Power shift from customer to supplier

I’m sure we’ve all heard the adage “the customer’s always right”.  Theory being whilst they might be demanding, possibly even unreasonable from time to time, they are what pay the bills so you have to try your best to keep them happy.

Does this apply anymore?  I’m starting to think not.  I think there’s three main reasons for this.  How new these are I’m not sure, but it seems to increasingly be the case that suppliers call the shots.


Customer lethargy?

This really hits with the big corporates.

We’re all guilty of lethargy as customers here.  We’ll moan about our bank/utility provider, but very rarely change.

We’ve become accustomed to sitting through 20 minutes of “your call is really important to us, please continue to hold” automated messages, before possibly speaking to a human.  We hate it, but don’t expect other suppliers to be any different, so stick with “the devil we know”.

We also know that their price quotes are mostly marketing spin.  You go to some price comparison site, every competitor price is lower than the deal you’re on now…but that’s just because they hook you in on a low deal, then ramp up the price a year later, knowing again that whilst you’ll think about doing something about it, you probably won’t bother.

Unfortunately I don’t think there’s any way to fix this.  Perhaps we are all busier than we used to be, and the belief “they’re all as bad as each other” means we put up with it.

The corporates know this, which is why they put so little effort into customer service.  It sounds like a terrible idea for a small business to not care much about your customers…but for big corporates it seems it’s a rational business decision.

So the end result is the supplier charging you an unreasonably high price, but you as customer do nothing about it.


Simple supply and demand?

We’ve been trying to get a few bits of building/handyman work done over the last few years.  I imagine many people have been in the situation we’ve encountered:

So you need some work done.  You contact 3 builders, expecting 3 quotes, so you can go with the one who you felt comfortable could do the job and price was ok.  Is that what happens?  Not from my experience.

You contact 3.  One won’t respond at all.  One will come round promising the earth but then never be seen/heard from again.  The third, if you’re lucky, will actually give you a quote.

If you actually wanted 3 quotes you’d probably need to contact 10+ builders.

The above is just to get the quote.  You then confirm with the “lucky” builder that you want to press ahead, and struggle to pin them to a date when they can actually start.

Why?  I’m not a builder so don’t know for sure…but I think in the South East it’s perhaps largely a supply/demand issue.  With house prices so ridiculously high, building an extension compares well with the other option of moving to a bigger house.

This applies to far more than just building work, but is perhaps an issue only suffered when dealing with suppliers of a tailor made service, rather than an off the shelf product.

What it means is that it’s all very well being a customer with cash sitting in your pocket, but that doesn’t in itself guarantee you’ll find plenty of suppliers wanting to provide the service you’re after.  Very frustrating situation to be in, especially when all you hear on the news is about massive unemployment etc etc.

Then the work starts, things take longer than expected, cost more than quoted, you don’t get the calls with updates when you were promised…but when you ask around your peers it seems like that’s par for the course.  You therefore end up having little choice but to be grateful for the average service you get.

Only thing I don’t understand is why more suppliers don’t politely decline the work at the outset, rather than string you along with promises they seemingly have no ability to/intention of keeping.


Automation/systemisation reducing flexibility of suppliers?

Possibly this is the only “new” one, though could have started with Henry Ford and his no doubt slightly misquoted “you can have any colour you like, as long as it’s black”.  It’s also one I can sympathise with as a supplier.

For us to remain competitive, we need to be able to systemise things.  This largely means having Maslins clients fit a certain “mould”, so we can:
– have a database help keep track of things for us, like deadlines,
– do searches to easily find all clients who meet a certain criteria for advice purposes,
– ensure we can be on top of any tax changes that impact them (tax legislation is HUGE and constantly changing, so being an expert in every single thing is impossible).

On the MVL Online side it’s even more pronounced.  Clients need to complete an online form, again populating a database, which then has information pulled out into various templates across the lifespan of a liquidation.

This isn’t about providing bad client service, I’d certainly hope it’s about the opposite, ensuring we provide GOOD client service.  Avoiding the risk of over-promise/under-deliver, ensuring things don’t slip through cracks etc etc.

However, what it does mean is when a potential client approaches us, asking whether we can do things a different way to what we normally would, quite often the answer will be unfortunately not.  It’s not practical for us as a business to take on clients of all shapes and sizes, or each with very bespoke needs.

It also sometimes means a client who’d been happy with us to a certain point finds they have to move on.  Fortunately this is normally very amicable, and is typically due to a client becoming “too successful” and outgrowing us.

We’re of course far from the only supplier this applies to.  Indeed it’s more obvious with things like software.  Take a package like FreeAgent.  You can get it for circa £25/month and it’s great.  However, it can’t cater to every possible business.  If it doesn’t cater to yours, you could try to build your own system, but this would cost an absolute fortune in web developer time…alternatively you could of course look around for other “off the shelf” packages that might be better suited.

What you’ll quite often end up finding though is that you as the customer have to “give” in terms of what you want, because what the supplier provides is fixed.  Another example of the customer being a little low in the power rankings.


Interested in what other people think.  Have you been in situations where you as customer have felt very “weak”?  Or examples where you as supplier have got customers jumping through hoops just to give you money?!

Company cars are overrated

Quite a lot of clients ask us about company cars.  Long story short, in our experience it nearly always makes sense to find a modest car sufficient for your needs, often second hand, buying it personally, paying all costs personally, and reclaiming mileage from your Ltd Co for business journeys.

