Accounts Assistant

Accounts Assistant Job Description

We’re not the average accountant – we merge traditional accounting with innovative thinking to add value to our clients’ businesses. This philosophy sets us apart; you’ll see it echoed in the people we employ and the products and services we offer.

We focus strongly on accounting for small to medium businesses in Putney, Fulham, Wimbledon, Chelsea, Richmond (and surrounding areas) and Central London. We provide a wide range of both financial and business support services, as well as individual advice for directors and high net worth individuals.

We are looking for an excellent candidate with good all-round experience or having studied subjects in accounts and finance. Working in a small team, you will be reporting into a qualified Accountant, assisting them on projects and day to day jobs.

Required skills:

  • Strong Excel skills;
  • Experience with any accounting software (Sage, Xero, QuickBooks and FreeAgent) is preferred
  • Ability to work autonomously or as part of a team;
  • Good written and oral communication skills in English;
  • Good attention to detail, accuracy, problem-solving skills; and
  • Ability to build internal and external relationships.

Finally, the candidate should have ambitions to complete the ATT, CTA or ACCA qualifications.

The spectrum of work includes:

  • Preparation of Financial Accounts and Corporate Tax Returns
  • VAT Returns
  • Management Accounts
  • Bookkeeping
  • Payroll
  • Self Assessment Tax Returns
  • In conjunction with principal/senior colleague:
    • Taxation consultancy;
    • Financial valuations and consultancy to include advising on management & sale of businesses

HMRC Foreign Income Disclosure

Case Study: When HMRC asks about your foreign income

The UK has Automatic Exchange of Information agreements with over 100 countries, so HMRC knows if you have declared your foreign income or not.

According to the UK Parliament, there were 6.2 million people (9% of the total population) living in the UK who had another nationality. Within our Central London, Putney and Richmond offices, we also have foreign-born colleagues who had previously worked in another country. With international migration now a common trend, it is not uncommon to see some people struggling with foreign tax issues, particularly when they thought they had reported in another country but received a letter from HMRC pertaining to the overseas income.

HMRC Foreign Income DisclosureOne of our clients, Victor from Richmond-Upon-Thames, had previously lived and worked in Singapore for a decade, during which time he acquired some shares and a few assets. When Victor came to work in London, he didn’t pay much attention to his tax affairs as he is on PAYE. It also didn’t cross his mind that he had to report the small (and irregular) income he still receives and remains in his bank account there.

But one day Victor received a letter from HMRC about his foreign earnings which he had not reported in the UK. Panicked, Victor came to our Richmond-Upon-Thames office and asked for our help. Our personal tax accountants  analysed Victor’s position and advised on the correct remedy to rectify his tax filing requirements. Seeing how swiftly we acted and provided him with a satisfactory result, Victor has now engaged us to report his future foreign income through Self Assessment tax return service.

Worldwide Disclosure Facility (WDF)

If you have foreign interests, chances are you need to make a disclosure through the WDF, and preferably you do it before HMRC sends you a letter. If you aren’t sure if a disclosure is required, talk to our qualified personal tax accountants. We can review your specific circumstance and make the best recommendations.

The WDF users

HMRC wants anyone needing to disclose a UK tax liability that relates wholly or partly to an offshore issue to use the WDF. An offshore issue includes unpaid or omitted tax relating to:

  • Income arising from a source in a territory outside the UK
  • Assets situated or held in a territory outside the UK
  • Activities carried on wholly or mainly in a territory outside the UK
  • Anything having effect as if it were income, assets or activities of a kind described above

The WDF should also be used when you have funds connected to unpaid or omitted UK tax that you have transferred to a territory outside the UK or are owned in a territory outside the UK.

Examples of tax liabilities that you need to declare

  • Income from letting residential property or land
  • Capital Gains from assets that increased in value between the time you bought them and the time you sold or transferred them
  • Income from running a business
  • Income from freelance or commission-based work
  • Income from accepting credit card or debit card payments
  • Investment income
  • Any other incomes that you should have paid tax on

Call Tax Agility on 020 8108 0090 about disclosing your foreign income on the Worldwide Disclosure Facility today.

The WDF process

To use the WDF process, you must first register and HMRC will issue you a unique disclosure reference number.

After the registration process, you have 90 days to:

  • Gather the information you need to fill in your disclosure
  • Calculate the final liabilities including tax, duty, interest and penalties
  • Compete the online form

As the WDF process may not be straightforward, we do encourage those who have foreign assets to come to us for professional advice first or allow us to file on behalf of you.

Don’t underestimate the implications

HMRC wants to send a strong deterrent message to those who don’t disclose their foreign assets. Accordingly, if you fail to make an accurate disclosure or refuse to provide supporting documents allowing HMRC to check the accuracy, you may receive a higher penalty and have your details published on the website. Also, HMRC may choose to launch a civil or criminal investigation against you. To save yourself from the headache and unwanted attention, it is best to speak to our qualified personal tax accounts first.

Personal tax accountants at Tax Agility

Tax issues are never straightforward and things can get complicated quickly if you have foreign assets which you may not know that you need to declare and pay tax on.

Fortunately, our personal tax accountants are here to assist. We will first seek to understand your tax affairs and identify what needs to be disclosed through the Worldwide Disclosure Facility (or not).

Should a disclosure is needed, we can help to register you, prepare and submit your disclosure, work out how much tax, interest and penalties you may need to pay, and negotiate a payment arrangement if it is needed. Working with you every step of the way, we can help to make sure that you aren’t paying more than you should, and the disclosure matter will be completed quickly, efficiently and professionally.

Call us today on 020 8108 0090 and speak to a knowledgeable tax specialist in either our London Richmond-Upon-Thames office or our London Putney Office.

Small business planning considerations for 2022

As the summer draws to a close, that is of course if you noticed summer or not, we enter a time of year where thoughts turn to next year’s business prospects. As an accounting firm, we’re mindful that businesses need to be looking hard at their bottom line and how they can operate as efficiently as possible.

2022 planing and strategy for small businesses in Richmond and PutneyEach year, we work with local businesses in the Richmond and Putney area, helping them plan for the following year, ensuring maximum tax efficiency and operational efficiency. Here are a few of our thoughts on what challenges business owners need to be looking at in 2022.

Covid business protection measures come to an end

There is a perfect storm of events nearing as September 30th approaches and earlier next year. On this date most of the governments business protection schemes come to an end.

Job retention scheme ends.

Known to most as the ‘furlough’ scheme, this ends after September. This means that business owners will once again bear the full brunt of employment costs. Think of this as a stress test for businesses that made heavy use of the scheme, as they will now need the cash flow to support employment costs.

Many businesses in the hospitality, health and leisure industries have relied heavily on the furlough scheme to survive. Although experiencing some return to normality since restrictions eased, business for many has not yet returned to pre-covid levels.

Ensuring outstanding receivables from customers are collected is going to be a significant factor underlying a businesses short-term viability. Also a challenge, will be working around potential new customer requirements and necessary adjustments to business models and practices brought about by the pandemic.

In a recent study by Santander, many small business owners surveyed said they did not believe they would see a return to any form of normality until mid-2022. That’s a long time to manage already damaged cash flow prospects. It’s perhaps not surprising that debt collection agencies and insolvency practitioners are readying for an increase in activity later this year and early next year.

