The government has published draft regulations under which in-scope companies will be required to include certain information regarding their payment practices in their annual report and accounts. As part of its plan for growth for smaller businesses, "Backing your Business: Our plan for small and medium sized businesses", the government has also launched a consultation on further measures to tackle late payment. A consultation on late payment and long payments terms was trailed by the government in October last year (read more on our corporate notes blog here).
Annual reports
The new annual report requirements would be in addition to the current payment practices regime which was introduced in 2017. The current regime requires companies to disclose twice a year via a government website certain information in relation to "qualifying contracts", which broadly are contracts for goods, services (other than financial services) or intangible property between two or more businesses with a sufficient nexus to the UK. It applies to large companies, that is those meeting two of the three size thresholds for large companies set out in the Companies Act 2006.
The government consulted on including payment practices reporting in the annual report and proposed that companies should be required to include certain summary information on their payment practices in their annual report (alongside the existing requirements outlined above). The draft Companies (Directors' Report) (Payment Reporting) Regulations would make amendments to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2018 to require a company's directors' report to include:
- information on the payment period (expressed in days) in the company's standard payment terms with suppliers and where the company has varied those standard terms in the financial year, details of the variation and any notification or consultation carried out by the company with suppliers prior to the change;
- a statement of the average number of days taken to make
payments under the qualifying contracts within the financial year
and the percentage and sum total of payments made:
- within 30 days;
- between 31 and 60 days; and
- on or after 61 days,
after the day on which notice for payment is received; and
- a statement of the percentage and sum total of payments not made within the contractual payment period.
The information required to be included in the annual report and accounts under the draft regulations would cover the whole of the financial year and where a consolidated group directors' report is prepared for the financial year, information would need to be included in the parent company's group accounts covering all in-scope subsidiaries.
It is proposed that the changes would take effect in respect of financial years beginning on or after 1 January 2026.
Further measures
The further measures to tackle late payments covered in the consultation include:
- how best to involve audit committees in the scrutiny of companies' payment practices, the government having previously committed to legislating for audit committee responsibility in this area;
- introducing a mandatory 60-day limit to payment terms (with the potential for this reducing to 45 days after five years, subject to further consultation);
- introducing a 30-day deadline for raising disputes on invoices;
- removing the ability for businesses to vary the rate at which interest is paid on late payments, thereby imposing a mandatory statutory interest rate;
- requiring the disclosure of the amount of interest paid or owed on account of late payment as part of the payment practices reporting regime outlined above; and
- empowering the Small Business Commissioner to impose financial penalties on businesses which persistently pay their suppliers late. These late payers would be identified through disclosures made under the payment practices reporting regimes outlined above.
The consultation closes on 23 October 2025.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
