Proposed changes to regulations governing the way that large companies report on payments to their suppliers have come under fire by ICAEW for failing to provide clear evidence of why change is needed and not sufficiently considering the broader culture around supplier payments. 

In response to recent government proposals, ICAEW has highlighted how reporting on payment practices and performance can be an important mechanism to ensure accountability and transparency, which in turn can drive better behaviour. As such, it agrees that the Reporting on Payment Practices and Performance Regulations 2017 and Limited Liability Partnerships (Reporting on Payment Practices and Performance) Regulations 2017, should be amended to extend their effect beyond the original sunset clause date of 6 April 2024. 

However, ICAEW’s Corporate Reporting Faculty says it does not agree with the further proposed amendments to the Regulations and suggests further research would be needed before any such changes are introduced. The consultation proposes additional reporting requirements in several areas, including a new metric on the value of payments, supply finance arrangements, disputed invoices and retention payments. 

While ICAEW says it appreciates the underlying issues that the government is seeking to address with these proposals, it does not believe they can be looked at in isolation. Instead, it believes they should be assessed within the wider context of payment practice culture and behaviours.

In particular, ICAEW is concerned that proposals for qualifying businesses to also report their payment practices and performance reports in the directors’ report are fraught with practical challenges and are not underpinned by a clear rationale. It warns of a disconnect between the feedback gathered by government and the resulting proposal. 

“If the objective is to ensure greater awareness of supplier payment practices among the board, then we suggest a more effective and proportionate approach would be to bolster the director sign-off process for the web-based service rather than introducing new reporting requirements into the directors’ report,” ICAEW says in its representation letter. 

Amendments to the Regulations should be underpinned by evidence of any underlying issues using good-quality data, ICAEW says. “Taking this data-driven approach provides a more robust foundation for monitoring the effectiveness of the Regulations, and a more joined-up approach between the identification of issues, setting of policy objectives and development of potential solutions.” 

Apart from an initial impact assessment, it is not clear what data or other evidence has been collected in advance of reaching these policy options, ICAEW warns. “Overall, we believe more research is needed on these matters and, until then, the Regulations should be extended, but without the proposed changes to the reporting requirements.” 

“Our overall view at this stage is that the additional reporting requirements would introduce unhelpful complexity, without a clear benefit to the end users,” it adds. 

Sarah Dunn, Senior Manager, Corporate Reporting at ICAEW, says: “We are particularly concerned with the government’s proposal to duplicate existing information on supplier payments, currently available on a web-based service, within the directors’ report. The annual report should not be the default location for all potential disclosures by companies. In our view, the objective for requiring certain information, and the intended users of that information, should determine the location and level of detail of any disclosure requirements for companies. 

“In this instance, we consider the public policy objective to be to improve payment practices by large companies and that the information is likely to be of most interest to current and potential suppliers. Transparency and accessibility of the information to this primary user group is more likely to be achieved via the existing web-based service.”

The proposed changes also raise some questions about how government should set about proposing changes to regulations more broadly. ICAEW has long supported the principles of good regulation and published a briefing outlining how the UK’s regulatory regime is meant to work, with a summary of what makes for ‘good regulation’ earlier this year.

Charles Worth, Head of Business Law at ICAEW, comments: “I wonder whether government had the principles of good regulation in mind in tabling this proposal. It is hard to know what the concrete objectives justifying a substantial change in regulation are, or how success would be measured.

“There is an ongoing review on the effectiveness of the related ombudsman (the Small Business Commissioner). It may have been helpful for government to consider the outcome of that review before proposing changes in the regulations in isolation so that it could consider, and consult on, all relevant reforms in a holistic way.”

Read ICAEW’s representation of The Reporting on Payment Practices and Performance Regulations.