From railways to hospitals, how IR35 sent employers off the rails 

Posted by & filed under IR35, Tax 2020.

We look at the lessons private sector employers could learn about IR35 from public sector organisations.

IR35 can create some tricky dilemmas for employers.

  • Do they force workers who are contractors to go on the payroll?
  • Or do they risk a fine if HMRC deems contractors to be disguised employees?
  • Do they top up pay packets to compensate for the loss of tax breaks when contractors are made employees?
  • Or do they risk an exodus of key workers if they don’t soften the blow?

Private sector firms have a matter of months to wrestle with these issues before they fall under the rules in April 2020.

Here are three cases studies of public sector employers and their different approaches.

NHS ban leads to fewer doctors and nurses

The NHS responded to IR35 with a ban in certain areas on using certain types of contractor.

The Independent Health Professionals Association (IHPA) claimed that the number of self-employed doctors “plummeted by 20,000”. As a result, there were “11,000 fewer doctors” following the application of IR35.

The IHPA thought this was a sledgehammer to crack a nut. “The only IR35 tribunal case concerning a medical doctor that ever occurred was that of a junior doctor assisting in surgery and he was found to be outside IR35, yet 100% of health workers have found themselves blanketed inside the legislation.”

Locum nurses swept up in the changes

Locum nurses were also held to fall within IR35, leading to a significant fall in numbers.

Applying IR35 to locum nurses was contentious. One of the tenets of being inside IR35 is that the organisation exerts significant control over the work of the individual.

“When a new mother begins haemorrhaging after birth, the nurse doesn’t consult a manual to find out what to do. They have to decide which of many options to take, who to call and when to alert the theatres,” says Dave Chaplin of Contractor Calculator.

One of the consequences of the changes is that workers can no longer claim travel expenses. This has further serious impacts in our locum nurses example, as overnight stays now have to be borne by the worker instead of being claimable.  

Contractors express their concern through poll

When IR35 was first introduced, a survey of 500 contractors found 80% were ready to quit the public sector rather than accept tax deductions.

Transport for London tried a ban but had second thoughts…

Transport for London also decided to halt the use of personal services company (PSC) contractors. The policy was revealed in April 2017 and raised many eyebrows in the contractor community.

The ban was aimed at shedding risk to head off problems further down the line. However, it did not stick for long.

After just one month, it was withdrawn.

Project delays as key staff leave

The controversy caused some essential project workers to stop working for TfL.

The repair programme for Bakerloo Underground rolling stock was delayed by five months. “A significant number of critical weld project employees left TfL as a result of IR35,” noted a TfL investment report. There were claims of impacts on much larger projects, such as Crossrail. However, delays here were attributed to testing and commissioning challenges.

BBC presenters make headlines

The BBC suffered from the PR fallout from legal cases around high-profile presenters. There was some questionable advice about why long-serving individuals were encouraged to work through personal services companies, rather than being employed by the Corporation.

Advisory problems

A tribunal found in favour of HMRC over presenter Christa Ackroyd’s tax status, asserting that she was in effect a disguised employee and leaving her with a tax bill of £419,000.

Ackroyd argued that the BBC “encouraged” her to work through a personal services company. The BBC’s argument was that this was “standard industry practice” and that they had been advised to do so by their own tax advisers.

HMRC, backed by the ruling, felt Ackroyd was inside IR35 for a number of reasons – the work was reasonably consistent, it lasted for a reasonable period of time, the BBC had a reasonable level of control over her activities, and there were also clauses preventing Ackroyd from working for anyone else.

It was emphasised in the finding that there was no accusation that Ackroyd had acted dishonestly or was intentionally avoiding tax. The case took five years to resolve, “demonstrating just how complicated and unwieldy this legislation is,” according to David Redfern of DSR Tax Claims.

Future outlook

From the point of view of contractors, they are likely to be looking to rethink who they work for, and large companies and organisations are likely to suffer as their contractors look elsewhere. If they stay with large companies, it is likely that they will have to accept lower fees.

From the organisation’s point of view, large companies are faced either with increasing contractors’ fees to compensate for the change in IR35 rules, or accepting that they will have a smaller pool of talent to make use of. In practice, that might mean allocating work to less qualified people.

The alternative is to put more people on payroll, which organisations are reluctant to do for a number of reasons – principally, that the main reason to use contractors is to maintain a flexible, agile workforce.  

Summing up the experiences of IR35

IPSE champions the interests of self-employed workers. Deputy Director of Policy Andy Chamberlain offers this blunt assessment of IR35:

“Afraid of falling foul of the legislation, many public sector bodies made blanket judgements and simply declared all their contractors ‘inside IR35’. Faced with such treatment, it’s hardly surprising contractors left the sector in droves, causing delays, staff shortages and even the cancellation of major projects.

“The changes to IR35 were a disaster for the NHS and many other bodies across the public sector. The consequences if those changes are extended to the private sector next April, as the government plans, will be even more serious for contractors and the economy.”  

Where is the health sector now?

The debate about whether or not locums are inside or outside IR35 remains unresolved, with a recent HMRC webinar appearing to suggest that they are all caught; to much debate within the contractor industry. With reports of many contractors having exited large-scale projects (such as 30 contractors leaving a £16.5m health service IT project) there is now more awareness within the NHS of the need to assess contractors on a case-by-case basis.

Where is TfL now?

“TfL had to move swiftly to communicate the changes to our workforce of over 1,600 limited company agency workers,” Clive Mills, Recruitment and Redeployment Manager at TfL said earlier this year. The company moved to “analyse the data for critical business roles and successfully implement an independent online tax testing service before the deadline – this service gave us credibility with our Head of Tax, Legal and business managers.”

