Accounts payable practices to be disclosed from 2024
Tax Alert - August 2023
Legislation requiring large businesses to disclose the time it takes to pay invoices has been passed into law and will take effect from 2024. The Business Payment Practices Act 2023 (‘the BPP Act’) received Royal Assent on 26 July 2023 and will come into force on 26 May 2024.
However, the actual detail of what the BPP Act requires is still to be revealed, as the detail of what needs to be reported is to be set by regulation. We’ve previously summarised what was proposed in draft regulations, and it’s understood these are being updated to address some of the issues raised by submitters; and there is no set date for the release of the regulations.
It is worth noting that a number of submitters were critical of the legislation and its draft regulations throughout the consultation process. Through the Parliamentary processes, the Economic Development, Science and Innovation Committee were unable to agree on whether the legislation should pass, and both the National and ACT parties have stated their intention to repeal the legislation should they form the next Government; with Hon Michael Woodhouse, perhaps in jest, suggesting that the legislation would be included in an omnibus “Well-meaning Waste of Time Repeal Bill".
Despite the threats of possible repeal, businesses still need to be aware of whether this Act will apply to them and to start thinking about how they will comply once the regulations are released. In this article, we summarise the requirements of the BPP Act.
Who is subject to the BPP Act?
The BPP Act applies to ‘large’ business that meets the ‘payment threshold test’.
‘Large’ is defined by reference to the Financial Reporting Act 2013 definition and requires total revenue in excess of $33 million in the two preceding accounting periods for the entity and any subsidiaries (in aggregate).
The ‘payment threshold test’ looks at whether in the two-preceding accounting periods the total expenditure of the entity is $10 million or greater when wages and salaries and related party transactions are ignored.
Disclosures will be able to be made on a group basis or on an entity-by-entity basis. Subsidiaries that are independently large will be able to make separate disclosures.
What needs to be disclosed, and when?
As indicated above, the full details of what needs to be disclosed will be set by regulations. The regulations will be administered by a ‘Registrar’ to be appointed by the Chief Executive of the Ministry of Business, Innovation and Employment (‘MBIE’).
The BPP Act specifies the disclosure of the trading name(s) and New Zealand Business Number (‘NZBN’) of each entity, as well as the particulars set by the regulations about invoices received or paid and invoices issued during the disclosure period.
The BPP Act specifies that reporting will not be required for invoices or payments which relate to salary or wages, taxes, rents, leases, charges related to electricity, gas, telecommunication services or other utilities, local body rates and charges, and any other item specified in the regulations.
Disclosures will be made for each ‘disclosure period’, which is a 6-month period, with the ‘disclosure deadline’ not being earlier than 1 month later. During the consultation period there were a number of options for what the disclosure period could be, with MBIE favouring an option that varied based on a business’ industry classification code.
When does the BPP Act take effect?
The BPP Act comes into force 10 months after the date of Royal Assent (26 July 2023).
However, Schedule 1 of the BPP Act includes a transition provision that provides for the legislation to phase in, with only businesses with revenue in excess of $100 million in the two preceding accounting periods having to complete disclosures in the first disclosure period.
Businesses also do not need to make disclosures if the first disclosure period starts prior to the BPP Act coming into force. For example, if a business was given a September/March disclosure period (i.e., 1 April – 30 September and 1 October – 31 March), its earliest disclosure period would be 1 October 2024 – 31 March 2025, as the BPP Act only comes into force part way through the 1 April 2024 – 30 September 2024 disclosure period.
What is the output?
The Registrar is required to establish and maintain a register called the ‘Business Payment Practices Register’. The stated purpose of the register is to ‘enable members of the public and entities to access information about certain business-to-business payment practices of large entities; and to help them make informed choices about whether to engage with those entities.’ The register will be able to be searched based on an entity's name, NZBN or industry classification.
Are there any consequences of non-compliance?
Businesses who do not comply with the BPP Act will be potentially liable for infringement fees, fines and pecuniary penalties which could be as high as $500,000.
It is worth noting that the BPP Act also modifies the Tax Administration Act 1994 to ensure that the Commissioner of Inland Revenue can disclose information to the Registrar for the purpose of establishing and maintaining the register and monitoring compliance with the requirements with the BPP Act. While it is unclear what data would be disclosed, it seems likely that tax return data could be used to determine what entities are required to comply with the BPP Act.
For more information please contact your usual Deloitte advisor.
August 2023 - Tax Alerts
