one of the company's directors.

Failure to publish will be an offence, both by the company and (unless they took all reasonable steps to ensure compliance) by every director. It will also be an offence to publish misleading or false information.

 

Costs?

The Impact Assessment estimates the following median costs for organisations caught by the new law.

  • familiarisation with the rules: £528;
  • adapting/purchasing IT systems: £1,000;
  • gathering the information needed to update processes: £185;
  • changing processes (to set up procedures for capturing relevant data, generating reports, sign-off and transmission to the Government): £85;
  • maintaining systems and processes: £0 (though estimates above zero ranged from £100 to over £29,500);
  • preparing twice-yearly reports: £593;
  • collating, approving and submitting twice-yearly reports: £319.

Given the size of many large UK corporations, it is to be hoped that median costs for charitable companies will be somewhat less than these estimates.

The Government will not be proactively monitoring compliance. It seems that enforcement will rely on the fact that the data will be publicly available, and that anyone with a suspicion can raise it with BEIS or take a complaint to the Small Business Commissioner.

You can find the Regulations here, together with an Explanatory Memorandum and Impact Assessment. The guidance, referred to earlier, is available here.

If you require further information on anything covered in this briefing please contact Rachel Holmes ([email protected]) or Philip Reed ([email protected]) or your usual contact at the firm on 020 3375 7000.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, May 2017

Want to know more?

Contact us

About the authors

Rachel Holmes lawyer photo

Rachel Holmes

Consultant

Rachel supports the firm in the Charity & Community area by briefing the advisers on legal and regulatory changes, enabling them to provide clients with advice based on the latest developments. She also writes articles for the firm's charity and not-for-profit clients.

Rachel supports the firm in the Charity & Community area by briefing the advisers on legal and regulatory changes, enabling them to provide clients with advice based on the latest developments. She also writes articles for the firm's charity and not-for-profit clients.

Email Rachel +44 (0)20 3375 7561

Related sectors & services

Back to top