Debt collection and insolvency

Business owners looking to recover debt owed to them during Covid, have been frustrated several times through government extensions to the Corporate Insolvency and Governance Act. However, these are now due to end on September 30th 2021. Debt owed before March 2020, when restrictions were implemented, can still be pursued though.

Figures from the Insolvency Service, suggest that unpaid business debt will reach £8.6b in 2021. In 2019 more than 17,000 companies shuttered their doors, with much debt written off and companies facing even more write-offs later this year. With the impact of business restrictions in 2020, some suggestions by financial analysts are that debt could reach £24b. But these figures do not factor in the impact of the lifting of financial support and debt recovery restrictions at the end of September. It’s likely that many businesses will simply not have the strength to continue, having been artificially supported by government schemes.

With a clear focus on improving cash flow, companies will want to chase down as much business debt as possible. A dilemma exists though. Chasing down client debts is a double edge sword. If you’re lucky, important clients will want to clear debts if they can and establish normal relations again, even if this is through a payment plan. Other’s though, may not be in a position to do so, or may simply be holding out, hoping your business will write it off. This will force businesses to look closely at the real value of their client base and force them to choose, as pushing hard will likely end a business relationship.

Commercial eviction ban ends

Many badly affected businesses that have been unable to pay rent since March 2020, face the prospect of eviction proceedings from April 2022 onwards, as the current ban on evictions was extended to March 25th 2022. Unless they can start paying off the rental debt or come to arrangements with their landlords, many will face insolvency proceedings.

Covid Loan repayments

In July, the government reported that it had made £80b in loans to businesses, including both Business Bounce Back Loans and Coronavirus Business Interruption Loans. This equated to around 1.6m business borrowing money through the banks. As mentioned earlier, we already know that insolvency practitioners are readying for an extent raft of new insolvencies, but the Banks too are believed to have invested heavily in strengthening their debt recovery teams, as it seems they are expecting a raft of defaults on these loans.

The main concern here is the potential for a cascade effect with some businesses, as one business relies on another. Very quickly, an insolvency in one firm could have a dramatic effect on several others.

Covid continues

Even though government assistance is drawing to a close, Covid is not done yet. While the severity of cases is lessened by the vaccination program, cases of Covid will still impact businesses and their staff throughout 2022.

Just as the virus evolve and introduces new complications, so too must businesses evolve. As we look forward to 2022 in our planning, we must make allowances for further interruptions. This may equate to keeping much more cash on hand or ensuring business models adjust and adapt to accommodate changes in the work force.

As Plato said: "Necessity is the mother of invention". New technologies that have been adopted to lessen the impact of Covid on business, such as the growth or home working technologies, have changed the way businesses work. This impacts other businesses too. One example is shared office space, networking hubs, and business office landlords in general. These are all highly sensitive to the circumstances we have experienced. As such businesses will need to adapt, else they may die.

Furthermore, we have already seen several large brands adopt different attitudes to staff working practices. Some declaring that nobody need be in the office for the foreseeable future, to others looking for a return to something close to pre-covid office attendance. This is sure to create a negative dynamic in many companies, especially where business owners need to foster close interworking that may have been a kingpin in supporting its brand persona or teams, placing even more pressure on perhaps a fragile business.

Job vacancies

With a record one million job vacancies reported in September, one might think this was a sign of business growth. However, there are also around one million people on furlough, many are young people too. However, it is highly unlikely that the two will just balance out or indeed if employees will still have jobs to go back to after the furlough ends.

Many industries have found that they now have a skills shortage, a lot to do with Brexit, but also as businesses shift their business models to adapt to new realities, people also need to adapt. For some, this may be problematic.

The reality is then, that businesses will likely struggle for some time due to staff shortages, just as the transportation sector is suffering currently.

Higher taxation

Business support for the past 18 months ultimately needs to be paid for. The chancellor unveiled plans to increase taxes on dividends and National Insurance by 1.25%. It may not seem a lot, but for businesses already squeezed by cash flow problems and directors who have probably not been paying themselves too well over the past year, this represents a further hit on cash flow and a reduction in income.

Planning for 2022

It’s clear that business owners, large or small, have much to consider and plan for in 2022. There are many unknowns, which of course makes planning very difficult. Ensuring your business is making best use of the financial resources available, tax efficient and is in good shape to take on the challenges of 2022 is where Tax Agility can help.

The team at Tax Agility in Richmond and Putney has many years of experience working with companies to help them structure and streamline their business to adapt to changes and to be resilient in coping with future challenges too. Our business consultancy service could be just what you need to close out the year and cement your plans for 2022, so contact us and discuss how we can help.

Reporting Employee Benefits-In-Kind

Employee benefits in kind, the P11D and what employers must report.

Attracting and retaining valued employees is not at all easy these days. One way employers like to try and ‘sweeten’ their employment packages is through benefits such as, private healthcare schemes, company vehicles to the humble mobile phone, but these have tax consequences too.

Why have benefits-in-kind (BIK) become such an issue?

You might wonder why in a time where employees find it increasing difficult to retain valued staff, why the Government is slowly making it unattractive to provide these benefits? The simple reason is that some companies have chosen to use this route to reduce their own tax bills by offering more benefits while providing lower salaries. Lower salaries mean less National Insurance and Pension costs. For instance on an employee earning £30K per year, the company pays 13.8% or in this case around £2,800 and then another £716 in pension payments per year. With a lot of employees, this soon mounts up.Reporting Employee Benefits-In-Kind

It works the other way too. In years past, an employee may have been able to opt for benefits ion return for a reduced salary - called "optional remuneration arrangements”. By doing this, the employee would pay less tax and national insurance.

Company cars have received harsh treatment in recent years, with the tax rate currently at 37%. The only exception, one that is becoming increasingly interesting for employees, is having a fully electric vehicle. Current tax legislation applies a zero tax rate to this type of vehicle.

So, to make benefits-in-kind a less attractive way to reduce a company’s tax burden, the government has continued to tax them.

What employers need to know about benefits-in kind and the P11D.

As an employer you’ll need to understand what constitutes a benefit-in-kind, what to report, how to report it and what the deadlines for reporting are. So here’s a recap.

What is a benefit-in-kind (BiK)?

In short, a benefit-in-kind is any benefit (perk) that an employee or director receives which is not included in their salary or wages. If you’re not sure, talk to us.

What are considered benefits?

The list of actual ‘perks’ HMRC considers as benefits is quite extensive, covering around 60 categories. You can see the full benefits list here.

For most people it comprises typical things such as private medical insurance, a company car, child care, expense allowances, clothing, mobile phones, home use, fuel for personal cars, etc. 

Mistakes are often made and employers / employees which can land them in trouble, such as when a director has overdrawn the director’s loan account by over £10,000. As this is deemed a loan, interest is due. Also, it’s very easy to forget about work related calls made from personal devices, such as a home phone or mobile and where this has been claimed back by the employee.

If you are not sure about any potential benefit you are giving or receiving, check with a knowledgable accountant like Tax Agility first.

How to Report Employee Expenses and Benefits

Employee expenses and benefits need to be submitted at the end of each tax year using form P9D or P11D, depending on the expense or benefit in question. The Government has provided a detailed list of common expenses and benefits online, clicking through to each of which will tell you which form you need, and how you should calculate what you owe.

