We’ve all had those moments where a letter drops through the letterbox and you instantly get that horrible sinking feeling in your stomach. For many construction business owners, that dreaded letter comes from HMRC. It’s a nudge letter, a not-so-subtle reminder that your tax affairs might not be as squeaky clean as you’d hoped.

Why the nudge?

Unfortunately, HMRC aren’t just sitting around twiddling their thumbs. Their advanced systems can spot a discrepancy a mile away, with accuracy. If you’ve been a bit sloppy in your record-keeping or missed a few deadlines, you might find yourself on their hit list.

Common reasons for nudge letters in construction:

• CIS antics: Errors in CIS returns or payments to subcontractors can trigger a nudge. It’s important to understand CIS and its complexities fully. If you need a hand with this give me a shout, alternatively, I’ve covered CIS in a previous blog. You can read it here.
• VAT issues: Incorrect VAT returns, especially for construction-specific schemes like the reverse charge.
• Income and expenditure mismatch: Discrepancies between your reported income and expenses.

A real-life example

One of my clients received a nudge letter from HMRC. At first, he was a bit flustered. After all, he’d been running his construction business for years and thought he had everything under control. But as I went through his records, I discovered a few minor errors that could have led to significant tax penalties.

If you know me, you know I’m not one to shy away from dealing with HMRC. So, I quickly got to work, reviewing his records, finding the errors, and communicating with HMRC to address their concerns. Luckily, thanks to swift response, we were able to resolve the issue with a slap on the hand and no major consequences.

Luckily, he had me (a tax professional that specialises in construction) at hand to handle it promptly. However, if you don’t already have an accountant I would strongly recommend following the steps below as soon as possible.

How to respond to a nudge letter

1. Don’t panic: It’s easier said than done, but it won’t change anything. So, take a deep breath and assess the situation calmly.
2. Seek professional advice: Consult with a qualified accountant, preferably with years of industry-specific experience, to help you understand the implications and come up with a strategy to get you out of the mess.
3. Gather your records: Gather all relevant financial documents, such as invoices, receipts, and bank statements. You know the drill.
4. Communicate with HMRC: Respond to HMRC promptly and provide any requested information. Don’t gatekeep anything or try to outsmart them, hand over whatever they ask for.
5. Consider a voluntary disclosure: If you’ve made significant errors, a voluntary disclosure may be a viable option. By doing this, you’re showing full transparency and cooperation with HMRC, which could work in your favour and result in reduced penalties and prevention of prosecution.

Remember: This is not a time to DIY it.

Avoiding future nudge letters

Construction is one of the most time-demanding industries, so falling behind on the financial side of things is something I see and deal with often. Making sure you set time aside each month to check your books are up-to-date will help to avoid a run in with the tax man. If you really don’t think you have time to do this, it probably means it’s time to look for an accountant that can take the weight off your shoulders.

To avoid future HMRC scrutiny, consider these tips:

• Keep accurate records: Maintain detailed records of all financial transactions. From paying subcontractors and employee wages, to purchasing materials and site expenses.
• File tax returns on time: Set reminders and consider using tax software to automate the process. My real preference is Quickbooks.
• Seek professional advice: Consult with a qualified accountant to ensure compliance with tax regulations.
• Stay updated: Keep ahead of changes in tax laws and regulations.
• Improve financial discipline: Establish effective systems to track income, expenses, and tax requirements.

Don’t forget, a timely response to an HMRC nudge letter can save you time, money, and stress. Don’t push it aside or ignore it, unless you want the situation and repercussions to escalate.

Consequences of ignoring a nudge letter

Ignoring an HMRC nudge letter can lead to serious consequences, including:

• Increased penalties: HMRC may impose hefty fines for late or inaccurate tax returns.
• Deeper investigations: A nudge letter can trigger a more thorough investigation into your tax affairs. You might not want them to see that pricey Christmas present that you got your other half in your expenses…
• Potential legal action: In severe cases, tax evasion can lead to legal action. Do you throw away all the effort and time you’ve put into your business by damaging your reputation?

Don’t let a simple oversight turn into a major headache. If you receive a nudge letter, take immediate action. Consult with a tax professional to understand the implications and develop a strategy to resolve the issue.

Need help with your tax affairs? Let’s chat over a cuppa.

Interested to find out more?

Call us on 01617 985789

Or book a meeting at https://calendly.com/d/ckfd-tzk-zbb

Taxman knocking? And not knocking quietly? Here’s how to handle an HMRC investigation:

Ever had that sinking feeling when you get that brown envelope with ‘HMRC’ written on it drop through your letterbox?