But the car salesman makes company cars sound so appealing

Of course they do, it’s their job.  They want to sell (or lease) you a brand new car now.  Even better if you’ll be trading it in for a newer model in a few years time.  By getting you onto a company car, you’ll find the tax rules potentially further encourage you to get into a cycle of regular replacement.

Two vital things to bear in mind when considering tax on company cars:

1) the benefit in kind tax is based on the car’s list price when new, irrespective of the actual age of the car.

2) the % band based on CO2 emissions keeps moving every year.  This is understandable, as cars get more fuel efficient, the government moves the goal posts to make it harder and harder to get the lowest %.  See here for a table showing rates for the last year or two and the next few years.

Year 1 – The year you get the car it seems great.  Let’s say the car’s list price is £30k, it’s petrol, and has CO2 emissions of 100g/km.  On the day you get it, it’s worth £30k to both you and from a tax perspective, and (based on 2015/16 tax year) you’re taxed on 15% of that value.  Seems a good deal, taxed on £4.5k per year to get usage of brand new car.

Year 2 – The car’s lost its brand new feel, but you’re still paying tax based on £30k, now at 17%.

Year 3 – The car’s starting to get a bit tired, but you’re still paying tax based on £30k, now at 19%.

Year 4 – The car’s worth a fraction of its list price is, but you’re now taxed based on an annual value of 21% of the £30k.  You’re now taxed on £6.3k per year to get usage of a four year old car.  It’s starting to feel very unfair, the tax you’re paying on it increases every year despite the car getting older and older and being worth less and less.

…so what do you do?

Well of course the dealer will suggest the best option is that you trade it in, getting the newest latest model, perhaps £30k again, but due to lower emissions you’re back at the 15% rate or thereabouts…and so it continues, you’re trapped in this cycle.

Alternatively, you continue with the same car owned by the company, as the car still works fine and you don’t need a newer one…but then you’ll continue to see your tax charge increase each year despite the car getting continually older and less valuable.

Your third option would likely be to buy the car outright, and with any luck you can agree a price with the dealer and the tax man so it’s you personally buying the car.  No more ever increasing benefit in kind, and you revert to reclaiming mileage.  This may seem the obviously most appealing option (at least to me?!)…but if that’s the case, why didn’t you just buy the 3 year old car personally in the first place?!


Other reasons to consider:

P11Ds – chances are if you don’t have a company car, you won’t have to do one (obviously check there are no other taxable benefits in kind).  Having a company car means you definitely will.

Fuel – you need to take care over who pays for fuel, you, or the company.  Money will likely need to be reimbursed one way or the other at rates which are regularly changing.  Alternatively you can get the company to pay for all fuel and accept a further hefty benefit in kind charge.

VAT fuel scale charges – if the company pays for fuel, you need to calculate the fuel scale charge to pay over to HMRC in addition to your usual VAT liability.  This is supposed to offset the fact you’ll be reclaiming VAT on all fuel, whilst some will be used for private journeys.

Your plans might change and you want to close the company – so you sign up for a 3 year lease, 1 year later you get offered a brilliant permie role, or emigrate, so want to close your Ltd Co.  You can’t…unless you can agree an early exit fee with the lessor, but that likely won’t come cheap.

So…when you’re looking at the shiny new cars and the salesman tells you what amazing tax breaks you can get by doing it as a company car, ensure you consider all the facts before pressing ahead.

Accounting and tax references and codes

Shortly after incorporating a company you’ll likely register for various taxes, have to activate online services, whilst your accountant attempts to gain agent authorisation for those taxes.  This all means you can be inundated with what seems like hundreds of codes, references and passwords.  Some are vital and will stay the same forever.  Others are one use then throwaway codes.

We’ve summarised all the main ones here with an explanation of what they are and if/why they’re important to you.  Immediately below is a downloadable/printable form you can use and complete with details for your own business.  Some are sensitive information, so of course only complete what you’re happy to and save somewhere secure:

Accounting/tax references/codes
Accounting/tax references/codes

Companies House related

Companies House registration number – 8 digits, all numbers.  Publicly available, permanent, and is unique to your Limited Company.

Authentication code – 6 digits, random combination of letters/numbers.  Password to file things online with Companies House


HMRC related

Company UTR – 10 digits, all numbers, used for corporation tax purposes.  HMRC don’t make it easy by often putting it as part of a longer reference.  Eg the first time you’ll get it, it’ll be the bold part of a reference in the format “123 12345 67890 A”.  It’ll also form part of a payslip reference, format “1234567890A00101A”.

Personal UTR – 10 digits, all numbers, used for personal tax (ie self assessment) purposes.

VAT registration number – 9 numbers, often spread out slightly in the format “123 4567 89”.  Sometimes preceded with “GB” if being used in an international setting.

Employer’s PAYE reference – 3 numbers, “/”, 2 letters, then further numbers (quantity varies), so something like “123/AB12345”.  Unique payroll reference for your business.

Accounts Office Reference Number – 3 numbers, 2 letters, 8 numbers, eg “123AB00012345”.  Another unique payroll reference for your business.  This one is normally used when making payments.

Gateway ID – 12 digits, used for logging in to the HMRC portal.