You’ll need to submit a separate form for each employee; so if, for example, two full-time employees are provided with a mobile phone each for work, you’ll need to complete a separate P11D for each employee. If you submit a P11D you’ll also be required to submit a P11D(b), reporting what Class 1A National Insurance is due on your expenses and benefits payments. You can complete an online declaration if you didn’t submit a P11D, to ensure HMRC won’t contact you about it.

All forms should be filed through either HMRC’s PAYE Online service, your own payroll software, or by downloading the form online and posting it to the address you send your paper tax return to.

If you under-report on your employee expenses and benefits and, therefore, pay less tax than is required of you, you’ll likely be charged a penalty by HMRC if they believe your under-reporting to have been deliberate or due to carelessness. You may be asked to show evidence of how you accounted for each expense or benefit; records must be kept for three years.

PAYE Settlement Agreements

What are PAYE Settlement Agreements? It’s common for some employees to have to claim for small and infrequent expenses or benefits - perhaps a bond or reward for service or performance in a year, or a business trip claimed by the employee. These can be a pain to have to report separately. So, if you only pay small, irregular, and impracticable expenses or benefits to your employees you can simplify your tax and National Insurance Contributions by applying to receive a PSA so you only have to make one annual payment to cover all and any payments owed. Checkout our other article on PAYE Settlement Agreements (PAYE Settlement Agreement)

Are there any exemptions to benefits-in-kind?

The recent pandemic may have people asking this question, especially if they are using company cars. If your vehicle was not used for 30 days or more, you may be able to apply for an exemption. However, as with many things related to HMRC, you may need to be prepared to prove this.

As an employer, you generally don’t have to report typical expenses such as the following, provided that you are either paying a flat rate to your employee as part of their earnings - this must be either a benchmark rate or a special (‘bespoke’) rate approved by HMRC, or paying back the employee’s actual costs.

  • business travel
  • phone bills
  • business entertainment expenses
  • uniform and tools for work

Calculating Employee Earnings

Each employee expense or benefit will need to be calculated at a rate. The Government recommends you do this by adding the value of all expenses and benefits an employee has received over a given tax year to that of their annual salary (if they haven’t worked a full year with you, calculate the full-year equivalent of their salary and all expenses and benefits received).

When to report to HMRC using your P11D?

The deadline for submitting your P11D and P11D(b) is the 6th July after the end of the tax year.  For the 2020/2021 tax year, for instance, the deadline is 6th July 2021.  You must ensure that copies of the individual P11d forms are given to each of your employees by this deadline.

Class 1A National Insurance payments must be submitted by is July 19th or the July22nd if you are paying online.

Experienced P11D Tax Accountants

To speak with a professional to discuss whether you need to start paying tax on your employee’s expenses and benefits, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no-obligation consultation.

How to get a PAYE Settlement Agreement (PSA)

Calculator_TaxAgility Accountants LondonIf you’re a small to medium-sized (SME) business owner with a number of employees, you may wish to consider applying for a PAYE Settlement Agreement (PSA) to simplify your tax and National Insurance Contributions (NICs) paid on small, irregular, and impracticable expenses or benefits paid out to your employees.Read more

Complacency is the real business killer

Is complacency the real reason why businesses fail?

You’re probably thinking, “Oh no, not another one of those ‘why businesses fail articles’”. This article is certainly about why businesses fail, but this one is looking at the issue from a slightly different point of view. You see, the pandemic, for all its downsides, affords us a view of business issues from an accelerated lifecycle perspective. As an accountancy practice in London, Tax Agility we’ve learnt a lot over the past year.

In just a short space of 12 months, businesses have been hammered by a range of common issues one might not expect to see all at once during the normal lifecycle of a small business. At least not in such a short space or time, or as a result of a cascade of other business related troubles.

Business turmoilFor instance; it’s common for a business to fail because it experiences cash flow issues, or the loss of a major client, or staff turnover, problems or supply chain issues, or reduced seasonal footfall, even the occasional export/import issues. In recent times though, some businesses have experienced all of these, all together, as a result of both pandemic issues and the fall-out from Brexit impacting European supply routes and trading partners.

In a normal business lifecycle, all these issues can surface from time to time, sometimes over many years, and many can be weathered if handled competently. However, the global pandemic and Brexit have effectively put many businesses in a lab test tube, exposing them to a variety of tests within a short space of time. Many business owners and entrepreneurs have struggled with this. Furthermore, many more mature businesses have found that their business models simply cannot weather this type of storm.

While it’s easy to simply blame the pandemic or even Brexit, for some, the reason the business failed is not just because of these two protagonists. It’s likely that the business was already weak due to several other non-visible issues. The pandemic and Brexit have acted as a catalyst and exposed an underlying complacency in the way business has been done up to now.

Check out our articles on:

Complacency in business is a killer

complacency kills businessesIt’s important to be clear here, there’s no suggestion that a business fails because the operator of the business is sat twiddling their fingers or just counting the cash coming in. That’s not what we mean by complacency. Complacency can be as simple as working hard to meet business goals, but without acknowledging that the markets are changing around them. It’s a case of being overly ‘self satisfied’. The root cause can often be attributed to fear – fear of change, fear of upsetting what appears to be working. Under such circumstances a business owner simply convinces themselves that all is okay, rather like looking in a mirror and only seeing what you want to see.

The problem could best be exemplified by what has happened to the High Street, particularly larger stores. Such stores rely extensively on foot traffic, so when this dried up during the pandemic, so did cash flow. Some did have an online element to their business model, but not enough to support the operational cash requirements of the business when regular footfall derived income fell away.

Competitive business models will erode your primary revenue sources

You might be thinking that it’s a little harsh to criticise stores for not foreseeing something like a pandemic. The reality though is that more and more business is being done online, the trend is clear and some businesses simply haven’t adopted this extensively enough or quickly enough. Of course, it’s harder for some product lines to adapt because of the need for consumers to interact directly with this products. But not for all though, especially consumer electronics, many leisure items, regular domestic consumables and many others. Even retail apparel, although harder to manage online, is destined to increase further.mail order catalogs

Buying without fist seeing a product is far from new. Mail order has been around since the 60’s – the 1860’s!  The first mail order business was formed in 1861 by Welshman Price Pryce-Jones.

Another famous clothing and fashion related mail order catalog, Grattan, started life in 1912 and became very popular in the days prior to the internet, along with Littlewoods, Kays, Freemans, Marshal Ward and Great Universal Stores. Much has happened to them since the internet revolution. Most have either been acquired or evolved, with a web front being a major part of their business model. Take Littlewoods for instance. After merging with Great Universal Stores to become Shop Direct in 2003, was launched in 2009. They pride themselves on consistent reinvention. Check out Very’s story here.

Retails stores have been popular because people like to go out and shop. Will this continue? Probably. However, the population has now had an experience like no other and along with other pressures, such as the parking ordeal many towns now represent for those driving, and Covid’s likely legacy, the attraction may wane. The point is, alternatives exist, business models evolve, consumer appetites are fickle and popularity can change in an instant.  If you don’t have a Plan B, then beware. In fact, if your Plan B was the internet, it probably now needs to be Plan A.