“Transport for London (TfL) worked hard to swiftly manage the impact of the new IR35 legislation to ensure that projects and services continued with minimal disruption. TfL has developed robust controls and procedures to manage the process on a day to day basis and ensure compliance with the legislation. TfL’s agencies now pay the majority of their workers via PAYE and where it makes sense for TfL to employ people on a permanent and fixed term basis, they are doing so,”  says a TfL spokesman.

Where is the BBC now ?

After the Christa Ackroyd case, the BBC moved 85 workers from contractor status to payroll. Currently, the BBC is agreeing with its presenters that if they do fall within IR35, they will not be financially disadvantaged by the changes.

This might suggest that the BBC is likely to increase their pay accordingly. A number of contractors are now receiving regulation 80 determinations, which enforces payment of PAYE which HMRC believes should have been operated on pay or deemed pay. A section 8 notice for NI is usually issued alongside this.

Read more on tax as part of our #AATPowerUp Tax 2020 campaign for September and October:

How to finance your business plans

Posted by & filed under Members, Run your business.

Banks are no longer your only option for a business loan. 796 businesses borrowed around £17 million through alternative financing in the last year alone; but how?

These figures are the result of the UK government’s bank referral scheme, launched in 2016 to help small businesses get much-needed finance. Through the scheme, when banks reject small business loan applications, they have to offer to refer you on for alternative funding.

Getting cash quickly can be make-or-break for smaller businesses. A recent study by Aldermore Bank found that nearly a quarter of UK SMEs missed out on opportunities as a result of finance issues in the last year alone.

“They need adequate cash to innovate, grow and keep up to date,” says Tim Boag of Aldermore Bank.

Is the bank referral scheme the solution?

We’ll outline how the scheme works, and highlight some other financing options available to SMEs.

What is the Bank Referral Scheme?

Launched in 2016, the Bank Referral Scheme requires nine of the UK’s biggest banks to pass on the details of businesses they’ve turned down for loans. These details go to one of three online brokers:

These platforms then “share their details, in anonymous form, with alternative finance providers.”

Research by Funding Options indicates that about 50% of companies turned down for bank loans will be eligible for alternative financing of some kind. So there is hope, but it won’t help everyone.

Economic Secretary to the Treasury John Glen said: “It’s great to see British businesses up and down the country accessing the funding they need. Now, I want to see more entrepreneurs use this scheme.”

However, there are concerns the scheme can encourage businesses to take on high-cost finance.

“It sounds good in theory,” said Kirsty McGregor, Chairman of accountancy firm group The Corporate Finance Network. “But the reality is, businesses are already getting desperate at this stage.”

“If they’re offered high-cost finance from another lender, they’ll be very tempted to take it to tackle a short-term need, while building up bigger problems for the future.”

Key takeaways:

  • through the bank referral scheme, the UK’s biggest banks must offer to refer SMEs to alternative online finance platforms, if they’re turned down for a loan.
  • but beware… it’s vital not to overstretch your business by taking on expensive financing.

How else can SMEs raise funds?

You don’t have to be an SME with rejected bank loan applications to get alternative financing.

There are a number of attractive options. The best one for you depends on the type of business you run, and the reason you need the money.

1. Informi’s Funder Finder tool

Informi, powered by AAT, has recently developed the Funder Finder tool in collaboration with Alternative Business Funding (one of the three online brokers involved in the bank referral scheme). This tool connects small businesses to alternative finance solutions based on your requirements.

Fill out the 5-minute form and you can quickly see the wide range of options available to your business, which are displayed in order of suitability.

Funder Finder is completely free to use and will not harm your business credit profile.

2. Crowdfunding

Crowdfunding – which lots of people use to invest in businesses and causes – can be a great way for start-ups to get a helping hand.

It’s created some huge success stories: craft beer manufacturer BrewDog raised £25 million via crowdfunding in 2015, while fintech start-up Revolut attracted close to £4 million.

Find out more by visiting some of the crowdfunding websites aimed at SMEs. Crowdcube, for example, offers loans but also equity funding, where investors buy a stake in the company.

3. Peer-to-peer loans

Peer-to-peer (P2P) business lending also gives SMEs the chance to borrow money from investors, rather than a bank, in this case via a platform called a P2P lender. 

The loans come with a fixed interest rate that depends on:

  • how much you need
  • how long you want to repay the loan
  • and how likely you are judged to pay it back on time.

They typically last between six months and five years, can be used for a range of expenses, and are often paid out within a matter of weeks.

However, some lenders only accept applications from SMEs that have been trading for a set period, or have a turnover of say £75,000.

Check out Funding Circle and Ratesetter for more information.

4. Asset finance for equipment

If you need new equipment to grow your business, look into asset finance.

With this type of lending, the provider buys the asset – anything from machinery to office furniture – and finances it back to you via a hire purchase or leasing agreement.

Asset finance agreements generally last between one and five years, although some can run for up to seven years.

Repayments are calculated in line with the income stream generated by the asset, and at the end of the term the asset is yours.

Providers to the UK SME market include Close Brothers and Wesleyan Bank.

Key tips

  • If you’re an SME with rejected bank loan applications, alternative financing options include Crowdfunding, P2P loans, and asset finance.
  • The type of financing that best suits your business will depend on a number of factors, including why you want to borrow.

In summary

There are lots of alternative financing routes available to SMEs. Those listed above, but also small business grants, business ‘angel investors’, community funding, and more. Some of these may even prove cheaper, quicker and more flexible than a bank loan, so should be your first choice from the outset.