You will also on occasion get the below one use codes (not on the form above as by their nature no point in keeping a permanent record):

Activation code – following attempting to enrol for an online HMRC service (within your HMRC portal login), HMRC will send out an activation code by post.  This is a one use code to enter on your HMRC portal login to confirm enrolment of that online service.  This is a security measure by HMRC, as it means only those with access to post at the address HMRC have linked to that tax will be able to enrol the online service.

Authorisation code – following your accounting finding out some of the tax references listed above, they’ll likely request agent authorisation.  Data protection means HMRC won’t divulge your or your company’s financial details to anyone, so an account needs to be appointed as your authorised agent before HMRC will discuss your affairs with them.  HMRC will send a letter out to you with code to forward to your accountant if you agree with them being your agent, starting:
“CT…” for corporation tax,
“SA…” for self assessment,
“VT…” for VAT,
“PE…” for PAYE.

Should I register for VAT?

For the typical Maslins client, the answer to Q1 below is “Yes”, so it makes sense to register.  However, this won’t apply to all businesses, so I thought the short flow chart below should help people decide whether or not to register their businesses for VAT.

Should I register for VAT
Should I register my business for VAT?

There will inevitably be some exceptions, and exceptions to the exceptions…but for the typical small business the above will apply.

Why am I suddenly suffering NICs when I wasn’t before?

From January 2015 (“Month 10” of 2014/15 tax year), many directors of small companies taking salaries up to the personal allowance will find they’re suddenly stung by NICs when they weren’t in the previous month…what’s happened?

Director NICs
Director suffering employee NICs in month 10

You’ll see the image above for month 10 of 2014/15 for a one person company paying £833/month.  Boxes highlighted in red above show salary, employEE NICs suffered, employER NICs added, but then that the employment allowance effectively waives the employER NICs.  Net effect only the employEE NICs are suffered.


For the last few tax years (up to but not including 2014/15) accountants were generally agreed on what the “best” salary to take was, when you were in full control of the company, hence able to fully choose your salary/dividend mix.  It’d be the NIC threshold, which is typically a bit lower than the personal allowance.

In 2013/14, this amount was £641/month.  Paying slightly above this wouldn’t trigger a personal tax liability, but it would trigger NICs…both employER and employEE.  In the majority of cases, suffering both these NICs would outweigh the corporation tax saving of the slightly higher tax, so paying more was counter-productive.

How is 2014/15 different?

In 2014/15, the equivalent of the above £641/month is £663/month.  However, a small spanner was thrown into the works in the form of the “employment allowance”.  This basically meant that the first £2k of employER NICs suffered by a company would be waived.  Therefore paying slightly above £663/month does still lead to employEE NICs, but no employER ones.  Geeky calculations show that there is a modest overall tax saving to be had by doing this, as the corporation tax saved slightly exceeds the employEE NICs suffered.

Therefore for the first year in a while, a lot of micro business owners are taking a salary that does lead to some NICs being suffered.  Worth also mentioning here that many more won’t as they’ll have gone for the “easy” option of paying £663/month…very slightly more overall tax paid, but many argue not worth it for the extra admin.  There is no “right” answer.

£833/month means that over the year, the NIC threshold will be breached, but it’s still below the personal allowance, meaning no income tax is suffered.  If the salary were to go above £833/month, then income tax would be suffered as well, making it not worthwhile from a tax minimisation perspective.

How do NICs work for employees?

EmployEE NICs are a deduction from the gross salary, so the employEE foots the bill (hence the name).  EmployER NICs are an addition to the gross salary, so the employER foots the bill (hence the name).

For “normal” employees these are calculated on a month by month basis, with whatever was paid in previous months being irrelevant in the current month’s calculation.  Therefore NICs on “normal” employees tend to be fairly constant throughout the year, obviously changing a bit if/when salary increases/decreases.

What about directors?

To prevent some quirky ways those in charge could exploit the above (mainly by paying all their annual salary in one month each year), HMRC decided that director NICs should be done on a cumulative basis.

Each month is no longer looked at in isolation, you’re given a certain allowance from the beginning of the tax year, with no NICs suffered until it’s reached, then NICs suffered on everything following that.

For those paying £663/month, even at the end of month 12 they won’t quite breach this threshold (they’ll be trivially below it).

For those paying £833/month however, the threshold will be met part way into month 10.  Therefore whilst you’d have been happily paying £833 gross pay = net pay for the first 9 months, suddenly employEE NICs are suffered in month 10, and indeed they will be in months 11 & 12 too.

How do I pay this?

There’s a variety of ways you can pay this, see here.  If the company is small, the liability can be paid quarterly, meaning just one payment required in April for the NICs suffered in Jan-Mar inclusive.

Yuck, wish I didn’t have this

Potentially if you’ve been paying £833/month and now decide you’d rather not have the faff of making deductions and paying them over to HMRC, then if your month 10 payroll hasn’t yet been filed, it’s not too late.

If you prepare and file payroll for months 10-12 with a salary reduced to £153/month, you’ll end up below the NIC threshold.  Reasons being:

12 x £663 = £7,956 (below NIC threshold)
12 x £833 = £9,996 (above NIC threshold)
9 x £833 + 3 x £153 = £7,956 (below NIC threshold)

Tips when applying for trainee jobs in a small business

Firstly, I am not an expert recruiter.  I have no significant HR knowledge/experience.  However, as the owner of a (very) small business that’s taken on a few trainees over the years, I feel I can provide some guidance to those struggling to secure their first proper role.