Innovation, make it part of your company’s culture

Innovation is central to a business being able to keep up with the fast pace change we see in today’s consumer markets. We believe that for a company to be truly successful, innovation must be part of its culture. Just like Very. If it isn’t, employees and key management are likely to get complacent, because they are on the same tread mill everyday, with little motivation to explore new ideas and way to better serve their needs innovation

Of course, we recognise that most companies have an eye on where their markets are going. More often though, the changes they foresee are not necessarily seismic in nature. Often they represent new product or service derivatives – more subtle shifts, as opposed to something that represents a completely different way of working. The latter represents more of an environmental response. Environmental pressure is the most likely catalysts behind evolution – not just in nature, but in business too. Nature is a great teacher.

Innovation should be a key focus area for a business’s management, not just product or service improvements, but also environmentally, in how markets and consumers are reached, engaged, and fulfilled in response to changing attitudes, technologies and needs.

It’s not just a case of, ‘lets get online’ either. That ship has sailed, so to speak, as every business should have an online aspect to their brand. Innovation online today requires thought around user experience, and how to create a better ‘experiential’ dimension to a user’s journey.

Complacency is behind many of the commonly associated reasons for business failure

The following represents a list of some of the most common reasons why a business fails.  There’s nothing new in terms of the reasons. However, if we look at these with a somewhat different eye, it’s not hard to see the part complacency plays.

1. No viable business or marketing plan

No viable business planThe business has been set up, undoubtedly with good intentions and a vision, but without any form of business planning – basically, on a ‘wing and a prayer’, because the person behind it believed totally in what they were doing, perhaps even disregarding what others were saying or what the market indicators suggested.

A business plan is meant to take a good look at the realistic requirements for a business to achieve success, the resources required, and timescales. It should also look carefully at contingencies given associated risks with the target market. For instance, what would happen if first sales don’t come within the planning timeframes? How much cash would the company need to cover the deficit and how long could it survive before sales revenues begin to appear?

Excited entrepreneurs can often cast risk to the wind, believing firmly in themselves and ignoring sage advice or overly satisfied with early encouragement from prospects. How often have you heard a potential prospect, lavish praise on a new product you are trying to sell, provide endless encouragement, but then not buy.  The danger is that a business owner can believe the hype over reality and become overly self-satisfied in the strength of the product and market acceptance. In other words, complacent belief in success, despite other possible waning signs.

As a small business accountancy firm, we are always surprised how often we find businesses that run in to problem for the simple reason that they either don’t have a business plan (or marketing plan). Don’t make this simple mistake, it’s business 101.

2. Lack of a strong value proposition

no value propositionSimilar in nature to lack of a business plan, not having a strong value proposition clearly articulated and tested, can stem from over confidence gained from an early interest in a product or service from friends and family eager to boost egos. Ultimately, only your target audience really matters and early affirmation of product viability through market research should replace friendly encouragement as the basis of the business. Put simply, does the market actually need your product and do they buy into the value it professes to offer?

3. Lack of cash

A fundamental mistake many new small businesses make is to run out of cash. They just get the numbers wrong. Again, it’s usually due to over confidence, over estimating revenues, underestimating timescales and underestimating flow issues

Few plans ever go to exactly to plan, there are always hiccups and unforeseen problems. How well you have built contingencies to cover the costs of these ‘problems’, will determine how likely you will survive if a problem becomes extended and starts eating into cash. A common cause is simply due to revenues not arriving to plan. This is almost entirely out of the hands of the business, unless it’s secured early orders, but once they have been fulfilled, ongoing revenues need to happen quickly.

As we saw with the pandemic, it’s likely the vast majority of small businesses would not have survived unless they were given cash lifelines – either loans or help to pay salaries. However, few could have foreseen the extent of the crisis and there’s still an uncertain future, as many business still don’t know if their markets will return to a level that will support their operational cash flow needs.

As accountants working with a variety of small business types, our tip is to at the very least spreadsheet your cash flow workings, be realistic and brutally honest with yourself – look at worst case scenarios and build up from that. Do this regularly too, especially if circumstances change.

4. Over reliance on a few large customers

Over reliance on a few large clientsIt’s a nice feeling, having a couple of really great clients feeding your cash flow each month. For some business owners, such reliance would make them feel distinctly nervous. However, for others, especially those who have a great working relationship with their clients, perhaps are even friends, complacency can set in.

Tax Agility Accountants also works with its clients as business advisers, and businesses with a heavy reliance on a few major clients is an all too familiar pattern, especially with smaller or niche clients.

The problem is that you may never know there’s a problem with a client until it’s too late. When a business gets into trouble, it can be tough for a business owner to admit this to themselves and take action early. Also, because pride and ego play a part, a troubled business owner may not let his clients or suppliers know. Ultimately, the troubled business stops paying its bills, leaving your business looking at a write-off. As time ticks on, complacent business owners realise that they may not be able to fill the revenue gap quickly enough, as new business development can take a lot of time, especially for specialist or niche products and services. If this isn’t reconciled quickly, cash flow problems arise and that company’s ability to pay its debts leads to insolvency.

The answer here is to always have more clients that you actually need to make a comfortable profit margin. Don’t let a few large clients dominate your cash flow security.

5. Taxation oversight

Tax and VAT oversightTax is a complex discipline, made worse where issues such as overseas VAT is concerned. Always get specialist advice, especially now we are post-Brexit and the situation with the EU is far from clear.

Don’t make the mistake of simply assuming you don’t have to pay taxes.  Or indeed, that the country you are doing business with won’t demand tax is deducted until you can prove where your company is domiciled, can be simpler said than done. There’s a heavy focus by governments at present on taxation as applied to digital products and services.

Having a chunk of change removed from your expected invoice payments, because a clients obliged to hold back tax payments, can cause serious cash flow issues.

Tax advice and tax planning are key services Tax Agility provide. It is a complex issue, so take good tax advice if you are in any doubt

6. Dependency on key staff

key staff and trust issuesHaving people you can trust in key positions within your business is a great help and a boost to confidence, in that you believe somebody ‘has your back’ and is working with your’s as well as their own interests at heart.

However, one can get complacent and start ignoring the warning signs that all may not be well with your ‘partners in business’, or indeed people you rely onto get fundamental aspects of the job done. Circumstances might arise where a key person becomes incapacitated or unreachable on holiday. Business may become severely affected. Worse still is the prospect of effectively being held to ransom by a key skill bearer who suddenly decided that they are unhappy.

People are naturally defensive where sharing aspects of their work is concerned. For some, the thought that they could be replaced is unbearable. At some point the “you couldn’t do this without me” syndrome becomes a clear and present danger to the business, especially if the individual concerned is a key member of the team.

Always ensure other people can cover the roles required and, make sure this attitude is part of the company culture and embraced by all.

The other concern with dependence on key staff is the potential for fraud. It’s a subject of its own. We have an article on small business fraud here.

When people believe they have your complete trust, some may take advantage of this, or find themselves pressured in exploiting your trust because of negative personal circumstances. Don’t get complacent, review your relationships and levels of trust within the business regularly, so you can spot the warning signs.

Final thoughts

When it comes to the main reasons why businesses fail, there’s nothing new under the sun, as the saying goes. However, what recent events have taught us is that the catalysts for failure can be different to what we might normally be used to.

Is what we experienced recently just a ‘one-off’? An extraordinary event? Possibly. But, consider the pace of change we have seen in other areas of business over the past few years, such as new technologies, significant growth in internet enabled businesses, and the need to adapt to fast moving consumer / client trends as they adopt different buying or working practices. Such changes point to a future requiring businesses to be far more innovative and adaptable, not taking their client base for granted and definitely not being complacent in their day-to-day operations and outlook.