Make sure you get the best deal by shopping around for the best interest rate, and above all, only borrow what you can afford to repay.

For more on running a small business:

Darren Shirlaw: Preparing accountants for the future

Posted by & filed under Future of accounting.

Darren Shirlaw, co-founder of The BoB Group, combined the best parts of accountancy and fund management to create a new type of business. He thinks all accountants should follow his lead.

Here we speak to him about what the future of accounting looks like and why it’s so important to adapt.

The launch of the social network

Between 2003 and 2006, a lot of social networks launched. That changed the face of society. After 2006, the idea of 3G, 4G, the cloud and all of that started coming in, and that changed business too.

I spoke to 1,200 estate agents at the O2 arena six months ago, and I asked them: how much did you get paid to sell a house ten years ago, and how much do you get paid today? They told me their margins had fallen.

Ten years ago, they used to get 5% on every sale of a house. Now it’s more like 1%. Speaking to one of the largest estate agents in the country, they need to be running at 1.25% margins to break even. They’ve gone through this, and you’ve gone through it as well.

A life-changing referral

It was an accountant friend of mine who referred me for a piece of work that changed my life. It was two ladies running a travel business. They wanted to retire and, being in the travel industry, their ambition was to travel the world for the rest of their lives.

They had an offer on the table for AUS$900,000 (£490,000), making a profit of AUS$300,000. They wanted to know if the price was right, so that’s what I was tasked with finding out.

I explained to these ladies that I thought they could do a lot better than AUS$900,000. So they embarked on this journey with me and we then sold their business nine months later for AUS$11.2m.

I had a deal with them that I’d get 10% of everything over AUS$900,000, so I went back to the accountant and said: “How many more of these have you got?”

Fund management plus accountancy

My first degree was in accounting. Then I did a master’s degree in finance, which took me into the fund management world. All I did was to apply fund management logic to these ladies’ business.

A fund manager is taught to only look at the future. But no fund manager that I know has also done an accountancy degree. So I was able to understand the accounting and look backwards, as well as look at it like a fund manager and look forward. Four years later, we had 60 firms sending us clients. Four years after that, we were in 12 cities around the world.

In summary

I want accountants to see business the way I do. You can’t keep doing what you used to do. You can’t justify the same fee for compliance work any more, because so much is done by machines.

But a lot of other sectors are going through the same thing. You’ve got to find the value elsewhere. And I think what I do might be the answer.

For more on the future accountant:

How IR35 could raise costs for employers

Posted by & filed under IR35, Tax 2020.

From April 2020, the Government is set to extend its contentious IR35 rules to the private sector. The scheme is intended to stop employers disguising workers as contractors in order to gain tax breaks.

Are the new IR35 rules a good fit for the private sector? Or the public sector for that matter?

IR35 changes were introduced in April 2017

The changes to IR35 arrived to much debate, disruption and chaos – much of which has still not been resolved. 

Historically, the contractor determined their own IR35 status and was liable for all taxes if later deemed by HMRC to have arrived at the wrong conclusion. That has now changed. 

HMRC is attempting to crack down on what it refers to as “disguised employment” and, under the new rules, the status determination switches from the individual to the hiring body or the recruitment agency used by that hirer.

This comes with a new tax regime that increases the cost of hire for contractors deemed as covered by the new legislation. Grappling with these new assessment responsibilities as to whether a contractor is a “deemed employee” is no easy matter.

What the changes mean

The most significant difference brought about by the new rules concerns employer’s National Insurance (NI).  Currently, under Chapter 8 of ITEPA, when a worker is deemed caught by IR35, employer’s NI is reversed out from their fees. However, under the new Off-Payroll rules, this tax – along with the Apprenticeship Levy – is to be paid on top of the worker’s earnings by the fee-payer – because the fees paid to the contractor have to be treated as employment income. 

Though a recruitment agency will often qualify as the fee-payer, this extra cost would cause most of them to fold. Realistically, the hiring firm will have no choice but to cover this cost, unless they can renegotiate all their contract rates downwards by 20-25%. That seems unlikely. 

Many people aren’t aware of this hidden tax bomb. Instead of clarifying the situation, HMRC and the Treasury have obscured matters through the entirely false reiteration that ‘the reforms do not introduce a new liability or extra tax’.

The stark reality is that this is a new liability which increases the cost of hiring ‘deemed employees’ – contractors assessed as ‘inside IR35’ – by 13.8% for employers NI and 0.5% for the Apprenticeship Levy.

Prevention of tax relief

The rules also prevent workers from claiming tax relief on expenses, which will prove costly for anyone who travels and stays overnight for work.  Those affected, as we saw in the public sector, will likely seek to offset this by negotiating an increase in contract rates, clashing with the client’s wish to reduce fees to cover some of their new tax costs.

Either way, renegotiation is inevitable. Contractors who are assessed inside IR35 are unlikely to travel far afield, reducing the mobility of the flexible workforce and driving contract rates up even higher. 

Our calculations show that, for a travelling worker who stays overnight four nights a week to receive the same take-home pay as before, the cost of hiring for the client could increase by up to 43%. By contrast, a client would need to reduce the contract rate by roughly 20% to ensure the same cost of hiring. Both parties are poles apart here – and a tug of war will likely ensue unless the contractor can continue to be hired as genuinely self-employed. 

As an alternative, clients might decide to downsize their contingent workforce, using the sums saved to pay the tax bills due on fees paid to the remaining contractors. Essentially, this is damage limitation, enabling firms to retain some access to necessary skills without spiralling costs. 

