Category: News

Guest blog post from Fluidly, our cashflow and funding partner.

Katie Ball, our head of funding, shares some key insights on the latest lending trends, from what we’re seeing specifically at Fluidly to wider commentary on the entire market. 

In this month’s column, she looks at classic catch 22 supply and demand issues, which industries are currently deemed favourable to lenders, why CBILS is still so important even for clients you might not have thought about and getting prepared for Brexit cash headaches…

Alongside the usual seasonal trends that certain businesses experience, there are clearly two big circumstantial issues driving an urgent need for business funding right now: the continued pandemic (and its catastrophic impact on businesses everywhere) and Brexit (with its supply chain disruption costs, particularly for certain industries).

We were all hoping to see the back of both things this year. However, it’s now abundantly clear that for at least the rest of 2021, we’ll still be dealing with the fallout of coronavirus and navigating uncertainty and unpredictable costs as a result of leaving the EU.

But what is the impact right now? For your clients, our customers and for the lending market generally?

Supply and demand issues

One of the biggest challenges we’re always facing in lending is around supply and demand. The balance is never perfect, and clearly at the moment there is huge demand – but not necessarily the lending appetite to satisfy it.

Understandably, lenders are cautious, and unfortunately are not generally willing to lend to businesses that are unable to currently trade (or where trade is severely impacted).

This means that the hospitality, travel and construction industries are rarely successful in their funding requests. With the current situation, these industries are naturally considered high risk and unstable, deterring lenders from assisting. Unsurprisingly, these are the sectors demonstrating the highest demand for finance, as they have arguably been implicated the most by the pandemic.

A classic catch 22, and one we are trying to help combat with less-traditional finance routes. If you’ve got clients in these sectors struggling, there are still options, but they will most likely need some specialist support. It’s important to urge them to seek finance with good time (i.e. don’t leave it till it’s almost too late) as it may take time some hunting to find a suitable solution. And they will need to really search the entire market – all of which we can happily help with.

A cash safety net for ‘stable’ businesses

On the flip side, the current lending market is favouring e-commerce, online services and medical-related businesses. Logistics, auto garages and cleaning services are also deemed sturdy, low-risk industries.

Lenders are prioritising those businesses that are still trading in some capacity, and who are able to show they are in a stable position (even if trade has dipped a bit). For businesses in these sectors, we’re advising that they look at taking on finance where there’s decent rates, even if they don’t need it right now.

A cash safety net is a good thing in normal times, and right now it can be critical. It can be tough to predict how industries will be affected from one day to the next. With the one-of-a-kind terms available through the government loan schemes, we’re seeing lots of our partner firms help their clients secure a CBILS as a low-risk cash reserve.

Government CBILS remains number one choice

And on that note, there tends to be a misconception that all eligible businesses will have already exhausted government funding by now. But this is far from the truth.

At Fluidly, we are still seeing the majority of customers focused on receiving government-backed loans. And for a range of reasons, from cashflow issues, to growth plans or bill payments. It’s favourable terms, including the 12-month payment holiday and no required Personal Guarantee, means it remains very much the preferred option for businesses.

Recent research by Reparo Finance revealed that 85% of small businesses that started a CBILS application are still in need of financial support. For some, this is because they didn’t meet the eligibility criteria. And, for others, it’s due to a lack of understanding and adequate support around the application process itself – leading to incomplete applications.

But equally, there’s a large number of small businesses that took a CBILS loan initially that now find they didn’t take sufficient funds. This is particularly as the lockdown hell for firms continues. With the option to extend or refinance an existing CBILS to take the full 25% of turnover, we are helping lots of customers maximise this less well-publicised option.

We’re also seeing lots of partners help clients that took Bounce Back Loans refinance to CBILS so they can increase the cash available to them.

With the current CBILS deadline at the end of March, now’s the time to check if there’s clients who could still get more from the scheme.

Brexit headaches

In early January, after the border chaos with stacked freight vehicles, the Road Haulage Association warned the real impact of new post-Brexit red tape on businesses was still to come. And we’re certainly anticipating some issues for (and seeing increased demand already from) businesses who rely on a lot of trade from the eurozone.

Business owners are facing a combination of new paperwork and associated costs, additional import-export duties, and confusing new trade rules – all of which will undoubtedly lead to some cash headaches.

With all of the stresses of coronavirus, Brexit became somewhat overshadowed, but it’s still a major concern for many UK small businesses and we’ve got a number of options at Fluidly that could help with the pressure.

If you have clients who need access to business finance, talk to your Fluidly account manager today.