I had a “gap year” after university.  It wasn’t planned.  Naivety meant I didn’t find it as easy securing that awesome graduate role as I’d expected, so I spent a year doing various low level temp jobs around periods on the dole.  Pretty depressing time…but then accountancy firm Tenon took a chance on me, and 10 years on look at me now (ahem).  I’m very grateful to them for that and hope I can do the same for a few others.  Point is, I know it’s hard for youngsters to get their first foot on the job ladder, and I’m keen to do any tiny little things I can to help.


The application/CV

This is your first chance to impress.  Mess it up, and it’s irrelevant if you interview really well.

  1. The cover note is vital.  When it’s a trainee role, I firmly believe the cover note is more important than the CV.  Your CV inevitably won’t have much in the way of useful work experience.  It’ll have your school qualifications and probably a bit of blurb about how you like sports/socialising with friends…point being, most junior CVs are very similar.  Take the cover letter seriously, it’s your main chance to stand out.
  2. Spell check everything.  We all make typos from time to time, but this is your first, and potentially only chance to impress, so don’t look sloppy.  Get a friend/family member with good grammar to review it too.
  3. Tailor the cover letter to the role.  This goes beyond saying “I’ve always wanted to be an [insert job title here]”.  If you could readily replace “accountant” with “solicitor”/”architect”/whatever, then it won’t convince me that this application is any more than a fleeting thought for you…not something any employer wants to take a punt on.  Why do you want the role?  What parts of your qualifications/experience to date make you suitable for the role?
  4. Tailor the cover letter to the firm.  As above, this goes beyond saying “I’ve always wanted to work for [insert firm name here]”…in fact, make sure you don’t do that, it’ll make you look daft and/or insincere when the firm you’re applying to is tiny and has only been going a few years.  Have a proper look over their website, see if you can pick out some things they specialise in and explain why that appeals to you.
  5. Address it to the relevant person.  Links with the above, take the effort to find out who’s likely to be the person making the decisions.  Avoid “Dear sir/madam” and use a real name if you can.
  6. If your CV has glaring weak spots, explain them.  Loads of us have some things that didn’t go as well as hoped in our lives.  An exam you flunked, job you got fired from, you dropped out of uni, period of unemployment etc.  In many cases you can “hide” these and get away with it, but where that’s unlikely, don’t just ignore it, explain it.  Recruiters are human too so will understand not everyone has a flawless record…and every now and then, it’ll work in your favour (eg the recruiter may have hated the same subject/been in a similar situation themselves).
  7. If you’re overqualified, explain why you’re applying for the role.  Perhaps not relevant for the typical school leaver, but a few of the applicants for our recent vacancy have left me baffled.  Their CV suggests they’re a high flyer in some other field…yet they’re applying for a junior trainee role…why?!  Sure, every now and then someone will decide they’re pursuing the wrong career and want to change…if that’s you, say so!  Otherwise you’ll be met with suspicion/it’ll be assumed you applied by mistake and/or will waste the recruiter’s time.
  8. Where are you/the role based?  We got quite a few applications from people hundreds of miles away.  Most made no mention of this fact, and that commuting wouldn’t be realistic.  Again, if there’s any obvious “problems” with your application, explain them.  Perhaps you used to live near here and were considering moving back anyway, or you have friends/family you could stay with if you got the job before finding a place of your own.  If you don’t mention it at all, I’ll assume you haven’t considered it and blindly applied to hundreds of jobs however inappropriate, so won’t take your application seriously.
  9. Consider your internet profile.  This will apply more if you have a distinctive name than if you’re called John Smith.  Most employers will Google you to see what comes up.  For me personally, and on the basis we’re expecting school leavers/new graduates, I actually liked to find some silly pictures/banter…made me think the person was normal!  Had I seen anything particularly extreme it could’ve been a negative though.  I appreciate different recruiters will have different attitudes to this…generally speaking avoid having anything too contentious out there but don’t get overly worried about a friend swearing on your Facebook wall or a picture of you in the pub.
  10. Don’t chase it up excessively.  Hopefully the job advert gave a deadline for applications.  If so, and you submit yours 2 weeks before that, don’t hassle the firm if you don’t hear back straight away.  They’ll likely be waiting until the deadline to ensure they’ve received all applications before deciding who to call to interview.  You don’t want to stick in their mind for the wrong reasons.

Most of the above is about trying to make the reader feel you could be bothered to make an effort, that you’re fairly committed to the role, fairly normal, and not too irritating.

The interview

So, you passed filter one, congrats!  They’ve offered you an interview.  To my mind it’s less easy to distinguish between people based on interview…but there are a few things that stood candidates out in a good/bad way.

