Choosing the right bank for your business

Choosing the right bank for your business

Running your own business is scary and challenging (some days it can feel like you are climbing Mount Everest backwards). So, finding a bank that is supportive of your business can make your life a little easier.

It is not an easy decision choosing what bank to use. There are many things to consider and it is worthwhile taking your time to look at all the options. In this article, we give you our top tips on how to choose the right bank account for your business.

2 R’s: Research and Review

The starting point is speaking with the bank where your personal account is held. As an existing customer, they may be able to offer you something that is tailored to your business requirements. However, don’t take the easy route and sign up with them without doing further research first.

Take the time to look at different options and see what introductory offers and extras other banks are can offer you. Most banks typically offer between 18-24 months free banking.

You may feel that using a high street bank offers more protection if something does go wrong, but don’t dismiss the smaller lesser known guys. They could offer you a better service or have lower fees.

In the past doing this research could be time-consuming, but the internet means you can now do this in a matter of hours. A good starting point is to check out comparison websites to get an overall idea of what is available and then look into each option in further detail.

Check out what other people are saying. Look on review sites to see what others say about the service they receive. Banks are great at saying how great they are and how customers are at the heart of their business. It’s hard to believe, but yes, this may not be true! There is nothing more frustrating than bad customer service.


Time is key in business, particularly when it comes to opening a bank account. Unlike personal bank accounts which can be opened online. Most business bank accounts have to be done in person. So don’t delay. Once you decide which bank you want to use, make an appointment with the Bank Manager. It can take 2 weeks or longer just to get an appointment to see him or her. From here, it can take another 2-3 weeks to get the account up and running.

N.B Make sure you have registered your business with Companies House first, as you won’t be able to open a business bank account without a company registration number.

Online or in person

It is important to note the differences in how a bank manages personal bank accounts and business bank accounts. With business bank accounts, fees are levied for paying money in, or taking money out of the account. On top of this, banks add-on monthly service fees as well. However, these charges are often lower if you choose to do the majority of your banking online.

If you are not comfortable with on-line banking and prefer to do your banking in the branch then thoroughly research which bank has the lowest transaction fees to avoid paying excessive charges.


If you will be paying a lot of cheques and money into the account then it will make sense for the bank to have a branch that is local to you. You don’t want to be travelling half an hour each time you need to go the bank.


It is tempting to choose a bank based solely on their introductory offer and switch banks once the offer ends. We advise you look at the longer term. Switching your business bank account every couple of years could infuriate your clients, as they will have to update their payment systems every time you do this.  It will also create extra work for yourself, as you will have to update your invoices with the new bank details every time you switch accounts.

It is also important to consider if you will need extra services from the bank in the future. For example, if you feel later on that you might need an overdraft facility, the bank may be more flexible with existing customers than new ones.

If you need assistance with your company set-up,  speak to us today and we will be delighted to talk you through the different options available. 


Choosing the right VAT route

There are several different ways you can account for VAT. Which VAT scheme is best for you? Choosing the right scheme is dependent on your business and circumstances. In this article we are going to look at the Flat Rate Scheme but if you would like any further advice on any of the other options please contact us.

There are 4 different options available:

  • Standard Accounting
  • Annual Accounting
  • Cash Accounting
  • Flat Rate Scheme

As a contractor or freelancer we recommend that our clients consider the Flat Rate Scheme (FRS) if appropriate. This article covers how the Flat Rate Scheme works and why it can benefit you as a contractor.

What is the Flat Rate Scheme?

The Flat Rate Scheme is an incentive scheme  introduced by HMRC in 2002 as a way for small businesses to simplify their sales and purchases records. As discussed in last week’s article, VAT is a complex area of tax and can be time consuming working out what you owe to HMRC. In order to simplify this process and lessen the burden on small businesses (and HMRC’s own administrative burden), the Flat Rate Scheme was set up.

How the Flat Rate Scheme works

HMRC explain that the Flat Rate Scheme “…allows a business to apply a fixed flat rate percentage to their gross turnover to arrive at the VAT due.”

