Duty to report: One year on
We look at the impact of the Duty to Report legislation a year after its implementation and what it is that we can expect next.
Duty to Report came into effect on 6 April 2017. Under the legislation, large UK companies and LLPs need to report, on a half-yearly basis, on their payment practices, policies and performance.
The legislation was designed to tackle the late payment culture in the UK, where half of all SMEs say they are routinely paid late, with an estimated £26 billion owed. This situation adversely affects liquidity, restricts the ability to invest and holds back a company’s ability to grow.
We recently we hosted a round table discussion with ICAEW and Oliver Kidd, Senior Associate from Stevens & Bolton LLP, where we analysed the impact of the legislation. Here are some of the highlights:
Mind the gap
The expected number of reports doesn’t correspond with the actual number of reports currently available. Whereas 15,000 reports are due to be submitted by November 2018, a little over 2,000 have been submitted already, which suggests businesses are already falling behind in their obligation. Besides, that, among the reports that have been submitted, there are incomplete and inconsistent entries.
“We’ve identified instances of standard payment terms being ‘inflated’ in order to be able to report that 100% of invoices are paid on time. This, of course, doesn’t tell the whole story and is not in the spirit of the legislation,” noted Kidd.
Why the shortfall?
These are some of the reasons that explain this shortfall in the number of submissions and their quality:
- Lack of awareness: Some companies have invested a lot of time and effort to understand and comply with the legislation, however most companies have not made the same level of investment.
- Lack of preparation: There’s a need to build up data for six months prior to reporting.
- Need to get buy-in from accounts teams to gather the information for submission: Given the extra administrative burden that may be involved, many may be dragging their feet.
- It is not a priority for some businesses: It is likely that amidst a busy compliance agenda it simply isn’t yet a priority.
Failure to comply with Duty to Report can see businesses face criminal liability and fines. However, the potential levels of fine in practice are not yet clear. When compared to the widely-known eye watering fines involved in the failure to comply with the GDPR, it’s not that surprising Duty to Report isn’t at the top of most people’s agendas.
“It seems only natural that businesses will have a tendency to prioritise compliance in areas attracting the most attention from an enforcement and publicity perspective,” added Oliver.
What will kickstart compliance?
The panel suggested increased scrutiny and enforcement action would help. It is possible that the Department for Business, Energy & Industrial Strategy is being patient about enforcement action to allow businesses time to become familiar with the legislation and how to report, but also because, until November 2018, not every qualifying business will have had requirement to report. After this time, we may find an increased level of enforcement focus.
“Whilst we’re not aware of any enforcement action having been taken so far, failing to report when required or reporting misleading information attracts criminal liability and potentially hefty fines, so the Regulations really shouldn’t be ignored for much longer,” noted Oliver.
What can you do in your business?
First of all, check whether your business is affected by the legislation. Then review your current payment terms and policies. Look at your accounting systems and assess how easy it is for you to collect and report on the performance criteria and consider how to tackle the requirements if you aren’t.
Make Duty to Report easy with SAP Concur
With SAP Concur, Duty to Report doesn’t have to be onerous. At the click of a button you can see invoice arrival dates and a full audit trail as well as a full picture of all liabilities. The tool cuts capture and coding time by ten days and approval times by up to 70%. Plus customers who use Concur Invoice have access to a pre-built report we have developed to help companies in reporting for the legislation.
If you’re not quite up to speed yet, a good place to start our blog, The Nitty Gritty of the Duty to Report.