The risks for contractors and firms

The gravity of the situation is illustrated by the measures that some organisations in the public sector have reportedly taken. There have been widespread reports of organisations engaging contractors via umbrella companies. Through those companies, contract rates are falsely advertised to contractors – the fee-payers employment taxes are included.

This has resulted in unlawful deductions from agreed contract rates. We are beginning to see some litigation work its way through the civil courts as a result. Being completely transparent with workers is essential to avoid later complications.

The risk for both contractors and firms is large and the knock-on effects will be widely felt. Firms still seem to be blissfully unaware that they are going to be saddled with an additional 14.3% cost in extra taxation for hiring contingent workers. The reality is, of the extra tax due, around 80% of it is payable by the firm hiring the contractor. 

Looking at the public sector experience, it is likely that those responsible for hiring contractors will overreact, try to force contractors to work on payroll, and treat them as full-time employers for tax purposes, while also trying to pass their new tax bills onto them. This means a large rate decrease for contractors – being treated like a “deemed employee” while not being given the rights and benefits that go along with employee status. 

The impact on employers

Consider for starters the impact of telling a worker they are a disguised employee, not giving them rights, and then having that challenged at an employment tribunal. What better evidence for a contractor than a hirer’s IR35 assessment deeming them to be an employee? It’s no wonder many firms are reportedly clearing out their contractors prior to April 2020, for fear of what might happen.

The employer will have the added expense of paying National Insurance, sick pay, holiday pay and all the other associated obligations. In addition, there will be times when there is a surplus of staff and other times when there is a shortage, as workflow fluctuates. Employers may decide to take on less qualified freelancers to compensate for the extra cost when extra help is needed. 

As the government plans to drag the whole contracting sector into the sorry saga of IR35 “reform” by 6 April 2020, this year will be crucial for the industry. The forecast is bleak. However, there is time to mitigate the effects by assessing the risks and taking appropriate preventive measures now.  

In summary

Companies must prepare by assessing their situation to gauge the size of the challenge they are facing. They need a workable plan, ready to implement. Early action is essential if businesses what to retain access to existing skills and flexibility, avoid spiralling costs, protect existing projects and above all, prevent contractor walk-outs come next April. 

For more tax-related articles:

Opinion: the Government needs new sources of income

Posted by & filed under Tax 2020.


Joe Marshall, a researcher at the Institute for Government and co-author of ‘Taxing Times: The Need to Reform the UK Tax System’, says tax reform is long overdue.

Threats to existing tax bases should act as a wake-up call to government. Tax reform is long overdue, and politicians cannot continue to take tax policy for granted.

With the move away from the use of fossil fuels, many people switching from tobacco to vaping, and other similar changes, UK Government revenue from taxes and particularly duties is set to decline radically.

Flaws in the system

Economists and tax practitioners have long lamented the flaws in the UK tax system. Not only is it complex, but it is also increasingly outdated, and beset with perverse incentives that do little to raise revenue or achieve the government’s wider economic objectives.

As technological and behavioural changes continue to undermine existing revenues, the tax system is going to have to adapt. Despite the political challenges, governments of all stripes must acknowledge that only structural reforms can put the tax system on a sustainable footing.

Free lunch with new taxes

It is not only the amount of money raised that matters, but also how it is raised.

Structural tax reform could offer a ‘free lunch’, raising revenues without the need to hike tax rates.

Broadening tax bases while lowering headline rates, removing poorly targeted exemptions and improving the coherence of the system could allow the tax system to raise additional revenue while removing economic distortions that hinder economic growth. 

But delivery comes at high risk

However, the real problem is not identifying what reform is needed, but finding a way to deliver it in practice.

The political risks are high, public understanding of tax is poor and some aspects of tax policy will militate against improvements.

Despite these hurdles, however, previous experience both in the UK and internationally shows that it is possible to overcome these barriers.

Politicians have managed to fend off an adverse public reaction by laying the foundations for change well in advance, packaging reforms together and building broad coalitions.

Thinking carefully about implementation and improving scrutiny of tax policy can also help smooth the change. A healthy dose of pragmatism can also be helpful, as can pursuing reform when the economic and political timing is most favourable.

Read more on tax as part of our #AATPowerUp Tax 2020 campaign for September and October:

Reverse VAT charge will shake up construction

Posted by & filed under Tax 2020.

There’s a big change in store for the construction industry and the way payments are made to VAT-registered  sub-contractors.

The reverse charge will mean that the main contractor on a project will be liable to account for the VAT for ‘specified services’, rather than the supplier.

The good news is that the industry has just been given a little longer to get used to the implications.

The reverse charge was due to take effect on 1st October 2019. However, with no-deal Brexit preparations going into overdrive, HMRC has just announced it will delay for a year until 1 October 2020.

So there’s a little more time to prepare. Here’s what you need to know:

How the charge will work

The reverse charge is an anti-fraud measure designed to ensure that the VAT due actually reaches HMRC. It has already been introduced for telecommunication services, mobile phones and computer chips.

The charge will apply throughout the CIS supply chain until the customer receiving the supply is no longer a ‘business making supplies of specified services’. These businesses and individuals are referred to by HMRC as the ‘end-user(s)’.

HMRC and government have indicated that by the end of the 2023/24 tax year, the introduction of the reverse charge will collect in excess of £495m of tax revenue that historically would have been lost to the public purse.

Reverse charges shift liability

The reverse charge mechanism shifts the liability for accounting for output VAT from the supplier (sub-contractor) to the customer (main contractor). Ultimately, this prevents the supplier from absconding with the VAT element and not paying it over to HMRC.

