UK Tax & Business Update – 25 July 2026
Government considers tougher rules against late-paying businesses
The most commercially important development in the latest official publication window concerns proposed reforms to business-to-business payment practices.
The government’s late-payments package could potentially introduce:
- a maximum contractual payment term of 60 days between UK businesses
- a 30-day deadline for raising invoice disputes
- mandatory statutory interest on qualifying late payments at 8% above the Bank of England base rate
- financial penalties for persistent late payers
- stronger investigation and arbitration powers for the Small Business Commissioner
- additional reporting by large companies regarding statutory interest owed and paid
- restrictions or protection requirements for retention money under construction contracts
These measures are proposals and are not yet general law. Businesses should monitor the final legislation, commencement date and any exemptions before changing contractual rights or accounting treatment.
Proposed maximum payment term of 60 days
The government proposes removing the present ability for businesses to agree payment terms exceeding 60 days where those terms are not considered grossly unfair.
The intended effect would be a clearer 60-day maximum for UK business-to-business payment terms. The government has also suggested that the limit could later fall to 45 days, subject to further consultation after five years.
Practical implications
Businesses using 90-day or 120-day supplier terms may eventually need to:
- revise purchase contracts
- update standard terms and conditions
- reconsider working-capital requirements
- renegotiate customer and supplier arrangements
- adjust cash-flow forecasts
For smaller suppliers, the proposal could reduce the pressure of financing larger customers for extended periods.
However, suppliers should not assume the proposed limit currently overrides an existing contract. The final legislation, commencement date and any exemptions still need to be confirmed.
Businesses may have only 30 days to dispute invoices
A further proposal would require a customer to raise an invoice dispute within 30 days of receiving the invoice.
Where no dispute is raised within that period, the customer could become liable to pay the invoice in full under the agreed terms, together with statutory interest and recovery costs if payment is late.
Practical implications
Businesses should improve their purchase-invoice procedures by ensuring:
- invoices reach the correct department promptly
- goods and services are checked without delay
- discrepancies are raised in writing
- the reason and amount disputed are clearly recorded
- undisputed portions are not withheld unnecessarily
- the dispute date and correspondence are retained
Allowing an invoice to sit in an unattended email inbox could become significantly more costly under the proposed regime.
Statutory late-payment interest could become mandatory
Under the proposals, businesses would no longer be able to contract out of statutory late-payment interest or substitute a lower contractual rate.
Qualifying late payments would attract interest at 8% above the Bank of England base rate.
Practical implications for suppliers
Suppliers should ensure their accounting systems can calculate:
- the contractual due date
- the number of late days
- statutory interest
- applicable debt-recovery compensation
- payments and credit notes against individual invoices
The right to interest can be commercially valuable, but businesses have historically been reluctant to enforce it against important customers. Mandatory interest could change that relationship.
Practical implications for customers
Businesses paying suppliers late may face:
- a higher accounts-payable liability
- additional finance costs
- more supplier disputes
- reputational reporting
- possible regulatory penalties where late payment is persistent
Accounts departments should distinguish between invoice balances and accrued late-payment interest when preparing management accounts and year-end provisions.
Persistent late payers could face financial penalties
The government proposes giving the Small Business Commissioner power to issue financial penalties to businesses that consistently pay suppliers late.
Payment-performance data reported by larger businesses could be used to identify persistent offenders. The Commissioner may also receive stronger powers to investigate payment behaviour, verify reported information and provide binding arbitration.
Implications for directors and finance teams
Payment behaviour may increasingly become a governance issue rather than merely an accounts-payable matter.
Larger companies may need stronger board-level oversight of:
- average payment times
- the percentage and value of invoices paid late
- outstanding statutory interest
- disputed invoices
- supplier complaints
- the accuracy of published payment information
Late payment may create regulatory, financial and reputational exposure alongside the underlying commercial debt.
Construction retention payments under review
The proposals consider either:
- prohibiting retention clauses in construction contracts
- requiring retained amounts to be protected through arrangements such as segregated accounts or guarantees
The objective is to prevent subcontractors losing retention money because of insolvency or experiencing prolonged non-payment.
Practical implications for construction clients
Main contractors and subcontractors should review:
- retention percentages
- release dates
- defect-certification procedures
- whether retention balances are reconciled
- how funds would be protected
- the effect on project cash flow
- accounting presentation of retained receivables and payables
Any final restriction could materially affect working capital across construction supply chains.
Companies House service alert
Companies House advised that some online services would be disrupted between 8am and 12pm on Saturday 25 July 2026 while essential maintenance was carried out.
The affected services were:
- Find and update company information
- Apply to strike off and dissolve a company
This was a temporary service interruption, not a change to any statutory filing deadline. Businesses with urgent filings should avoid leaving submissions until the final day.
HMRC watch
HMRC published its July public-service pensions remedy newsletter on 24 July 2026. It covers scheme-pays deadlines, tax corrections connected with the public-service pensions remedy and changes involving certain lump-sum death benefits.
This is primarily relevant to public-service pension administrators, affected members and specialist pension advisers rather than most SME businesses.
HMRC also updated several technical manuals on 24 July, including guidance dealing with tax-payment penalties, information powers and international tax exemptions. No broad new tax rate or filing obligation for ordinary SMEs was identified from those manual updates.
HM Treasury and legislation watch
No major new HM Treasury tax-rate announcement or generally applicable tax commencement measure requiring a separate client alert was identified in the latest publication window.
The late-payment package remains a proposed business-law reform rather than an enacted tax change. Businesses should monitor the eventual legislation and commencement rules before changing contractual rights or accounting treatment.
Tribunal watch
No Upper Tribunal tax decision newer than Opus Labour Services Limited and Jason Giller v HMRC, released on 20 July 2026, appeared on the official listing at the time of review.
Late payment may become considerably more expensive
The proposed reforms would change the risk associated with delayed supplier payments.
Businesses should begin reviewing:
- contractual payment terms
- invoice-dispute procedures
- credit-control systems
- cash-flow forecasting
- construction retention balances
- management reporting on overdue creditors
SKN Chartered Accountants can assist with:
- cash-flow forecasting
- credit-control procedures
- management accounts
- aged-debtor and creditor reviews
- construction-industry accounting
- contract and payment-process analysis
- business finance and working-capital planning
Call: 0121 631 8521
Visit: https://sknservices.co.uk
Official sources
- Department for Business and Trade – Late payments consultation: tackling poor payment practices
- Companies House – service availability and planned maintenance
- HMRC – Public service pensions remedy newsletter – July 2026
- HMRC – Compliance Handbook and International Manual updates
- HM Courts & Tribunals Service – Upper Tribunal Tax and Chancery decision listings
Disclaimer
This article provides general information only and does not constitute tax, legal, contractual or financial advice. The late-payment measures discussed are proposals and may change before legislation is enacted. Businesses should obtain professional legal and accounting advice before altering contracts, charging interest or taking enforcement action.