Authors
Authors
Grace Durnall
Key takeaways
- In September 2024 the UK government announced, on behalf of the Small Business Commissioner, the launch of a new Fair Payment Code.
- The new code is aimed at addressing late payments in support of small businesses and is set to replace the current Prompt Payment Code, providing higher standards for payment of suppliers.
Fair Payment Code (FPC) vs Prompt Payment Code (PPC)
The PPC was created by the UK government in 2008 and established various principles for businesses relating to their payment practices. The FPC sets higher expectations than the current PPC by introducing a tiered recognition system, rewarding businesses based on their efficiency when paying suppliers. This includes a “Gold” category for those firms paying suppliers within 30 days. The categories are as follows:
Gold - for companies paying 95% of their suppliers within 30 days
Silver - for companies paying 95% of their small business suppliers within 30 days and all other suppliers within 60 days
Bronze - for companies paying 95% of their suppliers within 60 days
The Gold award goes beyond requirements set by the previous code. The code will come with a two-year limit on awards and a more robust approach to monitoring and enforcement, which differs from the PPC’s more advisory approach.
Expectations of the new code
Whilst signing up to the code is voluntary, new secondary legislation has introduced mandatory payment reporting, requiring all large businesses to include payment practices in their annual reports, putting responsibility on these larger companies to monitor and disclose how they treat suppliers.
A “large company” will be any company that does not fulfil the criteria of either a micro-entity or a small or medium-sized company under the Companies Act 2006. We are awaiting further clarification on what that means for smaller subsidiaries that are part of larger groups.
Consequences of not adhering to the code
As we understand it, the obligation is one of monitoring and reporting rather than meeting a particular standard. Directors at non-compliant companies who fail to report their payment practices could face criminal prosecution, including potentially unlimited fines and criminal records. It is not yet clear whether there will be a grace period prior to enforcement.
When will the code come into force?
The government has said that details of the application process and supporting guidance for companies wishing to apply will be published this year, but as of yet these have not been published and the launch date has not been confirmed, but is believed to be imminent. All existing signatories, and other companies interested in the new code, will be contacted with information on the launch date.
Client Alert 2024-232
Authors
Authors
Grace Durnall