The reverse charge will not encompass businesses that supply specified services to connected parties within a corporate group structure or with a common interest in land. In such circumstances, the supplies in question will revert to normal VAT accounting rules.

Effects on non-construction firms

While the obligations under CIS usually only apply to those operating in the construction industry, non-construction businesses become ‘deemed contractors’ if their average annual expenditure on construction operations exceeds £1m over a three-year period. This typically catches businesses with a significant construction spend, such as large retailers and public bodies.

Cashflow impacts

The domestic reverse charge will have a significant impact on cashflow management for the sub-contracting businesses involved, particularly the smaller sub-contractors. Many of them have historically relied on VAT to cover their short term cash flow needs.

This could push those small sub-contractors over the edge, and we may see many of them disappear in the months after the reverse charge is ultimately introduced.

Prior to announcing the year delay, HMRC had acknowledged the difficulties of implementing the new rules and had promised a light touch in dealing with any errors that occur in the first six months.

How to prepare for reverse charge VAT

Businesses classed as main contractors will need to ensure they do not pay over the VAT element to the supplier, as they’ll still be liable to account for the VAT to HMRC.

Such firms will have to account for the reverse charge VAT on their own VAT return. They’ll be able to recover the reverse charge VAT incurred on the same VAT return, subject to the normal VAT rules.

Works covered by CIS

Services covered by the reverse charge are those falling within the definition of ‘construction operations’ in CIS, which GOV.UK lists as the following activities:

  • a permanent or temporary building or structure
  • civil engineering work like roads and bridges
  • preparing a site, e.g. laying foundations and providing access works
  • demolition and dismantling
  • building work
  • alterations, repairs and decorating
  • installing systems for heating, lighting, power, water and ventilation
  • cleaning the inside of buildings after construction work.

Excluded works

There are supplies that are excluded from the reverse charge. For example:

  • professional work of surveyors, architects or consultants in the building
  • machinery and the delivery of the machinery to the site
  • drilling for the extraction of natural gas or oil
  • installation of security systems which include closed-circuit television and burglar alarms.

In summary

The CIS scheme will shake-up the way payments are made in construction. Smaller firms may feel the pinch as they will no longer be able to use VAT monies to bolster their cash flow.

With a year until the scheme will be introduced there is time to review impacts and arrange extra credit where necessary.

Read more on tax as part of our #AATPowerUp Tax 2020 campaign for September and October:

Image source: Heye Jensen via Unsplash.

Chase late payments without the awkwardness

Posted by & filed under Client relations, Members, Run your business.

Your stomach churns, you sigh; that client still hasn’t paid their invoice. Find out how people in the industry stop this behaviour in its tracks and chase payments with ease.

Dealing with unpaid invoices is one of the toughest things about running a small business, admits Ed Molyneux, CEO of FreeAgent. “Business owners can feel awkward about chasing payments, even though they need to get paid promptly to keep their cash flow healthy.”

You’re a business after all, not a charity. You’ve got bills to pay yourself. Fortunately, there are strategies to reduce your debtor’s list and collect outstanding invoices without breaking a sweat.

Prevention first

Ideally, you don’t want to be in a situation where you’re owed money and have to chase payment.

Keep your eye out for potential late-payers from the start, advises Jenny Oldfield, CEO of credit management solutions firm Veritas Commercial Services. “Carry out thorough due diligence (including KYC and AML checks) when a client comes on board, to prevent issues further down the line”.

From your side, be clear about your payment terms from the outset. Miscommunication is your biggest area of risk.

“Talk about billing and payments on day one so there are no surprises later,” says Accountant Adrian Markey. “It’s also worth testing the water and asking for a deposit. If there’s resistance at that point, alarm bells should be ringing.”

Get any wording about your payment terms airtight with advice from a commercial debt recovery agency, advises Martin Mellor, Managing Director at Mellor Financial Management. “The tighter the language, the easier it is to enforce payment down the line.”

Key tips:

  • carry out due diligence on prospective clients
  • make payment terms clear on engagement
  • set out your payment terms on every invoice
  • ensure your invoices are clear and easy to understand.

Billing structures to suit each client

Markey, who set up his practice two years ago, wanted to be on top of his debtors right from the start. “The practice I trained in routinely let fees mount up. Then, when the bill was higher than what the client expected, it usually led to a drawn-out process of avoidance and haggling.”

He adds: “Some of their difficulties arose from billing by the hour. I work on a fixed fee basis as it gives clients certainty, and the chance to pay in full upfront, or in instalments. The latter works particularly well with cash retail businesses who prefer to pay £250 a month than £3k in one go.”

Do what works best for your client to smooth the process for them.

Key tips:

  • Don’t let your time costs mount up – bill regularly
  • When working on a fixed-fee basis, encourage clients to pay monthly.

Automate your invoice chasing

Invoicing and managing your debtors is much easier if you’ve moved your clients to a cloud-based system such as Xero or QuickBooks.

Accountant Markey says: “Recurring invoices can be set up to automatically go out monthly, saving on the admin of copying last months and resending. And you can also set up payment reminders the client will receive via email”.

Nobody wants to fill their calendar with reminders to chase clients, or spend time scheduling them all in. Automated software takes care of it all for you.

Mellor recommends cloud-based systems too, adding: “You get a clear picture of what’s been paid, what’s still owed, and how late it is. And, when chasing payment, integrated apps like Debtor Daddy allow you to personalise the messages for late payers – for example, you can change the tone of voice the longer a client takes to pay.”

This kind of software can save you a lot of time in the long-run.

Key tips:

  • Automate the process of chasing debtors, personalising it for each client.