Guest blog post from Fluidly, our cashflow and funding partner.

The deadline to apply for the Coronavirus Business Interruption Loan Scheme (CBILS), is approaching once more – and this time it seems to be final.

Businesses have until 31 March 2021 to start their application.

2021 is still looking extremely challenging for businesses, and the scheme could provide some much needed relief for your small firm, or help ensure you’ve got a reserve of cash for potential tough times as the pandemic’s disruption lingers on.

With time running out, read our five reasons why you really should apply below.

1. No up-front costs

Borrowing money sometimes involves fees, either up-front or at some point during the process. And as you start to pay back a loan, this also includes the interest, so even the initial stages of securing funding can cost your business a fair amount of money.

CBILS is unique in that there’s no interest or fees to pay for a year, which has made the scheme so compelling to so many businesses. What’s more, with lenders like iwoca and Funding Circle, you don’t have to repay the CBILS loan at all for the first 12 months.

The government makes a Business Interruption Payment to cover the first 12 months of interest payments and any lender-levied charges. But you, as the borrower, still remain 100% liable for the debt.

2. Give yourself a safety net (with no early redemption fees)

Even if your business isn’t in dire need of cash right now, due to its favourable terms, a CBILS could provide you with a safety net (or emergency fund) to ensure you’re in the best position possible as we face more uncertainty.

With no upfront payments for recipients, and no obligation to keep it beyond the interest-fee period, it’s a sensible option to provide you with access to a cash reserve. You also have the option to settle the loan early with no redemption fee, so if your trading is good and you know for sure you won’t need it, you can always clear the loan.

3. Broad eligibility criteria

While CBILS had some teething problems during the early days of the pandemic, it has been expanded to make it accessible to more businesses. For instance, if you borrow less than £250,000 you won’t be asked to provide a personal guarantee.

Eligible businesses must have an annual turnover of no more than £45m, a viable borrowing proposal and be able to self-certify that the business has been adversely impacted by coronavirus. Even if your business was classed as a “business in difficulty” before the pandemic you can still apply, but the amount you can borrow is capped at £30,000.

The scheme is open to most industry sectors, aside from banks, insurers and reinsurers (but not insurance brokers), along with public-sector bodies and state-funded primary and secondary schools.

4. The range of funding products available

CBILS isn’t just about traditional business loans. Other types of funding products are also available, namely overdrafts, invoice finance and asset finance.

Plus you can still apply for CBILS even if you’ve already taken out a Bounce Back loan, meaning you can refinance existing funding and borrow additional money at a competitive rate.

So, whether you need finance to bridge the gap while you wait for invoices to be paid, money to cover the purchase of new equipment, or something else entirely, there’s a range of funding options to suit your business’ needs.

We’ve taken a closer look at five of the key funding options you might consider, to help you understand what different types of finances are best used for and what’s right for your business.

5. You can choose from a wide range of lenders

Even as CBILS draws to a close, new and innovative lenders are still being added to the scheme.

In fact, more than 90 lenders have been accredited for CBILS, including high street banks like HSBC, Barclays and NatWest, asset-based lenders like Aldermore and alternative lenders like Funding Circle, iwoca and MarketFinance.

From traditional lenders to more innovative, up-and-comers, each lender brings different benefits to the table. While a high street bank might feel more familiar, alternative lenders can make quicker decisions and may be less stringent.

If you’re looking to take advantage of CBILS, we can help you make sense of your options. Applying for a loan with Fluidly takes away the hassle and gives you more choice – all at no extra cost. It’s just one simple, easy application.

What is the VAT reverse charge for construction?

 

10 things you need to know.

 

From 1 March 2021, those working in the UK’s construction industry may have to handle and pay VAT in a different way following the introduction of the new VAT reverse charge system. The system is designed to combat VAT fraud in the building and construction sector.

 

1. The VAT reverse charge for construction is effectively an extension of the Construction Industry Scheme (CIS) and applies only to transactions that are reported under the CIS and are between VAT registered contractors and subcontractors. 

 

2. The scheme means that those supplying construction services to a VAT registered customer will no longer have to account for the VAT. Instead, the customer will account for the VAT and pay it to HMRC directly, rather than to the supplier. In simple terms, subcontractors will require the contractor they are working for to account for the VAT and pay the VAT to HMRC.

 

3. The reverse charge will have a significant impact on how businesses within the construction sector account for VAT and manage their cash flows. If you’re using cloud accounting software, the changes will be automatic in terms of the accounting. The new system may also affect your cash flow because the VAT you previously held onto before passing it quarterly/monthly to HMRC will no longer be available for any uses you might have put it to. Also, because you no longer pay VAT on your sales you might find you become what HMRC calls a repayment trader, meaning your VAT return always results in a reclaim of money from HMRC, rather than making a payment. Such businesses may wish to consider applying to move to monthly VAT returns, to speed up repayments received from HMRC.