  1. Respond promptly.  This is not a time for a demonstration of power, keeping them waiting (like not texting too soon after a first date).  At this early stage it’s highly unlikely you stand out as amazing, you’re just someone they’re going to give a chance to, who will easily be written off if you muck them around.
  2. Read the interview instructions carefully.  Obviously things like time and date, but also what will you be doing?  They’ll be giving you some information on what you’ll be tested on, and who will be doing it.  Do some research based on that.
  3. Psychometric tests?  It’s fairly common to have some kind of psychometric test.  If you haven’t done anything like that, try finding a few online to practice.
  4. Who’s interviewing you?  Have they said which individual(s) will be interviewing you?  If so and you’re feeling keen, look them up either on their website or perhaps LinkedIn, or even Facebook.  You can bet they’ll have done the same for you.
  5. Dress code?  The instructions will likely make this clear, don’t ignore it.  If they say “smart casual” and you turn up fully suited and booted, for me at least it’s more likely to make me think negatively that you can’t follow instructions, rather than impressed at how dapper you look.  If it’s unclear, err on the smart side…you can take a tie off, but you can’t easily convert a hoody into a shirt.
  6. Turn up on time.  Like the spell checker, don’t be late, it paints you in a bad light.  Being significantly early (ie >15mins) won’t tend to do you any favours either.  If you’re travelling a long way so hard to know exactly how long it’ll take to get there, aim to get to the area nice and early, check you find the place, but perhaps then potter about/go to a cafe to kill a bit of time/review their website again to refresh your knowledge of them.  5-10 minutes early is perfect.
  7. Again, do your research on the firm.  We specifically asked interviewees what they knew about us.  Other employers may not, but if they don’t, you can find a subtle moment to drop in some of your knowledge of the firm/key individuals then go for it.  It’s flattering for the interviewers to feel you care about them…flattery will get you everywhere!
  8. Speak highly of your current/previous employer.  If you moan about how crap your current/last job is, we may well think you’re a negative, moaning person.  It doesn’t matter if the work was mundane or boss was occasionally difficult, key thing is what positives you took from that to help you on the next step upwards.
  9. Relax.  Ok, so easier said than done…but it’s perhaps worth stressing the recruiter won’t necessarily be looking for the person who gave the most technically accurate answers.  Especially if this is for a role in a small firm, it’s vital that you fit into the team well.  Personality/attitude will be more important than knowledge/experience for a junior role.
  10. If you get rejected, send a short thank you.  Ok so I find it a bit cringeworthy on The Apprentice when someone gets fired then says “thanks so much for the wonderful experience”…but despite that, I’d recommend you do it here.  You might be their second choice who just missed out.  Show that you’re mature and not sulking, and if things don’t work out with the first choice recruit, you’ll likely be the one they turn to.

Hopefully the above will prove useful to someone somewhere.  Interested to hear any comments people may have below.

IPSE/PCG tax treatment and how to enter on FreeAgent

A lot of contractors will purchase membership with IPSE (the association of Independent Professionals and the Self Employed, previously PCG – Professional Contractors Group).  They predominantly provide assistance against IR35, but also other things which impact many contractors.

Question many people ask is what is the tax treatment of the membership fees?  IPSE are pretty clear on it here.  In summary, you can reclaim VAT on the cost, but it’s not an allowable expense for corporation tax purposes.

Next question for FreeAgent users is how to correctly account for that in the software.  As things stand, I don’t think there’s any suitable code which gives it the correct tax treatment.  Whilst there is a “subscriptions” code, FreeAgent assumes there’ll be no VAT on these costs (which can be easily overwritten, just change the “Auto VAT” option) but also that it will be allowable for corporation tax (which can’t easily be overwritten).

FreeAgent does however give you the ability to create new codes, with whatever tax settings you choose.  Step by step instructions on how we recommend doing it below:

  • Go to “Settings” –> “Income & Spending Categories”.
  • Click “Add New” –> “Admin Expenses category”.
  • I’d suggest calling it “IPSE Membership”, but this is free text, so put what you like.
  • Nominal code, I’d suggest “357” so it sits as near as you can get it to subscriptions.
  • Reporting name “Subscriptions to professional and trade bodies”.
  • Make sure you remove the default tick in “Allowable For Tax”.
  • Leave VAT at “Standard rate”, then “Create Admin Expenses Category”.

IPSE Membership
How to add IPSE Membership category to FreeAgent

Now, whenever you allocate a payment to that code, FreeAgent should correctly reclaim VAT (barring unrelated factors like whether or not you’re on the flat rate scheme) but not allow it for corporation tax purposes.

Contractor sideline business – start new company?

Something we get asked quite a lot is what best to do when someone with an existing business wants to set up something a bit different on the side.  This may be a contractor wanting to develop their own apps/games, to team up with other people to form a bigger consultancy and take on bigger projects, or perhaps do something entirely unrelated to their main work.

Anyone who’s read my blogs will know my main focus is on keeping it simple.  If there are big tax savings/other benefits to be had, then sure, consider more complex options…but complex isn’t always (indeed very rarely is) better.

Key question is typically whether to run it all through their existing business, or to create a completely independent business for it.

Benefits of running it all under your existing company:

Less admin – you only need to keep one set of books.  You don’t need to worry about which company’s bank account to pay for things from.  You don’t need to worry about intercompany loans, or funding via director loan account.  Your personal tax stays easy as there’s just one company you draw salary/dividends from.
Less cost – directly related to the above, accountancy fees typically won’t change much if one company starts to do a few other things.  If you wanted a second company, fees would almost certainly increase, possibly close to doubling.
Joint costs – inevitably there’ll be some purchases which don’t relate to one specific business or the other, as you’ll use it on both.  Eg you buy a new computer, a lovely desk, or rent an office.  If it’s one company, no worries!  If you had two, you might need to apportion costs or charge a “rent” for the other company using the first company’s stuff.
Use of losses – if one company effectively has two trades, one profitable, the other loss making, the losses can be offset against the profits within the same year.  This basically means you get corporation tax relief for any losses the new business might incur in the early days, when set up costs dwarf income.  This would not apply if you had two separate companies, one profitable, one loss making (caveat – can potentially be achieved with a group structure…but see my second paragraph about keeping it simple).

