As a recruitment agency owner there are so many things that need to be managed and considered on a daily basis, and as the business grows it is important to ensure that the threat to your business doesn’t come from failing to observe what is happening in the accounts department. Whether this is having an internal team or an external accountant (or both), it is the responsibility of the company directors to ensure that the accounts department is fully compliant when it comes to HMRC requirements.
Below are some elements of an accounts department that any size recruitment agency owner should ensure are in order:-
Your bank account is the main security threat in your business and it is important to review who has access and what permissions they have. Most business bank accounts will allow dual authorisation of payments (i.e. one person enters the payments and another authorises them) but some will also restrict the amounts that can be entered or authorised to give added protection against large payments being made incorrectly. Reviewing who has access to your bank account and what permissions they have is important for the security of your company funds.
FRESH AIR INVOICING
Invoicing is often seen as a simple part of the accounting process, but when you have invoice finance it is important to ensure that the invoices are always raised correctly in order to avoid receiving funding on amounts that will not be paid. Duplicate invoicing or raising invoices without signed timesheets is an example of this practice and can mean you are over funded by the invoice finance company, causing major repercussions as it is technically classed as fraud. Ensuring that your debtor book only contains invoices which are correct and will be paid will guarantee you are not over declaring your turnover or over borrowing from the invoice finance company.
OVER INDULGENCE ON EXPENSES
Company expenses are expenses which are “wholly and exclusively” for the purposes of the business whilst either performing the business or trying to attract more business. For recruitment agencies this includes rent, telephones, job boards, computer costs and legal costs to name a few but it is expenses such as travel and subsistence or entertainment which can sometimes be over used when entertaining clients or candidates. It is also advisable to be certain whether any of the expenses are actually employee benefits so that any national insurance and taxes are declared on P11D’s. By having a strict policy on expenses you can make sure that you stay within HMRC’s rules and not open yourself up to an investigation.
When running a company, it is important to stay within the rules set by HMRC so that taxes are paid correctly and reporting is provided on time to avoid undue inspections by HMRC. Ensuring that RTI submissions are made when processing contractor/staff payroll, submitting and paying VAT returns on time and submitting your Intermediary Reporting are all regular elements of compliance which need to be adhered to, along with submitting your year-end accounts and corporation tax returns. Should you consistently be late with filing of these reports, or not make payment at all, your agency will be highlighted to HMRC and cause them to open regular investigations. Understanding the strict deadlines and requirements can help avoid the penalties and keep your agency off of HMRC’s radar.
OVERDRAWN DIRECTORS LOAN ACCOUNTS
Company shareholders are eligible to take dividends on company profits, however these can only be declared if the company has made a profit after overheads and corporation tax has been accounted for. Any money taken by an owner prior to the company making profit is classed as a director’s loan. As the name suggests, this is a loan which needs to be repaid either by declaring a dividend or actually repaying the funds. If at the end of the accounting year there is a director’s loan still due, these funds must be paid back within 9 months of the year end or additional taxes are due by both the company and the director taking the loan. Getting regular management accounts will ensure that you know whether you are taking too much from your company and whether your directors loan is growing unwieldly.
FORGETTING ABOUT PERSONAL TAX ON DIVIDENDS
If an agency owner takes a dividend during a tax year then this needs to be declared and the taxes paid on the personal tax return by the end of January on the previous year. Most agency owners will take the dividend and not put the personal tax aside, causing them to need a further dividend from the company in January to pay the personal tax. However, this can increase the following years dividend or if the company has not made sufficient profits then this can have a strain on cash-flow, or require a director’s loan increase. It is advisable to take some professional advice on your personal tax situation and preferably put an amount aside to cover the January tax bill.
TBOS has several years of experience of looking after the back office and accounts of many different recruitment agencies. Our processes have been refined to ensure that agencies remain compliant with HMRC legislation and ensure agencies avoid penalties and fines. We also offer help and advice on how business owners can take funds from their business, either through salary or dividends or a mixture of both. TBOS also works closely with a number of banks and invoice finance companies to ensure that agency funds are not compromised whilst providing insured protection on payments made by TBOS staff.
For more information on how TBOS can help reduce the threats from your accounts department, please contact our office.