With this scheme, your company charges its customer 20% VAT on every invoice but pay over to HMRC the amount of VAT collected at a lower rate. The difference between what the company collects and what it pays to HMRC is additional income for the company.

So instead of having to calculate the VAT on the difference between sales and purchases, VAT is calculated through applying a single flat rate percentage on the gross turnover.

The flat rate percentage varies on what sector your business is in. The HMRC website has a full list of these sectors with their corresponding flat rate percentage. Typically the rate is between 12% – 14.5% (depending on the type of work you do).

Can everyone join the Flat Rate Scheme?

If you have a VAT taxable turnover of no more than £150,000 a year, then yes, you can join the scheme. You can join the scheme online or by post using form VAT600 FRS. As a client of Cogent we can handle this for you.

Benefits of the Flat Rate Scheme

  • It is designed to be a simplified scheme and thus easier to understand
  • Less admin burden – which is particularly useful for busy contractors who are working and also running their own businesses
  • It can be helpful for cash flow as you know what percentage of your takings you will have to pay to HMRC
  • If you are in your first year of VAT registration you can get a 1% reduction in your flat rate percentage until the day before your 1st anniversary of VAT registration
  • You still charge your clients 20% but pay back a smaller amount to HMRC, the difference between the two is extra income for the business

Downside of the Flat Rate Scheme

  • If your VAT taxable turnover is more than £150,000 per annum you can’t join the scheme or once your turnover exceeds £230,000 you have to leave the scheme.
  • Once out of the scheme you cannot apply for re-entry for a full 12 months.
  • If you use the Flat Rate Scheme you can’t reclaim VAT on purchases (except in certain circumstances i.e. if they are a capital asset costing more than £2,000.00 (inclusive of VAT and the full cost must be on one invoice and if the asset is still in the business on the date of registration)

Note: A capital item or fixed asset (as it is sometimes referred to) can be equipment, machinery, computers, or cars, or anything else that has a high cost and that is going to be used in the business for more than 12 months and is not intended for sale during the normal course of business.

Example of how the Flat Rate Scheme works:

You bill your client annually for £100,000, adding VAT at 20% = £120,000

You work as an IT Consultant, so your VAT Flat Rate is 14.5%

Your flat rate payment will be 14.5% of £120,000.00 = £17,400

You would be better of by £2,600.00 per year if on the FRS scheme. (In your first year of trading including the 1% discount, would be £3,800).

Things to consider

The benefits of using the Flat Rate Scheme often outstrip the downsides, however we recommend that you speak to an accountant first before committing to it.

If you do join the scheme, there are still things to consider, such as:

  • You still need to show VAT of 20% on each sales invoice
  • If you are business with a lot of VAT chargeable expenses, then FRS might not be for you
  • You still need to complete a quarterly tax return
  • Even though it is designed as a simplified scheme, you still need to keep accurate records

Further information is available in our download Flat Rate Scheme Explained, download it now!

To VAT or not to VAT that is the question

Should a contractor become VAT registered?

One of the questions we regularly get asked by our clients is “should they register for VAT?”. Many of our clients operate via a Limited Company set-up. In this article, we look at if a contractor operating via their own Limited Company should register for VAT.

What is VAT?

VAT (Value Added Tax) is a tax that is levied on the sale of most goods and services. HMRC collects this tax through businesses who are VAT registered. (only businesses can be registered for VAT, individual consumers can’t).

Why should a Limited Company register for VAT

A business must register for VAT if at the end of any month its taxable turnover for any consecutive 12 month period is more than the VAT threshold (£83,000 for 2016/17).

This is on a rolling 12 months basis, so, looking at it now, you would need to check August 2015 to July 2016 and for next month you would look at September 2015 to August 2016.

If you are below the threshold but expect to receive a large income payment in the next 30 days that will take you over the threshold then you must register straight away.

Most Limited Companies decide to voluntarily become VAT registered even if they won’t reach the threshold. You may be thinking why would you voluntarily register for VAT? Well, some of the reasons are:

  • In some industries and professions, it is expected that businesses are VAT registered
  • It looks more professional to be VAT registered
  • If you make a lot of purchases for the business it may be beneficial to be VAT registered as you may be able to claim the VAT back (only if they are eligible)
  • The Flat Rate Scheme – often used by contractors – See next week’s article.

