New duty for large companies and LLPs

Regulatory Update


The Reporting on Payment Practices and Performance Regulations 2017 (Regulations), come into force on 6 April 2017.

These Regulations create a duty for large businesses (as further detailed below) to report on payment practices - with criminal sanctions being a potential outcome for both companies and their directors where the duty is not met.

Section 3 of the Small Business, Enterprise and Employment Act 2015 (SBEE 2015), imposes a requirement on companies to publish prescribed information at particular intervals. This information would include information about the company's payment practices and policies relating to relevant contracts, and the company's performance by way of reference to those policies.

Who will this impact?

The Regulations will apply to companies and LLPs who satisfy at least two of the general thresholds set out in the Companies Act 2006 (Qualifying Companies) - being companies which, on their last two balance sheet dates have:

  • Over £36 million annual turnover
  • Over £18 million balance sheet total
  • Over 250 employees

Which contracts will it apply to?

The Regulations will apply to certain contracts that are defined under section 6 (Qualifying Contracts). A Qualifying Contract is one that satisfies each of the following conditions:

  • It is a "relevant contract" (as defined in section 3(2) of the SBEE 2015), namely a contract that:
    • Is for goods, services, or intangible assets (including intellectual property)
    • The parties have entered into it in connection with the carrying on of a business
  • It is not a contract for financial services (as defined in section 2 of the SBEE 2015 and including, broadly, any service of a financial nature, including (but not limited to) insurance-related services, banking services and other financial services). This means that financial services companies need only report on contracts not relating to financial services
  • It is governed by the law of:
    • A part of the UK otherwise than by choice of the parties
    • A part of the UK by choice of the parties, and either has a significant connection with that part of the UK or, without that choice, its applicable law would still be the law of a part of the UK
    • A country outside the UK by choice of the parties, and without that choice, its applicable law would be the law of a part of the UK, and has no significant connection with any country outside the UK

Summarily, BEIS Guidance has provided that a Qualifying Contract must have a significant connection with the UK. Whether a contract has a significant connection with the UK will depend on the circumstances.

Reporting requirements

Qualifying Companies are then required under the Regulations to publish a report containing the information set out in the Schedule to the Regulations. This information includes:

  • Information on payment terms, including:
    • Description of the Qualifying Company's standard payment terms in relation to Qualifying Contracts
    • The payment period stipulated in these terms
    • Details of any variations to the standard terms during the reporting period
    • A description of the maximum payment period specified in the Qualifying Contract
  • An explanation on the Qualifying Company's dispute resolution process
  • Information on the Qualifying Company's payment practices and policies
  • Information on the payment performance of the Qualifying Company, including:
    • The average number of days it took the Qualifying Company to make payment
    • A percentage breakdown of when those periods were made within the period

In addition, the statement is required to provide the name of the director who approves this information.

The information is to be published by Qualifying Companies within the filing period, and on the internet - based service provided for the purposes of these Regulations by or on behalf of the Secretary of State. This service is due to go live in April 2017, with BEIS guidance outlining that some business may need to file their report in October 2017, with the majority of companies publishing their information in 2018 for the first time. The filing period is defined as being 30 days beginning with the day after the last day of the reporting period to which a report relates.

Read the latest BEIS Guidance.

The web based service is free and will be provided by the Secretary of State. The government has assured businesses that this will be user friendly, with businesses easily able to upload their reports. In addition, business may opt to upload their information onto their own websites, however this must be in addition to the government web-based service.

Failure to publish the report

If a report is not submitted in accordance with section 3, the qualifying company and every person who was a director of the company immediately before the end of the filing period commits and offence.

A person guilty of an offence under this regulation is liable in England and Wales to a fine. Whilst there is no specific guidance on the scope of these fines, the aim of these regulations is to prevent large businesses from failing to pay SMEs on time, or in accordance with the agreed provisions. Consequently, it is anticipated that penalties will be significant, partially to cover the costs of any monies owed and also to make an example of those initial offenders. In addition to fines, offenders may suffer consequences as a result of having a conviction such problematic applications for visas and having to disclose the same to lenders, insurers and/or educational institutions.

There is a defence under the regulations however for a director where they can prove that they took all reasonable steps for securing that regulation 3 would be complied with before the end of the filing period.

False Statement Offence

This sets out a clear provision that it is an offence for a person to publish information which is false, misleading or deceptive. Again the penalty for this offence is a fine, however proceedings for this offence can only be brought with the consent of the Secretary of State.

For both of the above offences, there is also a time requirement during which the proceedings must be brought before a magistrate's court.

Enforcement and Criminal Sanctions

Whilst the BEIS expect the main enforcement of the duty to report will be through "behavioural change" mechanisms, through naming and shaming and public commendation for positive behaviours there are legal sanctions for non-compliance, which will follow a similar pattern to those offences created by the Companies Act 2006 where a company fails to report required information or file annual accounts on a timely basis.

Not only will the Department be monitoring compliance it is likely that complaints from smaller business who feel they are being unfairly treated might trigger a criminal investigation.

If you would like to discuss this matter further then please get in touch with your DLA Piper contact and/or the authors.

Further guidance