Reporting on Payment Practices

‘Large companies’ will begin publishing a twice-yearly report about their payment practices to ensure that small and medium sized organisations and businesses (SMEs) are treated fairly and paid on time. The current definition of a large company is one with over 250 employees, £36 million annual turnover, and/or an £18 million balance sheet total.

The reporting procedure comes into effect from 6 April 2017. The aim to improve cash flow for SMEs so that they may trade more effectively and are less likely to be declared insolvent.

The company can decide the style of the report, but it must include the following information:

Narrative descriptions of the business’ standard payment terms, such as the standard terms for the length of time taken to pay invoices. Any changes in the standard terms since the previous report must be noted along with details of how suppliers were informed and consulted before the change. The process for resolving disputes about payment should also be included in the narrative.

The report also has to include a statistics section which details what actually happened during the reporting period. Compilers have to show:

The average number of days it took to pay an invoice from the day of receipt. This should be shown as the percentage of invoices paid in 30 days or fewer; invoices paid between 31 and 60 days, the percentage which took over 61 days before they were paid, and the percentage of payments which were not paid within the agreed terms.

Having dealt with statistics, a tick box system is acceptable to indicate the following:

The provision of e-invoicing, if there is supply chain finance, if there are lists of preferred suppliers, and if the business is a member of a payment code.

HMRC offers guidelines and examples of good practice so for the majority of large companies the report will not be problematic. It will, however, involve setting aside time to compile the statistics and produce the report. SMEs which could reach one or more of the thresholds in any given year, should be aware of the need to report payment practices and performance. Voluntary reports are acceptable, so if your business is close to the thresholds, you should discuss this with your accountant or tax adviser.

Interested parties can view the reports on the government’s website. Companies with a financial year beginning 1 January should publish their first payment practice report on or before 30 July 2018. Qualifying businesses which fail to do so may be prosecuted.