 

4.The system applies only to VAT registered businesses who are supplying/receiving services that are reported under CIS. Therefore, it applies to services supplied between the majority of construction subcontractors and contractors in the UK but not non VAT registered individuals.

 

5. If your construction business is not VAT registered then the reverse charge cannot be applied to you, and standard VAT rules apply for the supplier (so they will charge you the VAT and account for it as usual).

 

6. Reverse charge transactions are excluded from the VAT cash accounting scheme but you can remain on the scheme and continue to account for non-domestic reverse charge work on a cash accounting basis. However, if you act as a sub-contractor and all of your sales will be subject to domestic reverse charge, then you may want to stop using the scheme so that they can start to reclaim their input tax earlier on an invoice basis, rather than a cash basis.

 

7. The VAT reverse charge applies to standard and reduced-rate VAT supplies, but not to zero-rated supplies.

 

8. The reverse charge will only apply to suppliers of specified construction services to other businesses within the construction sector. These include the following:

• Construction, repair, extension, alteration, demolition and dismantling of structures or buildings (including offshore installations) whether they are permanent or not.
• Installation of heating systems, air-conditioning, lighting, power supply, drainage, ventilation, water supply, sanitation and fire protection in any structure or building.
• Painting or decorating the external or internal surface of any structure or building.
• internal cleaning of buildings and structures, so far as carried out in the course of their construction, alteration, repair, extension or restoration.

 

9. If you’re invoicing a customer for mixed supplies, some of which are not affected by the reverse charge, you should apply the VAT reverse charge to the whole invoice. This is to enable the system to be as easy to administer as possible. 

 

10. If you’re unsure whether the reverse charge applies to the services you provide, you should contact your professional advisor or HMRC for advice. As a general rule, HMRC advise that if in doubt, provided the recipient is VAT registered and the payments are subject to CIS, it is recommended that the reverse should apply. HMRC’s technical guide also has further detailed guidance.

The Government has recently announced another grant scheme for those businesses who have fixed property costs but were not eligible for the previous small business rates or retail grants.

Who can apply? 

To qualify businesses must:

• have been trading before 11 March 2020
• have fixed property cost
• have less than 50 employees
• be able to demonstrate that they have seen a significant drop of income due to Coronavirus restriction measures

Examples of businesses who are eligible include:

• businesses in shared spaces – such as offices or industrial parks who don’t have their own business rates assessment
• regular market traders
• charity properties in receipt of Charitable Business Rates Relief
• bed and breakfasts that pay council tax rather than business rates

However, other businesses may qualify as it is at the discretion of the local authority.

How much is the grant? 

There are three levels of grant available:-

• up to £10,000
• between £10,000 and £25,000
• over £25,000

The criteria for each level is yet to be defined.

How do I apply? 

The local authorities are awaiting further guidance from the Government on these grants and will be updating their websites with the next steps. You should apply directly through your Local Authority.

You can find the latest available information at:

https://www.gov.uk/government/news/top-up-to-local-business-grant-funds-scheme

Keep all your documents in one place

All of your documents are securely stored and organised in one place for you to refer to and download anytime 24/7. So no more trawling through your email inbox searching for ‘that thing my accountant needed… what was it again?’ Simply log in to your account.

Exchange and sign documents

We will email you to let you know we have uploaded a document for you to view or sign. If you upload something to your portal for us to look at, we will be sent a notification automatically to let us know your document is there. We will also be notified when you have signed a document, so we can get your accounts or returns filed.

Update your details anytime

If you have moved to a new house, got a new email address or phone number you can update your details in your portal. We will also be notified of any changes you make to your personal details, so everyone is kept in the loop.

Fill in forms online

When self assessment comes around, you can enter all your information online, so no more printing out checklists or filling in temperamental Word documents.

Deadlines

You can view a list of deadlines for all of the services we provide, so you can check when these deadlines fall without having to ask.

GDPR compliant

If a document includes your name, address and phone number, your accountant should use the portal as it is subject to GDPR. An email can pass through several servers as it is sent and received – without encryption other parties can intercept the email. The portal is fully GDPR compliant allowing you to exchange your personal documents and information securely.

Multiple document upload

You can drag and drop multiple documents to upload for your accountant, up to 100MB in a single upload. Handy if you need to get documents to them quickly and securely.

