22 February 2018
An important deadline looms for larger multi-academy trusts due to legislation requiring certain large companies to publish half-yearly reports on their payment practices, policies and performance. There is no escape for the education sector which is caught yet again by red-tape that was not designed with academies in mind.
The legislation has been introduced to combat late payments issues which thousands of businesses across the country have to deal with. Smaller businesses often find themselves at the mercy of larger organisations who are able to withhold payments, or agree lengthy payment terms, because of the importance of their custom to the supplier. This can cause businesses administrative and financial problems, where ultimately the adverse impact on cashflow can put businesses at risk.
Companies caught by the legislation are required to report twice a year on their payment practices, including details of the average time taken to pay supplier invoices. The information will be published on a new Government website.
Who does this affect?
Only larger academy trusts will be caught because of the size criteria within the legislation. Any companies will be within the scope of the requirement for a financial year if, on their last two balance sheet dates, they exceeded two or all of the thresholds for qualifying as a medium-sized company under the Companies Act 2006. Currently these thresholds are:
- Over £36 million annual turnover (incoming resources)*
- Over £18 million balance sheet total (aggregate of the amounts shown as fixed assets and current assets in the balance sheet)
- Over 250 employees
Full details of the requirements are available on the Government website here.
* The legislation is not written with charities, never mind academy trusts, in mind, and so talks purely about turnover, which means incoming resources. There is therefore no suggestion that income can be adjusted for the exceptional non-operational income academy trusts often report, such as the value of donations where academies join the trust. We have written to the Government requesting clarification on this point.
What are the deadlines?
The information required must be published within 30 days of the end of the mid-year and year-end reporting date (31 August). Therefore academy trusts will be required to publish their first report for the six months to 28 February 2018, and this will be due 30 March 2018. The next report will be need to be published by 30 September 2018.
What information should be published?
Companies are required to publish information about their payment practices and performance in relation to qualifying contracts.
A qualifying contract is one which satisfies all of the following:
- It is between two (or more) businesses
- It is sufficiently linked to the United Kingdom (explained in paragraphs 36-40)
- It is for goods, services or intangible property, including intellectual property
- It is not for financial services.
Full details of what needs to be published is contained in the legislation, but the following summarises the sort of information that will be required:
- Narrative descriptions of payment terms, including standard contractual length of time for payment of invoices, maximum contractual payment period and any changes to standard payment terms, and whether suppliers have been notified or consulted on these changes
- Processes for dispute resolution related to payment
- The average time taken to pay invoices from the date of receipt of invoice
- The percentage of invoices paid within the reporting period, detailed in three categories; paid in 30 days or fewer, between 31 and 60 days, and over 60 days
- The proportion of invoices due within the reporting period which were not paid within agreed terms
- Statements about matters such as whether an organisation offers e-invoicing and whether the organisation is a member of a payment code and the name of the code
Note that the information published will have to be approved at board approval and so this will need to be factored in.
What happens if you fail to comply?
The organisation and every director (trustee) commits a criminal offence if a report is not published by the deadline.
If you have any questions about these new reporting requirements, please contact your usual UHY academy schools specialist.