Payment practice reporting (part 1)

Do you supply good or services to large companies or LLPs?

This article and the next include what these clients (and you) need to know about the regulations covering payment practice reporting.

Big companies are subject to the regulations and therefore have to make reports to the government. The information they’ll share is informative, publicly available, and can be insightful for you when choosing whether and how to trade with them.

It means you can check out their payment practices and performance, for example:

• Before you take on a new client
• When you’re negotiating a contract with a new or existing client
• To monitor your existing long-term client relationships

You’ll have the ability to ascertain whether their payment performance is acceptable to you, and if it’s holding steady, deteriorating or improving.

You can use these insights to inform how you approach negotiations and set up and manage your contractual payment terms.

I’m sure you’ll agree that, when you’re in negotiations about payment, being well-informed is obviously of significant value.

The specific regulations are ‘Reporting on Payment Practices and Performance (Amendment) 2024, and the 2017 regulations of the same name which they update.

Now that the amendments are in place, I won’t focus on the recent changes in this article. Rather, I will take a quick canter through what the combined regulations amount to today.

WHY is payment a reporting requirement?

The laudable goal is to ensure that big businesses pay their small suppliers on time, and keep the economy flowing.

WHO needs to do the reporting?

This distinctive set of reporting obligations apply to large companies and LLPs. There are benchmarks about what makes a company or LLP count as ‘large’ for the purposes of the regulations, which are set by the top of the Companies Act definition of a medium-sized company.

If a company or LLP meets two or more of these benchmarks, it counts as ‘large’:

• Annual turnover ￡36 million or more
• Balance sheet total ￡18 million or more
• Average number of employees 250 or more

There are slightly different financial benchmarks for holding companies. These criteria apply to the group as a whole:

• Parent company turnover over ￡36 million net or ￡43.2 million gross
• Balance sheet total at least ￡18 million net or ￡21.6 million gross
• Aggregate headcount 250+

Therefore, the regulations might mean the payment practices of some smaller companies and LLPs get reported in a consolidated form at their holding company level.

Note that the regulations apply to companies and LLPs that are registered in the UK, including UK registered subsidiaries that are owned by overseas companies.

My understanding is that the benchmark amounts for what constitutes a qualifying company are due to be updated in April 2025.

WHAT contracts do they need to be report?

These big companies and LLPs have a duty to report how they handle payments to supplies of ‘qualifying contracts’ – this definition is quite broad:

Any contract relating to goods, services or intangible assets including Intellectual Property (IP) which is entered into in relation to carrying on a business.

Of course, nothing is ever that straightforward, and there is one key exception, which is contracts relating to financial services.

The other criteria are around the choice of jurisdiction stated in the contract.

These regulations cover:

• Any contract governed by the law of any part of the UK, (regardless of whether that was the deliberate choice of the parties)
• Any contract governed b a different (non-UK) law where that was the choice of the parties but without that choice the relevant law (due to the factual connections with the UK) would have been the law of any part of the UK

Contracts can be written in different ways for the relevant law to be identified.

Sometimes, parties give little thought to the choice of law, for instance if customer and supplier are in the UK and the goods or work is to be delivered in the UK, then English law may be the obvious choice, and even if there were a dispute the courts would likely confirm that was the appropriate governing law for the contract.

On other occasions one of the parties will require a particular choice of law for some tactical or convenience reasons, or even for tax-planning purposes.

So, the second option above which applies these regulations to any contract where a non-UK choice of law has been made where the more “natural” governing law would be a UK law appears clearly designed to prevent large companies avoiding these regulations by forcing overseas choice of law on their suppliers where that is not appropriate.

Clearly choosing Spanish law to govern work to be done in Spain by a Spanish supplier would be a proper use of a non-UK law and should not get caught by this regulation.

So, where the contract is governed (or would normally be governed) by the law of any part of the UK, the relevant large company and LLP needs to report their payment practices.

I’ll discuss what content needs to be included in the report in the next article.

WHEN do they need to report?

Reporting periods run for six months starting from the beginning of the company’s financial year, and again six months into their financial year.

Reports must be published within 30 days of the end of each period on the government reporting service, which is?here.

There are some inevitably fiddly calculations if the company changes their financial year-end in the middle of a financial year, which results in them having one long or short reporting period.

In a standard financial year, that means you’ll get access to two six-monthly reports.

You can search your clients?here.

More information

In my next article, I’ll explain what needs to be reported, and the penalties for non-compliance.

Meanwhile, please see the?government website?for full details, or give me a call on?020 3609 8764.