The Government have announced a further scheme for small firms who are struggling to access existing financial support and have been affected by the coronavirus outbreak.

• Fast-track loan scheme with a 100% government-backed guarantee with loans of up to £50,000
• The loan will be interest free for 12 months
• No repayments required for 12 months
• To apply, an easy and short online application will be required with cash reaching businesses within days
• The scheme will launch for applications on Monday 4 May at 9am

For further information please see the link below:

https://www.gov.uk/government/news/small-businesses-boosted-by-bounce-back-loans

For businesses struggling to access any of the previously announced support schemes, this micro-loan may be very useful. However, it remains to be seen how successful banks will be at making the scheme work following the problems that many businesses have experienced accessing the Coronavirus Business Interruption Loan Scheme.

If you wish to apply you can do so using the following link on Monday 4 May:

https://www.gov.uk/guidance/apply-for-a-coronavirus-bounce-back-loan

The Government have provided further updates to the Coronavirus Job Retention Scheme (CJRS) as of 15th April 2020.

You can make a claim up to 14 days in advance, so if your pay period runs to the last day of the month, your claim can be submitted 14 days before.

This will help many with cashflow issues. HMRC’s new online portal to submit claims is due to launch on 20th April.

Employers can now also claim for furloughed employees that were employed and on their PAYE payroll on or before 19 March 2020, previously it was 28 February 2020.

The Government have provided updated guidance on the basis of how grants will be calculated for the Self Employed and the definition of ‘trading profits’ as of 14th April.

HMRC will use figures on previously submitted tax returns for your total trading income and then deduct allowable business expenses and capital expenditure.

Capital expenditure effectively reduces trading profits by making a capital allowances claim on your tax return and you will then pay less tax.

For example, if you have trading income of £20,000 for the year and you’ve incurred business expenses (i.e. rent, telephone, material purchases etc) of £10,000, your trading profit for the year is £10,000.

If you’ve also invested in capital expenditure during the year, for example you’ve purchased a van for £10,000, your profit is reduced to nil and you pay no tax. Whilst this has always been an advantage of capital expenditure in terms of lowering tax bills, it is actually a disadvantage when HMRC calculate your profits for the purpose of the Self Employed Income Support Scheme.

The full guidance can be found here:

https://www.gov.uk/guidance/how-hmrc-works-out-total-income-and-trading-profits-for-the-self-employment-income-support-scheme

When starting up a small business for the first time, many people opt to retain their full-time job and get things moving on a part-time basis but what does this mean for their tax situation?

As an employee, you pay tax through Pay As You Earn (PAYE) and National Insurance Contributions (NIC) which are deducted from your pay by your employer. Your employer calculates the necessary PAYE and NIC for you and pays this to HMRC (HM Revenue & Customs) on your behalf.

If you decide to set up a part-time business whilst in employment, you must notify HMRC. You can do this through the HMRC website and you must do this as soon as you start trading or you could face a financial penalty!

The tax that you are required to pay through self employment is dealt with separately to employment earnings. At the end of the tax year in which you commenced trading you must complete a Tax Return including a Self Employment section. Profits for the period up to 5 April after you started (and subsequent annual accounting periods) will be subject to Income Tax and National Insurance Contributions.

Self employed people pay different types of National Insurance contributions. As a self-employed person you will pay the Class 2 contribution, which is currently £2.95 a week (2018/2019). If your profits are below the threshold for the ‘small earnings exception’ you do not have to pay Class 2 National Insurance. However, you may wish to pay Class 2 anyway, in order to preserve your pension entitlement and certain other State Benefits. In addition, if your taxable profits are above £8,424 (2018/2019) you will also pay Class 4 National Insurance contributions. These in effect are an addition to your tax bill. You pay them together with your income tax to HMRC each year as part of your tax return.

Self employed payments of Tax and Class 4 National Insurance Contributions are required twice yearly – by 31 January and 31 July. You should remember to set aside a percentage of your business income to pay for the tax and NIC liability. This is best done by transferring, say 20/25 per cent to a separate bank account.

You will need to refer to your contract of employment with your current employer in case you are subject to a Restrictive Covenant which would prevent you from setting up your business while continuing to work for your current employer.

Yes, January is upon us already and for those that haven’t submitted their self assessment tax return yet, you have until 31st January to do so in order to avoid a financial penalty!

As well as filing the tax return, you are obliged to pay any tax that you may owe by 31st January. Due to the limited amount of time available, the most effective method of ensuring that HMRC receive your tax payment on time is by internet or telephone banking. Further details can be found on the HMRC website.