Sounds good, but are there any drawbacks to being VAT registered? Yes, but only a few:

  • More paperwork – You have to submit a quarterly VAT return (this is done online and here at Cogent we will do this for you)
  • You have to make quarterly VAT payments (again this is done online and we will advise you when to pay and the amount.)
  • If you are late in making these payments you may be hit by a penalty charge

How to become VAT registered

The easiest way is to register online with HMRC (we will do this for you) or by using form VAT1.

It can take anything from 10 days to a month (or longer in some instances) to receive your VAT registration certificate which contains your VAT number. You should keep the certificate with your other company records.

Charging VAT

If you are registered for VAT, you must charge VAT to your customers and you may also be able to reclaim VAT that you pay on your purchases. In other words, you pay over to HMRC the VAT you have charged less the VAT you can reclaim.

Once you receive your VAT number you must show this on your invoices and charge VAT at the appropriate rate, currently 20%.

So, for example: If you invoice your agency for 5 days work at £500.00 per day =£2500.00

You add VAT at 20% (2500/100*20) = £500.00

Total including VAT (£2500.00+£500.00) =£3000.00

HMRC advise not to charge VAT in the time that you are waiting for the registration number to arrive. Instead, increase the amount you are charging by 20% and explain that you will reissue the invoice with the VAT-able amount as soon as you receive the VAT number.

N.B: For contractors who operate in certain sectors (such as Financial Services, Public Sector and Charities) it may be a disadvantage to become VAT registered. Businesses that operate in these areas are frequently not VAT registered. Therefore, they may not appreciate the contractor adding 20% onto their rate. However, if the contractor expects to go over the threshold they will have to be VAT registered and charge 20% on their invoices.

In next week’s article, we will look further into which scheme is best for you (including the Flat Rate Scheme) and the process of claiming back VAT.

It is very easy to be unsure if you should be VAT registered as it is a complex area of tax. We are on-hand to answer your questions and offer guidance.


Cash is King: cash flow tips for Contractors and Freelancers

What is cash flow?

A simple explanation of what cash flow is ‘it’s the money coming into and out of the business’. You should always be focussed on getting more money coming into the business than going out of it.

Having lots of clients and winning more contracts looks great on paper but if you haven’t got the money coming in it is not a true representation of how well you are doing. A lot of contractors and freelancers have gone out of business and this is not for a lack of work, but cash. Hopefully, you won’t find yourself in this situation.

The importance of good cash flow for Contractors and Freelancers

As a contractor or freelancer, the days of receiving a regular pay cheque are behind you. It is now your responsibility to maximise your income, pay your taxes and minimise your expenses. Keeping a tight grip on your cash flow is the most important aspect of running your contractor or freelance business. Our article gives you some simple but effective tips on how to successfully manage your cash flow:

  • Invoice promptly and accurately
  • Chase up payment when overdue
  • Set out payment terms in your contract
  • Make invoices easy to pay – include all the important details: invoice number, date issued, payment date, a description of services provided and preferred payment method
  • Pay your bills when they become due and not before
  • Think about the future – try to have enough cash in reserve for slow months in business or unexpected costs
  • Try and identify any cash flow problems as early as possible (cash flow forecasting) and find ways to deal with them. Burying your head in the sand and ignoring them will only make matters worse
  • Cut back on unnecessary expenses
  • Don’t give people a reason not to pay: deliver the service you promised. People are happy to pay for a good service and less so for a service that is below par
  • Record, record, record: every purchase you make (not matter how small it is) and all incomings. You should know at all times how much cash your business has

The future’s bright the future is self-employed

A staggering 4.70 million people are now self-employed, with 1.91 million of these freelancers. This figure is set to increase over the coming years. Understanding cash flow and how to manage this effectively is fundamental to the long-term success of these businesses.

If you are a contractor or freelancer hopefully you will find our cash flow tips helpful. Our website contains lots of information that you will find useful and our monthly newsletter will keep you in the know of what is important in the freelance and contractor market. Click here to sign up.