Stuart Adam, Thomas Coombs

Invoice financing for SMEs

There has been a lot of publicity recently on the availability of finance for small to medium sized enterprises (SMEs), particularly focusing on traditional bank loans or equity investments.

However, as Thomas Coombs notes, there are other forms of business funding which should also be considered as an alternative source of money for firms.

Invoice finance is a solution that is being increasingly used by companies to deal with late payments whilst also improving cashflow. This is where a finance provider pays an agreed proportion (usually 80-85 per cent) of approved invoices to the company on receipt of a copy of the invoice. The balance (minus a small charge) is paid upon client payment.

Stuart Adam at Leeds based Thomas Coombs said: “With the economy growing, there has been a surge in demand for working capital in the SME sector that has created lots of opportunities for more invoice financing. Despite this, its current use is relatively low compared to ‘traditional’ sources of lending. In fact, only around 43,000 SMEs out of a total of nearly five million in the UK are currently using invoice finance.

“Whilst invoice financing is available from the banks and independent providers, one of the major problems is that there is a general lack of awareness by SMEs of the advantages of utilising this source of funding.”

For more information please contact Stuart Adam.

Owners of personal service companies could face stricter tax rules

Thomas Coombs is warning individuals who run a personal service company (PSC) that they could face higher tax bills in the future as HM Revenues & Customs (HMRC) looks to re-evaluate its tax rules.

The Leeds-based Chartered Accountancy practice has said that HMRC have put forward a proposal to amend Intermediaries Legislation, which could have a serious effect on freelancers.

The legislation – often referred to as IR35 – was introduced in 2000 and aims to tackle ‘disguised employment’.

It requires individuals working through an intermediary to pay broadly the same tax and National Insurance Contributions as any other employee, where they would have been providing the same services directly.

This mainly refers to personal service companies, which are enterprises where people provide their services usually through their own company.

In HMRC’s latest discussion document they say there is a “growing body of evidence which suggests there is significant non-compliance with the current rules.”

They point to the fact that the number of those paying tax under IR35 has remained fairly static, while the number of PSCs has increased dramatically from 200,000 PSCs in 2011-12 to 265,000 in 2012/13 – a number that is expected to continue to grow.

HMRC officials estimate that during 2015, the cost of non-compliance regarding IR35 will total a staggering £430m.

Christopher Darwin, Partner at Thomas Coombs, said: “While HMRC are only currently consulting on this issue, it shows that this is an area of particular interest for them and one that is likely to be targeted within the next few years.”

“IR35 legislation can be quite complex and can add an additional burden to the running of you businesses, while you are trying to focus on building a reputation and deal with your clients requirements. For some individuals it may be best to seek professional help.”

Those who take on employees from a PSC also need to be aware of the proposals, says Christopher Darwin, as one of the measures put forward by HMRC would make it a requirement of employers to declare a person’s employment where they felt IR35 rules may apply.

“Why this still remains a proposal on paper, there are a number of indications which suggest that this could be the way that HMRC intends to monitor PSCs in future,” added Christopher Darwin. “This could create an additional regulatory burden for businesses and it is an issue that they will need to monitor.”

If you would like help with IR35 legislation or you are interested in setting up a personal service company, please contact Christopher Darwin, Partner at Thomas Coombs.