If you are concerned about the issues your business is facing, act today. Tax Agility accountants provide specialist accounting services for small businesses. We’re based in Richmond and Putney, but serve clients throughout London and the south east. Contact us here.

Why not check out our series on building a better business here.

Business to business networking

Small business owners, surprise! Your new best friend is?

Running a small business, or for that matter even a larger business in a time of crisis requires creativity and determination, and often help. When business is ebbing away due to your client base shrinking, you need to find new clients, which is not easy when businesses are in self protect mode. It may surprise people, but one source of potential business leads, could be your accountant. That would make him or her, your new best friend.

Regardless of which sets of numbers you believe, in relation to small business failure rates, it's clear that starting a new business or running a smaller business is a tough job, even more so, given the way the pandemic has affected so many small businesses and dramatically changed many businesses landscapes.

These businesses need all the help they can get; but there's one source of help that is often underestimated and under-utilised beyond their usual function, not so much from the perspective of the SME, but from the source itself, and that might surprise you!

No, not your dog, but your Accountant!Your accountant is your new best friend

Boring? Don’t click away, they, ‘we’, may have a reputation of being perhaps somewhat introverted, poor communicators, tired and dusty, but we want to dispel that myth and show you how, as a small business owner / operator, you should be looking to your accountant for business introductions.

A social B2B broker

Did you realise that your accountant could become the centre of your networking world? Now there's something to ponder! For that matter, how many accountants realise how much extra benefit they can add to their client’s business and growth opportunities, purely because of who they know and are connected to? There’s tremendous opportunity to be an effective business introducer, socially at a B2B level.

Many accountants talk about how they can help their client’s businesses grow. For the most part they are referring to the experience they have in identifying hurdles and obstacles to growth from a tax, cash flow or P&L basis. Often they are able to draw on experience from other businesses in similar markets or industries they have worked with over the years.

Smaller, more adaptive and eager for growth, just like our clients

accountants give you ideasHowever, the best way to help a business grow is to introduce it to potential clients. Some of the best accountants to do that are the ones that actually specialise in small business accounting. Why? Because they don't have the luxury of sitting back and servicing large corporate clients where little ‘personal’ interaction actually takes place.

For smaller specialist accountants, survival is all about capitalising on offering services that focus on customer service excellence and introducing services that make the accounting process highly efficient, so more clients can be served without sacrificing service levels. In short, small business accountants have to be highly adaptive, creative and fast.

This is why so many offer ‘cloud-based’ accounting services, such as Xero, our particular favourite. It puts the business firmly in control of essential management data, allowing them to make faster decisions.

For accounting firms such as ourselves, it means we can service more smaller clients and still provide valuable business advice and expertise, maintaining that close personal relationship we’ve built our name around. It just makes sense to leverage this for greater benefit of our clients.

Your accountant as a novel networking opportunity

Business to business networkingLet’s step back a moment, to the bit about introducing clients to other clients that may be potential customers. We’ve all been to networking events and know how potentially useful for new business opportunities that can be, but they can also be a terrible waste of time if they don't quite turn out as expected. As a small business operator, it’s likely your accountant is sitting on a wealth of potential opportunity for you. It’s in their interest to put people together, to quote a well-used phrase in networking circles, it’s about ‘givers gain’. And these shouldn’t be just any old referral, the nature of the business means referrals between clients are always going to be qualified high-quality introductions.

Furthermore, your accountant is often very aware of the different issues small businesses face when trying to grow. Part of what we do at Tax Agility, is to help clients overcome obstacles. And we can do that because we have helped others through the same problems. The insight this affords us also means we can see potential synergies between small businesses, where growth in one may represent an opportunity for another, or indeed, where growth in one could be the catalyst another business needs for growth.

Small business accountants often have a wealth of diverse clients, the smaller accountants with a solid base of clients are also likely to be more ‘personable’, ‘outgoing’, ‘fun’, ‘interesting’, in short, real people you can relate to, and, wait for it, becomes friends and hang out with! All the essential qualities for a little business match-making. Novel really, when you think of the usual accountant stereotypes.

We like to think we are breaking the mould and reinventing the accounting practice by not only providing essential accounting, tax and bookkeeping services to our clients, but also by proactively making the appropriate introductions between clients that could do business together.

Tax Agility is London's 'local accountants', serving small businesses, start-ups, contractors and individuals within the London area.

If you’d like to know more and let us become your best friend, call Tax Agility on 020 8108 0090

business crisis action

Business tips for weathering a crisis and the importance of cashflow management

To be able to achieve its goals and make a profit for its owners and shareholders, a company must be able to maintain an adequate cash flow. Cash is the lifeblood of a company, without it, no visions can be realised. It’s also the key to being able to weather a crisis.

Crisis events – such as an economic downturn, the failure of a key customer or supplier, a pandemic – have a way of stress testing a company’s financial position, particularly its cash position. So what are some of the best ways to build and maintain a healthy working flow of cash?

Most businesses in the UK have experienced issues with customer late payments and the statistics around this (shared below) are troublesome for many business owners. But, if you combine the late payment issue with a general crisis, such as the pandemic we have experienced, problems can mount up quickly, even for companies with a relatively strong cash position.

Once the crisis is over, any government support a business may have received will only have delayed problems if the business still can’t rely on a healthy cash flow.

Crises that affect an industry as a whole can mean that your normal cash resource – receivables – become very unreliable. Most businesses are used to chasing payments, but when those payments start to dry up because the clients concerned are going into receivership, you will have to rely on your own financial strength, and that’s where foresight and planning come in.

Preventing a crisis is better than trying to cure one, so here are a few points to consider that may help minimise the risks of suppliers and customers becoming a problem for business and impacting your operating capabilities and cash flow in the future.

Some of the key questions we look to answer in this article include:

  • “How do you survive a business crisis?”
  • “Who do you manage cash flow in a crisis?”
  • “How can a cash flow crisis be avoided”

As specialist small business accountants, Tax agility has advised and assisted many small business through troubled times. Read on to explore the advice and tips we have given our clients over the years.

5 simple due diligence checks to help protect your business against preventable crises

The following five checks are basic due diligence points many businesses often fail to conduct. Also, these checks aren’t something to be done once when first creating a relationship with a new supplier or client; it is good practice to keep an eye on the fortunes of those you work with on an ongoing basis.

  • 1. Credit check

    Knowing how good a company you’re about to work with is at paying their bills, is just sound practice. The good news is that unlike personal credit scores, credit scores for businesses are publicly available through credit reference agencies. In the UK, these are: Experian, Equifax and TransUnion.