Make it easy for clients to pay you

Markey points out that, as accountants typically bill clients for their Xero subscription monthly, it’s a perfect opportunity to ask if they want to pay their fees monthly, too.

“If they sign up to Direct Debit, GoCardless for Xero will then collect the money automatically on the invoice due date.”

If they don’t sign up to Direct Debit, other options are BACS or card payments. With Stripe and Paypal for Xero, your invoices can go out with a Pay Now button so clients can settle by credit or debit card.

“I’ve also had a couple of clients wanting to pay in Bitcoin so I gave them my wallet address and they sent the payment through in a few hours,” says Markey.

Key tips:

  • encourage clients to sign up to a direct debit payment process
  • provide a range of payment options so clients can choose the one they actually like using; payments should be more likely.

How to deal with late and non-payers

If the client’s still delaying payment, you need to be friendly but firm.

Markey says: “They need to be told that no more work will be done until they settle outstanding fees. Although if you want to retain the client, it may take compromise on both sides. I’d be pushing for a payment plan that pays the amount owed and also prepays (or at least part pays) next year’s fees.”

If your best efforts fail, it may be time to cut the client (but not necessarily your losses).

“Whether it’s taking your case to small claims court, getting a solicitor involved, or referring the matter to a debt collection agency, you have several options to help claim what is rightfully yours,” says Molyneux.

This will effectively end any positive relationship with the client though, and they may start bad-mouthing your business. Ask yourself if it’s worth the potential reputation damage.

Key tips:

  • stop all work until the debtor settles in full, or agree on a payment plan
  • be proactive when chasing debt – pick up the phone
  • consider taking legal action as a last resort.

In summary

Prevention is better than cure. Agree on payment terms in advance and don’t let debts mount up. Investing in tried-and-tested software like Xero will save you lots of time in the long-run, as it shoulders most of the debt-chasing burden. But you should get involved personally at the first hint of trouble.

Further reading on invoicing:

How MTD for income tax will shape the digital landscape

Posted by & filed under Making Tax Digital, Tax 2020.

By the end of the 2020s, the tax landscape will look very different from the way it is today. And the paper personal tax return should be left dead and buried as a result.

We’re already seeing the signs of change in the months since MTD for VAT was introduced, as more businesses take up cloud technology and we get a hint of how automated tax will work.

In a matter of months, MTD has driven adoption of cloud accounting platforms, according to academic research. In turn, cloud software is the biggest single factor in reshaping the role of accountants and bookkeeping professionals.

As the mists surrounding Brexit begin to lift, HMRC will once again be able to focus on driving forward its MTD agenda. And it’s intention of modernising the finance industry.

By 2030, MTD will be well established for VAT and income tax – possibly for other taxes too.  

The next phase of MTD

The next milestone will be MTD for income tax. This could in theory be April 2020 but is almost certainly going to April 2021 at the earliest.

 “We should be well on our way to having an automated tax system by the end of the coming decade,” says AAT Chief Executive, Mark Farrar.  

“Without the more pressing priorities of Brexit, HMRC would have been …moving towards digital Corporation Tax by now. I think the focus for the 2020s will be to make all of the big ticket taxes digital by the decade’s end, then mop up the smaller taxes after that.”

A lot of the details regarding the requirements remain a bit of mystery. “It’s hard to be convinced we’re going to have a reliable system in place in the short term,” said Sarah Saunders, manager at RSM UK Tax and Accounting.

Not everything can be automated in that timeframe, says Farrar –  capital gains tax might not be there. “But certainly, the personal tax return as we know it should be a thing of the past.”

How income tax will work

MTD for income tax will apply to the self-employed, partnerships and trusts, and anyone who receives income from property. Though an exemption will apply to those with an income below a certain threshold, possibly £10,000 total turnover from all sources of self-employment and property income. An exemption might also apply to larger partnerships with a turnover exceeding £10m.

Additionally, and this is a key concern, many taxpayers will be unable to participate in MTD due to lack of digital awareness, poor broadband access and other issues. “This is a long-term problem,” said Saunders.

The nitty gritty

It will be a complex process and currently it’s difficult to see how the new system will be an improvement. “HMRC’s current system has numerous exclusions and issues, and many taxpayers each year are compelled to paper file,” said Saunders. “HMRC’s computational errors add to the complexity for taxpayers, all on a system which has been in place for decades.”

Saunders, who appears sceptical of the roll-out, also noted how MTD is supposed to involve non-self-employment/property income details being pre-populated directly to tax accounts in real-time. “How often do you use the P60 data feed, or look up state pension on the government gateway only to find there’s nothing there? But, apparently soon, information from a multitude of different sources will feed safely through in real-time. Is this a reasonable expectation?”

Tech to the rescue?

Fortunately, progress is being made, with the technology sector preparing for the change. For example, Xero isalready developing its offering to support small businesses and advisors. “The shift towards a fully digital tax system is being driven by the proliferation of regulation that is driving APIs to connect systems together in the form of open banking,” said Damon Anderson, director of Partner & Product at Xero UK & EMEA.

“This shift in connectivity (banks connecting with accounting software and then connecting with HMRC) is rewiring the end-to-end flow of financial information. From the original transaction right through to HMRC, the whole process will become significantly more connected.”

Changes and opportunities

For accountants, compliance will switch from processing to system support, said Chris Conway, co-founder of Multiply Accountancy. “We’re being increasingly called in to help people with software. As an industry, we can no longer just turn bits of paper into tax returns like we used to. MTD, cloud software and automation are taking that away, and rightly so, but with it comes a big opportunity to provide businesses with greater insight and support using the data they have in the cloud.”

