On 10 January 2024, the Department for Business and Trade released the Draft Reporting on Payment Practices and Performance (Amendment) Regulations 2024 (the 2024 Regulations). Once in effect (expected to be 5 April 2024) these regulations will extend the reporting requirements on in-scope businesses, increasing transparency as to their payment practices.
Background
The forthcoming 2024 Regulations are set to reform the Reporting on Payment Practices and Performance Regulations of 2017 and related Limited Liability Partnerships (LLPs) regulations (the 2017 Regulations).
Under the 2017 Regulations, businesses and in scope LLPs are required to disclose their payment practices, policies and performance regarding supplier remuneration via a government web filing service.
The introduction of the 2017 Regulations recognised the financial pressure that smaller businesses are under caused by extended credit terms and late payments and the knock-on effect that has on supply chains, in corporate insolvencies, in reduced investment, innovation and productivity. The government's aim was to increase transparency and therefore apply reputational pressure on large organisations to pay their suppliers promptly.
In-scope Businesses/LLPs
To recap, businesses are in scope of the current reporting requirements if, on their last two balance sheet dates, they exceeded two or all of the following thresholds:
- £36 million annual turnover
- £18 million balance sheet total
- 250 employees
There are slightly different rules for holding companies / LLPs.
New regulations
The draft 2024 Regulations will achieve two things:
Firstly, extending the existing regime. The 2017 Regulations will be extended to 6 April 2031, an extension of seven years beyond their current sunset date of 6 April 2024.
Secondly, the introduction of a wider reporting scope. While maintaining the current reporting requirements, the Draft 2024 Regulations will compel in-scope companies and LLPs to report additional information, including:
- the total value of invoices paid;
- the sum total of payments made within 30 days, between 31 and 60 days and over 60 days(in addition to the existing requirement to report on volumes of invoices paid in these timescales);
- the total value of payments not made within the payment period;
- the proportion of invoices that are disputed which subsequently result in payments being made outside the agreed payment terms; and
- provisions have been added to clarify how to deal with payment arrangements that involve a finance provider.
Importantly, the draft 2024 Regulations provide clearer instruction as to how payments should be reported when a third party ‘supply chain’ finance provider is involved. Amendments to the 2017 Regulations stipulate that if the supplier receives the full amount owed without incurring any fees or deductions, the payment is considered made on the date when the supplier receives it from the supply chain finance provider. Alternatively, if the supplier does not receive the full amount or bears any supply chain finance fee, the payment is deemed made on the date the supply chain finance provider receives it from the qualifying business, accounting for any delays outside the responsibility of the qualifying company or LLP. In all other instances, the payment date is when the supplier receives it.