  • 2. Company House check

    Your second stop is Company House. Take a look and check the following:

    • The type of business accounts. Beware of ‘micro accounts’ from smaller companies (with turnover less than £632k or have balance sheet less than £316k). There is nothing wrong with being small and agile, provided that they can weather the financial storms like bigger competitors and have a good chance to pay you on time.
    • When were they incorporated? If within the last 21 months, they don’t need to have filed any accounts yet, so you’re going to dig a little deeper into the directors backgrounds.
    • The latest set of accounts. These are usually up to 9 months out of date, but can still give you an idea where the business is heading. Also, you can often see just what is on the balance sheet and how much debt and creditors they carry that may make them susceptible in the future if the ‘winds of fortune’ change.
    • Have they been filing regularly and on-time?
    • How much cash do they have on hand? This indicates their abilities to pay current creditor liabilities, and gives an insight into their cash practices.
    • Look carefully at the company that you’ve been asked to invoice. Some companies are set up as shells or holding companies. While legitimate, they can sometimes hide poor intent. Holding companies are often asset protection strategies used to limit liability in a business structure. The problem you then have is that any claim you make is likely against a company that has no real assets, leaving you high and dry. Make sure that the company you are working for and the company you are billing are the same entity.
    • Check who the directors are and what other businesses they’re involved with. This is a good way of checking the performance history of a director. How many businesses do they run? How well are those businesses doing compared with the one you work with?

  • 3. An industry view

    Get an appreciation for how the firm is engaging with its audience. These days, the internet is buzzing with information, particularly on social media. Check out:

    • What are other people saying about your potential ‘partner’?
    • Who are their clients and likely suppliers and how are they doing?
    • How much positivity or negativity surrounds them?

  • 4. Check the review sites

    The internet is packed full of useful information, so search for reviews on your client or supplier. There may be review sites for companies in your specific business area. It doesn’t take a lot of effort to do and may reveal something valuable about them.

  • 5. Ask around

    You may know other people who do business with your client or supplier. Ask around to get an appreciation for the experiences other people have had with them.

Some late payment statistics

There are some 5.7 million SME’s in the UK (as of 2018). These account for over 98% of all businesses.

78% of these businesses are owed money and are on average waiting at least one month over their greed payment terms for payment.

40% of the companies owed money claim that large businesses are the worst offenders.

34% of SME business owners report that they have to rely on overdrafts to help make ends meet because of late payments.

43% of SMEs rack up around £4.4 billion in costs associated with chasing late payments.

11% of SMEs experiencing late payment difficulties end up employing debt collectors to chase payments.

14% (1 in 7) of small business owners have been unable to pay employees because of late payments.

38% of small business owners have been unable to satisfy debts due to late payment cash flow issues.


(sources: Bacs, Intuit, ONS)

Why is cashflow so important?

Cash is the lifeblood of a business. Without cash you can’t grow your business, and you can’t pay your employees or your suppliers. After a while, you’ll end up with a bad credit report which will bring on even more pain, especially if you need financing, as you’ll be considered a higher risk and will likely end up paying higher interest rates, or worse, not getting the loans you so desperately need. So, cash really is king.

Tax Agility Accountants offer it’s clients cloud based accounting services, such as Xero, that make day-to-day cash flow management and forecasting a simple affair.

How much cash should you keep in a company?

It’s quite normal to hear shareholders saying that keeping large amounts of money in a company is a waste of investment opportunity. The question though, is how much is it prudent to keep?

This really comes down to the operational characteristics of your business and its markets. For instance:

  • You have a good feel for how long it generally takes for people to pay you.
  • What your ‘burn rate’ is – i.e., your monthly cost base, the essentials you have to pay for.
  • How much you need to maintain stocks of products or materials for sales fulfilment or manufacturing.
  • At the end of the day, it’s up to you, but there are some rules of thumb more seasoned business owners stick to. For instance;  keep enough cash in the business, at all times, to keep the company afloat if there’s no income for three to six months.

Do a cash flow projection

If you know your burn rate, and likely payment dates for your payables and your receivables, then, along with your current cash balance, you can perform a cash flow projection. This is a little bit of analysis that takes a set of assumptions and calculates how much cash you’ll have to work with at a later date. It will also help you understand at what points in the coming months your cash situation is at its weakest. How accurate your forecast is depends upon how accurate the data is you put in.

Cashflow planning and projection is definitely something the team at Tax Agility can help you with. So why struggle? Call us today on 020 8108 0090.

A cash flow forecast also allows you to do a little ‘what-if’ analysis. For instance: What if a significant payment isn’t made to you on time or by a certain date, what impact will that have on your ability to pay your bills? The cash flow analysis is a critical part of running your finances proficiently. While you’re doing this, calculate your current break even point – what needs to come in to cover what goes out – basic month to month profitability.

Cash flow forecasts are also essential if your business is looking to grow, and you need to use your cash at strategic points in time – will you have the money you need? How much can you take out and commit to a project and over what period of time?

crisis planning

Cashflow management in a crisis

There’s one certainty in business and that’s uncertainty. Circumstances change, which can be a good thing, provided you have prepared for it, such as naturally evolving market conditions, maturing client/supplier relationships, cost of materials and key services, etc. Sometimes though, businesses can be caught off guard, such as what happened in the banking crisis of 2008, unforeseen aspects of Brexit, or the recent coronavirus pandemic.

Forget about profit – for now

No matter what the situation, cash is always king. Without it your business won’t survive. In times of crisis, forget about profit. Some believe that profit is the number one priority in business. It’s obviously essentially that a business makes a profit at some point, else why be in business? But, underpinning a business’s ability to make a profit is working capital, the money that keeps the gears in the company turning.

Crisis review

“Facing down the barrel of a gun”, is how some business owners describe the impact of the coronavirus pandemic. Without a regular flow of cash coming in, even with assistance from other areas, some businesses are only delaying the inevitable, as they must still have cash once a crisis is over to be able to recover.

However, not all crises are business-wide like a banking crash or global pandemic, they may be as a result of a crisis within a specific industry or just your company.

Examples may include issues such as:

  • Raw materials shortages because of sudden import restrictions.
  • Export issues caused by shipping issues (container shortages), such as happened with Brexit.
  • Sudden changes in currency exchange rates impacting profitability in other countries.
  • Changes in government regulations, such as the recent VAT rule changes in the construction industry that will impact those who rely on VAT collected as a form of cashflow.
  • The loss of significant personal affecting critical skill needs.
  • The loss of a major client revenue affecting cash flow.

The essential thing to do in any crisis is to urgently review your cash flow forecasts. Ideally, at some point you may have conducted a ‘what-if’ analysis and already know the minimums under which your business can function relatively normally. Now it’s time now to start looking at the areas you can make cuts.

Here are a few things you can do:

  • 1. Get a grip on your business environment

    • Golden rule:  Don’t panic. It’s especially important to those around you to see that the company’s leader is cool under pressure and reassuring. The last thing you want is to instil panic in your work force. However, people are naturally going to worry and likely have questions about their future, so prepare for that.
    • Don’t overreact. Decisions you make now will likely impact your business for years to come. The measures you take now should be calculated and step-by-step, not knee-jerk.
    • Call in assistance from those you trust – start with your accountant, then consult trusted acquaintances who know your business.
    • Keep an eye on your business’s focus, the value it brings to your clients and the market as a whole – the reason you are in business in the first place. If the changes you make take the business outside of this, you’ll likely be adding to your woes later. The changes you make should be in-line with your core business values.
    • Keep talking to your stakeholders and business partners. Make sure those who ‘need to know are in the know’. This is a basic foundation of trust, and you really don’t want to undermine that, otherwise you may start losing key support.

  • 2. What impact is the crisis likely to have?