Indeed, Conway said he’s already doing a lot more advisory work than would be typical of an accountancy firm. “A growing number of clients use us as outsourced finance directors meaning we need employees with a broader skillset where the emphasis is on commercial acumen, rather than pure number crunching.

Read more on MTD and tax as part of our #AATPowerUp Tax 2020 campaign for September and October;

Isn’t it time you were the boss?

Posted by & filed under Bookkeepers, Members, Run your business.

About five million Brits are self-employed: fancy joining them? We spoke to people who made the leap themselves to get some realistic advice on making it a success.

Become an AAT Licensed Accountant or Bookkeeper

If you’re an AAT professional member (either AATQB, MAAT or FMAAT), then your first step towards self-employment is applying for an AAT licence. This allows you to offer services on a self-employed basis.

Without a licence, you can’t offer accountancy or bookkeeping services professionally.

An added benefit: AAT acts as money laundering supervisor for licensed members. This is a legal requirement, so you’d be killing two birds with one stone. We’ll also provide you with AML support through additional resources and guidance.

Read more on how to comply with anti-money laundering rules here

Why go it alone?

Perhaps the commute is getting you down and you’ve had enough office politics for one lifetime. Or maybe you just really fancy taking charge and being your own boss?

Whatever the reason, going self-employed can be like coming up for air. You can craft a better work-life balance; have time for your family, friends and hobbies; and do it all your way.

You’ll be able to pick the work you enjoy, and only work with clients you want to work with. A lot of people go self-employed for these perks alone.

Financially, you could be better off too.

The challenges when self-employed

Sorry to be negative, but there will be some difficulties:

  • employer contributions into a pension scheme will stop
  • no more holiday or sick pay
  • no company car or medical insurance
  • no PAYE
  • income may become unpredictable
  • also there’s a social downside: no colleagues to chat to, or share work problems with.

You may quickly dismiss the lack of holiday/sick pay, but it can have a big impact on your mental state around annual leave, or taking time off when you need it. Prepare yourself by developing your mental strength.

Whilst the tasks of HR/Finance will now be yours too, your accountancy skills will serve you well. Set up a recurring calendar reminder to process your taxes and National Insurance and you’re good to go.

The challenges listed above are not insurmountable.

Build your business plan

This is the key to a stress-free transition to self-employment.

Ed Molyneux, CEO and Co-Founder of FreeAgent, has advised 90,000 potential start-ups since launching in 2006.

His advice? “Many new businesses fail because of cash flow problems. So create a detailed business plan before you set up on your own, enabling you to stay on top of your finances: that’s essential if you want your new business to succeed.”

Emotions may have driven your decision to go self-employed, but the key to success is breaking it down into practicalities and getting solid plans in place.

Line up your cash options

You’re going to need a cash cushion to keep you going until the money starts coming in.

Keep at least three months’ income – enough to cover your mortgage and household expenses – in an easy-access savings account.

Check out money comparison sites for the best savings on all things finance-related, like Moneyfacts.co.uk

Set up a business bank account

You may also need a business bank account – again, check out comparison sites for the best deal for you.

Emily Coltman FCA, Chief Accountant at FreeAgent underlines the importance of having a finance plan in place: “Will it be easier to keep your business and personal finances separate if you have a discrete bank account for your business? How will you keep track of everything you’re spending to get your business up and running? Make this a key part of your start-up plans.”

Essential insurance when you’re the boss

If you’re becoming a self-employed bookkeeper or accountant, then you may need public liability insurance, particularly if you have clients visiting you at home or in an office. This covers you if clients/members of the public get injured as a result of your business activities, e.g. tripping on a loose floor tile.

Professional indemnity insurance will also be required. This pays out if you make a mistake, or give bad advice and your clients lose money as a result. But each policy will have different T&C’s.

Read more on business insurance when you’re self-employed from the impartial Money Advice Service. AAT licensed members also receive competitive Professional Indemnity Insurance rates.

Don’t spend all your time chasing payments

When you’re self-employed, one task that can quickly spiral out of control is chasing late-payments. This goes on behind the scenes at a larger company, but can loom over you when self-employed.

Get a schedule and processes in place to stay on top of this, and keep the money flowing.

Gov.uk has some advice on invoicing and taking payments from customers, and software like Xero can shoulder most of the burden through automated chase emails.

Thinking back on creating your business plan, keep this necessary activity in mind and bake it into the business structure.

Be aware of your social connections

Loneliness is a big challenge when self-employed. But on the flip side, there’s a lot to be said for working comfortably in an environment of your own design, without the constant chatter of colleagues.

You can work the hours you like without having to ask permission – perfect if you have family/hobby commitments. And no distractions mean you’ll get more work done.

But even if a desire for solitude was a key reason for becoming your own boss, you may come to miss colleagues over time. That’s ok, there are other ways of staying social when self-employed.

Don’t just suffer through, combat your loneliness with some pro-active steps, like moving into a shared office space. It may scratch an itch, then you could go back to working from home for a while. Find what works for you.

And there are plenty of AAT events (some free) going on to get you mingling with your peers.

Become self-employed gradually

One way to approach self-employment is to make the move across slowly.

Andy Webb, Money Expert of Be Clever with your Cash and Presenter of Shop Smart Save Money on Channel 5, transitioned into his own boss over a few years.

“My move to self-employment wasn’t overnight. For a few years I was working on the business blog outside of my 9 to 5. But gradually I cut my days working PAYE: first to 4.5 days, then for 18 months I was in the office just 2 days a week.”

He admits the slow move was frustrating at times, but ultimately it worked out. “When I finally did go all out on my own, I had everything in place so I didn’t have to worry where work would come from.”