Benefits of setting up a new company:

Complete separation – if you feel it really is a completely different business, you may feel it would muddy the waters to have the figures merged.  Having separate books will make it crystal clear how well each business is doing.  Yes with just one company you can of course do a bit of management accounting to keep tabs on the profits of each business…but it’s harder.
Different owners? – not relevant if both companies will be “just you”, but often the second company will be some kind of joint venture with one or more other people.  Giving them shares in your main company is a dangerous thing to do, but if you set up a new one, it can have its own share split which doesn’t need to mirror your first company.
VAT? – depending upon what you’re doing in each business, sometimes it’ll make sense for one to be VAT registered, the other not.  Eg one business might be selling to VAT registered businesses, whilst the other sells to Joe Public (who can’t reclaim VAT).  If you have two separate companies with different businesses, you can validly have one registered for VAT, the other not.  Similarly you may benefit from both registering for VAT, but one being on the flat rate scheme, the other not.  Only thing to be careful of here is if they invoice each other, you might end up with one company charging VAT that the other can’t reclaim.
Completely different branding – before making this point, I should stress one company can have multiple trading names.  This is fine, but any invoices/websites/whatever would need to state somewhere “XYZ is a trading name of ABC Ltd”.  Sometimes you might not want this.  If you have two separate companies, they can have completely independent names
Selling a business – one Ltd Co can potentially sell off a “business” from it, whilst keeping the other business ongoing.  However, any potential buyer would typically prefer the clarity of one company with just that business in it.  Not every business will have “selling out”/”go for an IPO” as a plan for even years down the line, but some do.


So plenty of things to consider, and there is no “one size fits all” correct answer.  However, unless any of the benefits of two companies are significant and required from day one, our advice generally is to run it from your existing company until it is proved to be a viable business in its own right.  As at that point, you can create a separate company and spin it off.  Otherwise you can have a situation where someone sets up a new company for every idea that pops into their head, then gets swamped with filing deadlines and accountants fees for multiple different entities, few of which achieve anything!

Interest to hear other people’s thoughts on this, especially if you strongly disagree with any of the points above.

RTI filing deadlines with FreeAgent

RTI filing deadlines are causing confusion for a lot people (like everything HMRC related!)

RTI is very different to every other tax in terms of deadlines.  VAT, corporation tax, self assessment, for all of those you wait until the period ends, and then have a certain amount of time after the end date to file the return.  RTI is different, giving you much less slack.

Basic rule (that you can realistically ignore)

The basic rule is you need to submit your payroll information to HMRC for any given period on or before the date staff are paid.  For the purposes of this blog, and as FreeAgent doesn’t support weekly pay, we’re only going to discuss monthly payrolls.

BUT…HMRC have no idea when you physically pay your staff, as they don’t have direct access to your bank statements (thank goodness).  So how do they know?

Let’s ignore what the rules say for the time being, and look at the information HMRC actually do know/find out when you submit:
the date the payroll is said to occur.  In theory this should be the date the payroll is paid (but in reality it might not be).
the date you actually clicked the buttons to submit the payroll.

Payroll RTI date
Payroll RTI date

Above is a screen print (with sensitive data blurred) of a month 7 payroll period (October), as drafted on 11 September 2014.

Key thing I want to flag is the date highlighted in red.  In this example, 25 Oct 2014.  That date is to some extent editable, but whatever is chosen for it becomes the filing deadline.  It needs to be a date between 6 Oct 14 and 5 Nov 14.  FreeAgent defaults to 25th of each month, and I see no good reason to change this consistently, it’s as good a date as any.

This business is a bit ahead of themselves, month 6 was submitted early (deadline for it would have been 25 Sep, it was submitted 9 Sep), but that’s fine, no harm in submitting early.

What are the default FreeAgent filing deadlines?

As FreeAgent defaults to set the payroll date to 25th of the month, that is also the filing deadline, so:
Month 1 – 25 April
Month 2 – 25 May
Month 3 – 25 June
Month 4 – 25 July
Month 5 – 25 August
Month 6 – 25 September
Month 7 – 25 October
Month 8 – 25 November
Month 9 – 25 December
Month 10 – 25 January
Month 11 – 25 February
Month 12 – 25 March

What if I only notice on 26th of the month that I haven’t submitted the payroll for that month?  Well, you can be cheeky, and edit the date, putting it back a day, then submit (so it’s on time).  Not really recommended, and of course there’s only a small window that this is physically possible anyway (absolute latest 5th of the month afterwards).  Plus, for the time being there’s no penalty for late submissions.

Why don’t I set it to 5th of the month after to give me maximum time to file?  Theoretically you can…but I wouldn’t recommend it.  People tend to find having a payroll date of 1st-5th the month confusing.  Reason being it means for profit and loss purposes the payroll is in a different month to for payroll purposes.  Eg take a company with a year end of 31 March.  If they ran their payroll dated 5th of the month, then “Month 12” payroll would be processed 5th April, making it in the year after the year it realistically related to.