    Dig out your cash flow forecast planning sheets. These were the ones you created when analysing your business’s operating cash flow needs and the ‘what-if’ scenarios that went with it. Look at the following:

    • Which areas of your business have been impacted and which will have the greatest impact?
    • What’s your current cash position?
    • What is the minimum amount of cash required to keep the company operating for a defined period and satisfying your essential client needs.
    • What costs are essential and which are not? Dig deep on this and prepare to be ruthless if need be.
    • Are your clients also impacted by the crisis, or is the crisis just affecting your business?
    • What debts are likely to fall due over what periods?
    • How quickly can you reduce your accounts receivables?
    • Revise your cash flow forecasts and set out new projections for the next 6 to 12 months, allowing for the variables above that you think are realistic, and perhaps a few you think may never happen. The point is to really stress test your business scenarios.

  • 3. Emergency short term action

    Once a crisis is apparent and the facts present themselves, it’s important take action quickly to preserve your cash reserves.  Consider the following short term actions:

    • All non-essential spending to be frozen.
    • Essential purchases to be approved first.
    • Impose spend limits on essential purchases.
    • Freeze salaries.
    • Freeze hiring.
    • Review temporary staff positions.
    • Look to improve working capital: Approach creditors for short-term revisions in payment terms. Reduce your accounts receivables.
    • Consider invoice financing; this is a way to finance your business short-term based on your legitimate receivables.
    • Look for other sources of financing, such as government loans or grants, private financing options, bank loans.

    During a crisis, it’s essential to have up-to-the minute information about the financial state of your business. Central to this is accurate and up to the minute set of management accounting reports. These allow you to snap-shot the current financial state of affairs, from the state of your receivables, current liabilities, cash in the bank, P&L and balance sheet. The systems you use will dictate how readily this information is to you. Those businesses already using cloud accounting software will have this information to hand, because of the flexibility tools like Xero Accounting Software provide. If you’re not using management reports in this way, here’s an article on why management accounts are critical to the operation of your business.

  • 4. Strategic, longer term actions

    It’s important to regularly review the situation your business finds itself in and, if you can, plan for a post crisis future. Although not welcome, crises can be beneficial in some ways. A time of great change can shake up a business and make it realise what it has been missing out on. For instance, complacency in business is another major business killer. Complacency comes in many forms, but usually occurs when a company is enjoying profitability and success for a long period of time. However, many things can upset the utopian world, not least:

    • Taking your eye off the competitive situation and losing market share.
    • Not responding to changes in the market; becoming irrelevant.
    • Being unaware of changes in consumer attitude and buying trends; being replaced.
    • Not taking advantage of new technologies and processes.
    • Internal systems that become inefficient and expensive to run.
    • Staff becoming lazy in their duties.
    • A feeling of entitlement among key staff members.
    • Poor crisis cash flow planning, indeed, poor planning.
    • Lack of realistic growth plans.
    • When responding to a crisis, many of these issues will surface and need to be resolved.

    There are other essential issues you should be look at when planning a recovery too.

    Account planning

    Consider the origin of your cash; your key clients. Crises that extend beyond your business may naturally be affecting your clients and your suppliers. They may approach you either for quick payment or delayed payment terms, just as you may ask. Relationships in business are another source of life and need to be protected.

    As part of your crisis planning, review your clients and suppliers and their fundamental importance to your business:

    • Which ones could be sidelined temporarily?
    • Which should you look to accommodate as much as you can?
    • Can your cash flow support extended credit terms for key clients that have also been affected.
    • Consider reduced payments or temporarily suspend contracts.
    • Can you use this opportunity to negotiate better terms with suppliers, or even clients?

    Operational efficiency

    Crises may reveal underlying problems in your business processes, typically things you have taken for granted in the past that may now be a burden. One example may be your IT systems and software licensing. If you have internal staff managing this, maybe it’s time to consider a more effective outsource solution. Equally, if you do outsource, maybe your contractor has become complacent too and now is a time to make a competitive comparison and ask for more favourable terms.

    Software licenses: These have a habit of auto renewing. Make sure you are still using the software and that it’s still needed.

    Review your staff structure: Are you using your headcount efficiency?

    Is everyone really pulling their weight? Could tasks be combined, and staff levels reduced?

    Unused inventory and inventory levels: Are you sitting on inventory that is either sold or represents unused material? Can this be returned or recycled? How much does it cost to store these items and are cheaper options available? Could you move to a more efficient ‘just-in-time’ practice, thus reducing exposure.

    Office space: Going forward, do you really need your current office space. Changes in working practices may mean that more people can work from home and share office space if needed. Review your current leasing arrangements and perhaps plan for smaller offices in the future, investing instead in technology and processes that enable a more geographically dispersed staff base.

    Accounting practices: Review your accounting and financial management practices. Some companies have in-house accounting or bookkeeping staff. With improvements in technology, cost efficiencies can be gained. Also, it may be better to outsource your accounting function. It’s a popular choice these days, especially as cloud software such as Xero allows delegated people in a company direct access to up to the minute operational financial data. Regular management reports can be run, up to the minute cash flow reports can be created and receivables information is at your fingertips. The best thing is, with this technology, you can have access to essential management information no matter where you are, through your mobile devices.

Closing thoughts

As we have seen, cashflow management and planning is the gateway to understanding your business’s ability to weather a crisis and it’s also a testimony to the quality of your business management too.

Consider also that, crises don’t just represent a clear and present danger. Provided a company is essentially sound and financially viable, a crisis can also represent an opportunity. Weathering a crisis is an opportunity to review your company’s operations and to look for opportunities where perhaps other competitors are not able to recover so well.

Crises are times when a company is stress tested by natural events. As such it can be an opportunity to make more drastic changes to your company’s operation – justifiably so.

The message is then, don’t panic, react calmly. Take a balanced look at what steps you have to take to weather the storm. But, also use this as an opportunity to emerge a stronger and more competitive company.

The business world is more data-driven than ever before, to the point that even the smallest businesses now need the flexibility and accessibility to critical business data at their fingertips, rather than just when they review things with their accounting or bookkeeping staff.

Cloud accounting tools like Xero can help. No matter, where you are or what device you have, you have access to essential financial management information 24/7.

Furthermore, data-driven accountants like Tax Agility can help you get a better grasp of your company’s day-to-day financial management too, particularly in how to prepare and respond to business crises.

So contact us and find out how we can help in a proactive way.

Domestic VAT reverse change for building and construction services

Traditionally, the value-added tax or VAT is a tax based on a percentage of the sale price; and is applied at each stage in the production and distribution chain. However, for the construction industry, that's all changed.

CIS VAT reverse charge schemeFrom 1 March 2021, the new VAT domestic reverse charge system for building and construction services will take effect. As the name implies, it only affects jobs that building tradespeople carry out for their clients in the construction industry.
This new system aims to reduce the missing trader fraud common in the construction industry, whereby a supplier or subcontractor would invoice and charge VAT to another builder, before going missing or going into liquidation. With this reverse charge, the VAT is moved down the supply chain, making the main contractor responsible for the VAT and pay it directly to HMRC.

To aid the process, the government has published a flow chart which lists key questions that can help you determine whether a reserve charge should be applied or not if you are supplying services customers. As such your customer must have the following attributes:

  • Does the supply fall within the scope of Construction Industry Scheme (CIS)?
  • Is the supply standard-rated or reduced-rated?
  • Is your customer VAT-registered?
  • Is your customer registered for CIS?
  • You’re not an employment business supplying staff or workers
  • Your customer has confirmed that they are not an end user or an intermediary supplier?