In summary

Going self-employed could be the best decision you’ve ever made. Working for yourself is rewarding, convenient and potentially lucrative; it’s a great opportunity to take charge of your life.

Planning will be essential in making your move a success. Above Andy Webb spoke about phasing into self-employment over a few years, which could be ideal for your financial situation, giving you added security for those early days. But the key takeaway from our self-starters is that there’s more than one way to become self-employed. Find what works for you.

Read more on getting started as a self-employed bookkeeper or accountant here:

How to create a greener accountancy practice

Posted by & filed under Members, Run your business, Sustainable Business.

More eco-friendly offices are attracting the top talent, even if they aren’t a Big Four company. Why? Younger generations are prioritising a company’s ethics over things like cheap costs. But going green doesn’t require massive change…

Sustainable offices are shining a light on their efforts and pitching it as a unique selling point of their business. And it’s working.

But how has this come about; is it just something trendy?

Consumers are seeking out environmentally-friendly businesses

“The growth of conscious consumerism is putting businesses under pressure to demonstrate their purpose in order to stay competitive,” says Francesca Rivett-Carnac. As Co-Founder of Stand Agency, a communication and impact relations agency, Francesca is tuned into the pulse of consumer demands.

“Price, product and service are givens,” she says. “Younger consumers now expect brands to show they’re acting in the best interests of sustainability, transparency and fair employment.”

The consumer mindset shift is fuelling a rise in new businesses who put their higher purpose at the heart of everything. And it’s happening across diverse sectors; financial services, fashion, health, food and drink.

“Genuine purpose-driven businesses will track and measure their social and environmental impact, and communicate it regularly to customers, investors and other stakeholders,” she says.

But it can’t just be a token approach – employees and customers can spot a half-hearted effort. Instead, your business needs to demonstrate “measurement and transparency” in moving towards a sustainable model, not just “superficial shine”.

How to streamline your office towards sustainability

James Poyser, CEO of inniAccounts, runs his accountancy firm from a renovated warehouse just outside Derby. When they decided to become more environmentally conscious, his employees jumped in with lots of ways to do it.

“We’re not paperless, but pretty close. Our business model is cloud-based so that helps a lot – most of our work can be done online and we’re always working out ways to bring more processes online and paperless. It benefits us and our clients.”

This is a great way to get started in your own business. Try to reduce the amount of unnecessary printing and filing around the office. Memos and announcements can be emailed, files can be shared via cloud-based software, and reports can be read online.

This saves on paper and ink costs, enhances security (if cloud documents are password-protected) and saves time and money in terms of filing and storage.

Sustainable offices could make a big impact

“In an age where drastic measures need to be taken against climate change, we’re seeing a big reduction in the use of plastic, with people being encouraged to buy re-usable bags and cups,” says Lloyd Coldrick, Managing Director of Cobus, a workplace consultancy firm.

“As a nation, we’re slowly but surely attempting to reverse the damage done by years of littering and carbon emissions. One of the best ways we can contribute to this is by making changes in the office – where most of us spend the majority of our time.”

Reducing plastic waste was one of the areas InniAccounts tackled first.

“We made a conscious decision not to use single-use cups and plastics in our kitchen,” says James Poyser. “We wash up instead! And we don’t have a water cooler. We use filtered, chilled tap water.”

Other ideas include:

  • not over-heating the office
  • encouraging staff to recycle paper and plastics
  • and using non-toxic cleaning products.

Eco offices can boost employee well being

“Some of our sustainability initiatives came out of well being ideas,” says James Poyser.

The world of accountancy has a reputation for long desk hours, so inniAccounts tried to change that. They’ve had a rethink on the way people travel to work, and whether they had to be in the office every day.

“We introduced more flexible working hours so people didn’t have the pressure of the rush hour to battle through and be in the office for a certain time,” he says.

“Now people are happier to travel to work by bike, train, bus and/ or walk and there’s the option to work from home. We’ve installed bike racks and showers so people who run or ride can get ready for the day. And we support ride to work via payroll. We’ve recently incentivised car-sharing with set parking spaces for those who share.”

Lloyd Coldrick of Cobus also suggests that employees ask whether flexible working might be an option.

“It’s not always necessary for employees to commute to work every day – and you’ll be reducing your carbon footprint simply by working from home just once or twice a week,” he says.

“Alternatively, if you drive to work but live near public transport services, or even within walking distance from the office, try changing how you travel.”

Use energy-saving appliances

If you’re looking to refurbish your office, try sourcing energy-saving appliances wherever you can. This could include energy-saving lightbulbs with motion sensors, or eco-kettles which only use the minimum amount of energy required.

“The average office is filled with electronic devices,” says Lloyd Coldrick. “These are often left running for long periods of time, for no reason, so it’s no wonder CO2 levels are on the increase.”

Ways to get more sustainable with your devices;

  • switch off computers and lights at the end of the day
  • turn off air conditioning when it’s not needed
  • install toilets that use reduced water for flushing.

In summary

You can make a real difference in the sustainability game by taking active steps towards sustainability in your workplace. To make effective changes that stick:

  • encourage staff to come up with innovative ways to become more green
  • consider setting up an eco committee to help implement environmental measures in your office
  • start with simple changes such as switching from plastic cups, which could make a difference to waste and costs
  • Communicate all changes clearly to your employees – they’re much more likely to embrace the process if they feel included and part of the initiatives
  • think flexibly about how your run your office – do staff really need to print out reports and memos or can you switch to cloud-based storage and file sharing?

Read more on sustaiability here: