When starting a recruitment agency, there are various suppliers that need to be engaged to get the business started and begin trading. Forming the company, setting up a bank account, arranging contracts and getting insurance are a few of the basic requirements but engaging an accountant can often be overlooked – until the company starts making placements or a VAT return is due.
There have been a number of occasions recently where new start up recruitment agencies have decided to not engage TBOS (or another provider) until they have made their first placements, resulting in fines and penalties from HMRC, taking more money than the company was making and missing out on personal tax allowances – all of which could have been avoided if they had signed up from the beginning.
Below are some of the reasons that new agency directors should consider appointing an accountant as a priority when they decide to form their agency:-
- Remaining Compliant With HMRC
Keeping on the right side of HMRC is advisable for all agencies and you do not want to get on the wrong side from the start. Ensuring that you are complying with HMRC’s regulations on PAYE, VAT, CIS (if working within the construction industry) and completing the Intermediary Reporting each quarter will avoid any early issues. However, in order to provide the information that HMRC requires, you need to have up to date books and records so the figures submitted are correct.
- Reclaim Start Up Expenses
When a new director decides to start a recruitment agency there are a number of expenses that are usually incurred before the company is formed, such as meetings with advisors and suppliers, along with buying computer equipment and software. Ensuring that these start-up expenses are accounted for correctly means that you as the director are correctly reimbursed.
- Avoid Large Take-On Fees
If an agency decides to engage an accountant after the company has started to trade, it may mean that the accountant will have to charge a higher fee to get the books up to date than if they were engaged from the beginning. As the work would also take time to complete, it may also mean there is a greater chance of the agency falling behind with HMRC and incurring fines and penalties.
- Not Knowing If You Are Generating Profit
If your company has no up to date records, such as management accounts, then there is no way of ensuring that the company is actually generating a profit. You cannot rely on the amount in the bank account or the value of sales invoices raised as it is not a true reflection of the company’s profits and any spending may mean you are actually spending tax money due to HMRC, or increasing the level of directors loan in the business.
- Set Up Your Company In The Right Way
When forming a company, it is a good idea to meet with an accountant to discuss how best to set the company up, depending on the number of directors and shareholders as well as discussing the future plans of the business. If the company is not set up with the correct number of shares or the shareholding is not allocated correctly then this can take time and money to rectify later. Also, it is best to understand how shareholding works and any tax implications that may occur in the future by changing the shareholding once the company starts generating a profit.
- Avoid Missing Out On Personal Tax Allowances
Every recruitment director starts an agency in order to make money for themselves instead of generating it for their ex-employer. However, as a director and shareholder of your own business, there are additional ways of getting paid such as dividends which, if done correctly, can work out better than being paid as a PAYE employee. Being paid a salary up to your personal tax allowance, paying a small amount of NI and topping the rest up with a dividend may be a more tax efficient way of getting funds from your business than taking a large salary.
TBOS manages the full back office and accounting services of many new start-up recruitment agencies to provide the initial help and support they require including company formation, managing take-on expenses and registrations with HMRC. We also don’t charge new start-up agencies any fees until the agency has made its first permanent or contract placement, or has been signed up for 3 months, to give the agency the help and advice without incurring additional start-up costs. TBOS also works with the agency directors to ensure that the company is formed correctly to meet the future plans of the business, whilst also making the most of any tax allowances due to the directors and shareholders.
For more information on how TBOS can help manage your new agency back office and accounting needs, please contact our office.