If the answer is ‘yes’ all of these questions, then the domestic reverse charge applies, meaning when you issue an invoice to your main contractor, you don’t include VAT on your invoice. Instead, your invoice should state “Reserve charge: Customer to pay VAT to HMRC", along with the VAT rate. This is to make it clear that the reserve charge system has been applied, and the main contractor knows what rate to declare on their return later.

If the answer is ‘no’ to any of the first four questions, then normal VAT rules apply.

Further guidance provided, explains some of the differences between ‘end users’ and ‘intermediary suppliers’.

What is the difference between an end user and an intermediary supplier?

End users are the actual consumers or final customers of a service. The reverse charge does not apply to end users.

An intermediary supplier is a CIS and VAT registered business connected or linked in some way with an end user. This connection could be through the holding of relevant interests in the land or buildings with the construction work is to take place. Landlords and tenants are an example, as are constructions services carried out within a group of companies.

Further helpful definitions

To help define the circumstances and applicable scenarios further the government provides the following additional guidelines:

When you must use the reverse charge

  • Constructing, altering, repairing, extending, demolishing or dismantling buildings or structures including offshore installation services;
  • Constructing, altering, repairing, extending, demolishing of any works forming, or planned to form, part of the land, i.e. walls, roadworks, power lines, electronic communications equipment, aircraft runways, railways, inland waterways, and more;
  • Installing heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection systems in any building or structure;
  • Internal cleaning of buildings and structures, so far as carried out in the course of their construction, alteration, repair, extension or restoration;
  • Painting or decorating the inside or the external surfaces of any building or structure; and
  • Services which form an integral part of, or are part of the preparation or completion of the services i.e. site clearance, earth-moving, excavation, tunnelling and boring, laying of foundations, erection of scaffolding, site restoration, landscaping and the provision of roadways and other access works.

When you must not use the reverse charge

Do not use the charge for the following services, when supplied on their own:

  • Drilling for, or extracting, oil or natural gas;
  • Extracting minerals and tunnelling, boring, or construction of underground works, for this purpose;
  • Manufacturing building or engineering components or equipment, materials, plant or machinery, or delivering any of these to site;
  • Manufacturing components for heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection systems, or delivering any of these to site;
  • The professional work of architects or surveyors, or of building, engineering, interior or exterior decoration and landscape consultants;
  • Making, installing and repairing art works such as sculptures, murals and other items that are purely artistic signwriting and erecting, installing and repairing signboards and advertisements;
  • Installing seating, blinds and shutters; and
  • Installing security systems, including burglar alarms, closed circuit television and public address systems.

Some basic examples of how this works in practice

Example 1: a transaction under reserve charge

You are a subcontractor who is VAT-registered and you charge 20% VAT normally. You carry out painting and decorating work in an office block for the main contractor AB Construction Ltd. Upon completion, you invoice AB for £2,000 on paint and other materials, and £4,000 for labour. You charge £6,000 in total but no VAT. Your invoice will mention the VAT rate (20%) and the phrase ‘Reserve change: Customer to pay VAT to HMRC’.

On your VAT Return:

  • VAT on sales – suppliers must not enter output tax on sales under reverse charge. The supplier only need to enter the net value.
  • VAT on purchases (goods) – if you buy services subject to reverse charge, you must enter the VAT charges as output tax on your VAT return. Make sure you do not enter the net value of the purchase as a net sale.
  • If the services provided (expertise/labour )are  subject to reverse charge from the subcontractor, the VAT must be accounted for in your VAT return and VAT will be recovered simultaneously on the same VAT return.

Example 2: a transaction not under reverse charge

You are a subcontractor who is VAT-registered and you charge 20% VAT normally. You carry out painting and decorating work in an office block for the owner, who confirms that he is the end-user. Upon completion, you invoice the owner £6,000 for the materials and labour, plus £1,200 for VAT.

This is reported normally in your VAT return.

Important note on the cash accounting and VAT flat rate schemes

An important point to note here is that the cash accounting scheme cannot be used for supply of services that are subject to the reverse charge. The same is true for the flat rate scheme (FRS). Users of these schemes will need to consider whether it is still beneficial to their businesses to use these schemes.

This will impact likely your cash flow, so be aware

Under the old scheme, a business would charge their fee plus VAT. If the customer was a prompt payer, the charging business would have a 20% cash flow advantage from the VAT, potentially for up to 3 months. Under the new scheme, the business won’t charge VAT and therefore won’t benefit from the cash flow advantage.

If you aren’t sure, talk to Tax Agility

Prepare yourself by making sure that your accounting systems and software can deal with the reserve charge, and take time to review your contracts with other builders and suppliers.

At Tax Agility, we are also here to provide professional guidance on this issue. You can speak to our VAT specialist.

R&D Tax Relief Scheme Changes 2021

Changes to the SME R&D tax relief

Changes announced late last year concerning the R&D tax relief scheme come into force on April 1 this year, are you ready?

R&D Tax Relief Scheme Changes 2021Aiming to put UK at the forefront of R&D and help companies compete on the world stage, the government has introduced various R&D tax reliefs, including R&D for small or medium-sized enterprise (SME), universities and charities, as well as R&D Expenditure Credit for large companies.

From 1 April 2021, the new SME R&D tax credit scheme will take effect, with the introduction of a cap on the amount of credits that could be claimed.

An overview of the SME R&D tax relief scheme

When the SME R&D tax credit schemed was first introduced in 2000, it had a cap on the amount of credits that a company could claim. In 2012, the cap was removed, thereby allowing eligible companies to deduct an extra 130% of their qualifying costs from their yearly profit, as well as the normal 100% deduction, making it a total of 230% deduction. Even when a company was making losses, it could still claim a tax credit worth up to 14.5% of the surrendarable losses.

The system was subject to abuse and fraud – HMRC announced that they had detected and prevented fraudulent claims amounting to over £300m in recent times. Many deceptions included people setting up a UK-based entity just to claim tax credit despite no R&D work was actually performed in the UK.

Consequently, from 1 April 2021, the government will introduce a cap, limiting the payable R&D tax credit to three times the total PAYE and NIC liability of the company for the year, plus £20,000. This also means that the first £20,000 of repayable tax credit claim will be exempt from the cap, thereby protecting smaller SMEs with few employees.

For a genuine SME that employs people to carry out R&D work in the UK, the new changes will have little or no impact. However, for a company that doesn’t have any real UK-based activities, or one that doesn’t employ people but relies on subcontractors, the new rule will discourage them from making an R&D tax credit claim.


The new changes will not apply to companies that:

  • Have employees creating, preparing to create, or managing Intellectual Property (IP), and;
  • Do not spend more than 15% of its qualifying R&D expenditure on subcontracting R&D to, or the provision of externally provided workers (EPWs) by, connected persons.

R&D and IP creation

Ideally, R&D work would lead to IP creation, and if this is the case, your company could also take advantage of the Patent Box – a scheme that allows companies to apply a lower rate of Corporate Tax to profits earned from its patented inventions.

‘Related party PAYE’

In calculating PAYE and NIC liabilities, claimants may include related third parties, i.e. those companies performing R&D activities on the claimants behalf, as long as the work is directly attributable to the development activity.

Talk to Tax Agility

The first step is to seek professional guidance on this issue if you aren’t sure how it is going to impact your business.