HMRC have recently agreed to delay the introduction of late filing penalties for companies with <50 employees until March 2015.  Therefore, at present, even if you’re late (as many companies have been multiple times), there’s no penalty.  Be aware this will change, it was going to be from October 2014, but due to teething problems all round, small companies have another 6 months respite.

If an RTI return is submitted late, FreeAgent will ask you for the reason.  The options are:
– No other reason applies
– Notional payment: Payment to Expat by third party or overseas employer
– Notional payment: Employment related security
– Notional payment: Other- Payment subject to Class 1 NICs but P11D/P9D for tax
– Micro Employer using temporary “on or before” relaxation
– No requirement to maintain a Deduction Working Sheet or impractical to report work on the day
– Reasonable excuse
– Correction to earlier submission

Reality is most of those are “big boy” only things where there are complex issues at play.  The main one most FreeAgent users are realistically going to use will be “No other reason applies”.

If the real reason is “I forgot”, this does not count as a “Reasonable excuse”.  Neither does your hamster dying or you having man-flu on the submission date.

So realistically, what should I do to stay on top of things?  I’d recommend setting a monthly recurring reminder in your calendar, perhaps dated 6th of each month, to submit the month’s payroll.  Yes, it’ll be almost 3 weeks early, but better that than doing the reminder for 25th, then if you’re on holiday that week, or it’s a Saturday you’ve got to mess around with dates or accept it’s late.

In terms of when can you physically pay the salary, to stay on the right side of the law, I’d recommend always paying yourself a bit to late rather than early.  Realistically HMRC won’t know when you transfer the funds unless they do an enquiry and demand the information (highly unlikely), but better to be safe than sorry.

Any queries/comments, feel free to post below.

Stamp duty, any logic?

As with most people moaning about stamp duty, yes, we have just moved house.  I am therefore inevitably a little biased against it as it’s just stung me for a lot of money.

But…trying to be logical about it, where is the fairness in stamp duty?

It doesn’t tax wealth, it taxes movement and geography

Some would say it taxes you lots only if you buy a really expensive home.  Whilst kind of true, problem is, it doesn’t really tax wealth, how much you suffer in your lifetime is significantly impacted by how often you move and where you live.  Eg simple example, two scenarios (ignoring inflation):

Person 1 – is loaded and lives in a cheap part of Britain.  They get a 9 bed mansion with acres of land for just under £1m, paying £40k stamp duty.  They keep this property for 20 years.  Total stamp duty paid over 20 year period living in a 9 bed mansion = £40k.

9 bed cheap area
9 bed mansion with acres in cheap area

Person 2 – has a growing family and lives in a more expensive part of the UK, like London.  Year 1 they get a studio apartment, cost £200k, stamp duty 1% = £2k.  Year 4 they upgrade to a 1 bed flat, cost £400k, stamp duty 3% = £12k.  Year 8 they want modest outside space for the toddler(s) to run around so go for a 2 bed terrace, cost £600k, stamp duty 4% = £24k.  Year 12 they need somewhere a bit bigger, a 3 bed semi at £800k, stamp duty £32k.  Year 16 they’ve got teenagers so need more space still, hence buy a 4 bed detached at just under £1m, stamp duty 4% = £40k.  Total stamp duty paid over 20 year period living in 5 different properties ranging from studio flat to 4 bed detached = £110k.

4 bed expensive area
4 bed modest home in expensive area

So person 2 paid almost three times as much stamp duty to end up living in a 4 bed house than person 1 paid to live in a 9 bed mansion.

Where’s the logic/fairness in that?

What if person 2 lived in a cheaper part of the UK?

If person 2 happened to live in a much cheaper part of the UK, where lets say house prices are a quarter what they are above, would the stamp duty bill be quarter too, ie £27.5k?  Logic would presumably say yes, that would be fair.  Reality is it’d be way less.  (0% of £50k) + (0% of £100k) + (1% of £150k) + (1% of £200k) + (1% of £250k) = £6k.  Of course if they were more like person 1 and bought the most expensive property at the beginning then didn’t move again, they’d pay just £2.5k stamp duty to end in the same house.

Where is the logic/fairness in that?


If you add inflation into the equation it gets even worse, as barring occasional brief blips, every time you move house prices will be that much higher, hence stamp duty increasing significantly (as the bands have not historically increased in line with house prices).  Therefore the person who bought the expensive place ages ago is in an even better position relative to the person who keeps moving at ever increasing house prices.

Ok, let’s look at specific demographics – the elderly?

What about the other end of someone’s life?  One problem we hear a lot is that there aren’t enough family homes.  The road I spent my later childhood years on has 12 houses, all 4-5 bed detached.  Whilst a handful of these now have families in, most now have couples/widows aged 60-90.  Their kids left home years ago (like I did), but the parents stayed put.  Why don’t they downsize to somewhere smaller, freeing up the house to a new family?

Well…what’s the incentive to them?  They could perhaps reduce their council tax bill by a modest sum, but if they wanted to move to a nice 2 bed flat with lift near the town centre to make life easier in their old age, they’re going to be paying >£250k for it, hence HMRC will reward them for freeing up their family home with a stamp duty bill of £8+k.  So whilst they would likely get some cash from the released equity, the taxman would sting them for freeing up their home to a more appropriate demographic.  Hardly an incentive.  It’s therefore understandable why they often make the choice to stay put hogging the big houses.

Property developers?

What about property developers?  Surely they do a good service to the British housing stock, buying run down properties, spending money to improve them and make them fit for modern families.  One by one they turn dumps into lovely homes.  Reality is they’ll only do it if there’s a profit in it for them…and if 3+% of the property price is going to go on stamp duty, they’ll need to do make a big profit based on their work to compensate for that.  This will likely put off a lot of people, as before they consider spend on refurbishment they need to sell for ~£10k more than they buy simply to break even.

Buy to let landlords?

What about buy to let landlords?  They get off pretty well.  Most will buy the smaller units as they’re typically easier to let.  So they buy quite a few places at 0-1% stamp duty, and hold them forever.  Total stamp duty haul = negligible.  Compare that to first time buyers who might own it for perhaps 5 years before moving up the ladder.

International speculators?

There’s been a few programmes recently about rich foreigners buying prime London property then leaving the place to sit empty.  It’s taking potential homes out of circulation, leaving it empty.  They sit on it for years as a “safe place” for their money, in the hope of future property price increases.  They’ll probably pay stamp duty on the purchase (some would say they’ll use complex overseas avoidance schemes to greatly reduce the bill, outside the scope of this blog), but again, if it’s not re-sold for some time, the long term stamp duty haul isn’t that great, so these people don’t really get stung either.

Other stamp duty issues?

Stamp duty also causes grief due to the unique “slab” way taxes are calculated.  Buy a property at £250,000 and you pay £2,500 stamp duty.  Buy a property at £250,001 and you pay £7,500.03 stamp duty.  An extra pound in sales price and the stamp duty triples.  This means there are certain price points where it’s very tricky to sell a house, most notably the bracket immediately above £250k.  It’s never a good thing where taxes skew the market like this.

Compare this to income tax, where when you breach a personal tax band (eg going from basic to higher rate tax) you only pay the higher % on the bit in the higher band, not suddenly on everything.

Also, as mentioned above, the bands simply haven’t kept pace with house price inflation.  Geeky name for this is fiscal drag, it often applies to earnings too where wage inflation dwarfs increases in tax bands.  The problem with this is that when stamp duty was introduced, it was only intended to hit those buying the most expensive properties.  Now, there are many parts of the UK where even the cheapest of homes will suffer some stamp duty.

Why don’t people move to cheaper areas?

I wondered this myself.  With internet connections always improving, why don’t some average earning individuals who work from home move from expensive areas to cheaper areas.  Their income could potentially be largely unchanged (as they work remotely anyway), yet property prices greatly reduced.  They could sell the 1 bed flat in London and buy a 4 bed house in Wales.

You might expect this to help even out house prices, supply and demand would mean people moving to the cheaper areas so prices even out.

Reality is this doesn’t seem to be happening, as differences between house prices between regions seems to be going up rather than down.  Why?  I don’t know.  I guess reality is partly that many people can’t work remotely and wages are higher in London/South East, but also that people would be leaving behind friends and family if they moved away.  Many would rather live in a more modest home where they know and like than risk going somewhere new.


So where does this leave us?  If you live in an area where house prices are relatively low and don’t move much, it’s not much of a problem.  However, in the higher priced areas it’s a major concern.  It doesn’t stop people owning expensive properties, it stops them moving between properties.

  • Workers are stung if they have to move around a bit
  • Growing families are stung if they try to move to a bigger place
  • Retirees are stung if they try to move to a smaller place
  • People trying to regularly improve run down properties are stung
  • Meanwhile rich land barons sitting on/accumulating property don’t suffer at all

Stamp duty encourages the clogging up of the housing market.  It makes people lean towards sticking where they are, regardless of whether their circumstances change and another property might be more suitable.  Downsizing is discouraged, making it harder for people who need more space to upsize.  How is any of this good for the country?

What possible solutions are there?

With some of my comments above being centred around the unfairness due to geography, some would argue that stamp duty bands should be regional rather than national.  Eg in rural Wales/North England, the bands could start at (say) £75k for 1%, £150k for 3%, whilst in London it might be (say) £300k for 1%, £600k for 3%.  This would potentially then mean regardless of where you are geographically, the cheapest 1 bed flats could be stamp duty free, modest family home 1%, nice family home 3%.

I personally don’t like this idea at all.  Why?  Because whilst the above sounds very fair and simple, it gets difficult when you look at borderline cases.  You’d end up with a situation where one end of a road pays a higher % stamp duty for the same price house as another end of a road.  You need to draw the boundary somewhere, and that’s going to skew results at those boundaries (same way nobody pays £251k for a house now).

Potentially it could be worked out on some precise average house price per post code area calculation.  Problem with this is you often wouldn’t know how much stamp duty you’d pay until detailed calculations had been done.  Not very helpful for significant costs to be unknown when planning a purchase.

Anyone who knows me will know I think simplicity should always be a key focus of tax rules, and this would not be simple.

Ok then Chris, what would you do?

If I was chancellor, I’d simply abolish stamp duty altogether, probably staggered over multiple years.  Sure, this will reduce income to the treasury which will need to be clawed back elsewhere, in which case if it’s agreed it should be based upon property, then do it via council tax, or the Lib Dem’s proposed “mansion tax”.  Don’t tax property movement, if you want to tax property, tax the ownership of it.

What do you think?