I experienced a similar feeling recently when I went to the doctor and was told I needed to change my diet. Seriously? The weekly Chinese was under threat! Gutted.

You know you should open the envelope. And you know it’s not an unexpected tax rebate. Of course, it could just be that an employee’s personal tax code has changed. But still that feeling of dread is real.

So, what do you do if the taxman is on your case and being a real pain in the backside? I’m no stranger to this topic, although I’ve learned over the years that everybody’s situation is different. Some are more challenging than others. But the one thing that doesn’t change is my advice on how to deal with it. So let’s get into it.

Understand Why They’re Here

Before you start responding to the taxman’s questions, try to work out exactly why they’re investigating you. Have you missed a deadline? Made a mistake on your tax return? Or is it something more serious? Once you know, you can start to prepare your response. Being honest with me is important when I ask you these questions. Trying to cover up stuff here with me or HMRC can just bring a whole heap of the brown stuff down on you.

Or maybe you already know the reason, and it’s just the inevitable catching up with you. In that case, it’s time to deal with it before it gets any worse. You don’t want to be caught standing in court with all the truth coming out? I’ve seen it happen, and it ain’t pretty. It’s pretty stressful if your case goes to court.

Regardless of whether you know the reason or not, here’s what I would suggest you do next:

Be Cooperative

It’s important to cooperate with the tax inspector. Answer their questions honestly and provide any documentation they request. I know it’s hard not to get your back up when you’re feeling accused of something, but try not to be too defensive. Remember, the more you cooperate, the easier the process will be for everyone involved. As your accountant, If I can show that you have been cooperative, this could reduce any penalties that the tax man wants to make you pay.

Seek Professional Help

If you’re feeling overwhelmed, consider seeking professional help. Get in touch with someone who knows their stuff. (Hint: I’m right here. I’m just a phone call away, and I wouldn’t judge.) An accountant can provide invaluable guidance and support throughout the investigation, even if it’s emotional support that’s needed. They can help you understand your rights and responsibilities, and they can negotiate with the taxman on your behalf.

A decent accountant should give you peace of mind, ensuring you’re compliant with tax laws and regulations. It’s important to choose wisely if you’re going down this route. Always do your research before you make a decision.

Proactive Measures to Avoid Investigations

The best way to avoid an investigation is to be proactive about your tax compliance. Here are some of my suggestions:

• Keep accurate records: This is the most important thing. Make sure you keep detailed records of all your financial transactions. The first thing I will want to do to help you – regardless of any HMRC investigation – is to get your books clean and up-to-date.
• File your tax returns on time: Don’t miss any deadlines. That’s a fine you do not want or need.
• Pay your taxes on time: Avoid late payments, as they can trigger an investigation and heavy interest charges.
• Stay up-to-date with tax law changes: Tax laws can be complex and change frequently. Make sure you’re aware of any changes that may affect your business. This is where I can help you. As your accountant, I will ensure that you are compliant with all the relevant tax laws, such as CIS and the reverse VAT scheme for the construction sector.

Remember, the taxman is just doing his job. If you’ve done everything by the book, you should have nothing to worry about. But if you’re feeling a bit anxious, I’m happy to offer you some advice. Sometimes crap does happen to good people.

Additional Tips:

• Don’t panic. It’s easy to get stressed when you’re being investigated, but staying calm is important. Take a minute to sit down with a cuppa and get rid of any anxiousness you’re feeling. You need a calm head for this stuff.
• Be prepared. Have all your documentation ready before the investigation begins. You don’t want to be flapping around trying to find letters or emails; it won’t look good.
• Don’t make any rash decisions. Just take your time; it’s important to consider all the options that are available to you. Take notes to look back on if necessary.
• Seek advice from a professional. A tax advisor or investigations specialist like myself can help you understand your rights and responsibilities and go about them the right way.

By following these tips, you can increase your chances of firstly avoiding a tax investigation in the first place and then getting a successful outcome in a tax investigation.

Interested to find out more?

Call us on 01617 985789

Or book a meeting at https://calendly.com/d/ckfd-tzk-zbb

Running a construction or hospitality business can be a complete and utter nightmare. You’ve got projects piling up, staff to manage, broken equipment and customers who seem to think paying on time is optional. But the biggest headache of all? Cash flow.

I’ve seen it first-hand. I’ve witnessed the stress of a dwindling bank balance and the fear of not being able to make payroll. Trust me, it’s not a fun place to be. But don’t worry, I’m here to help.

I’ve been in the construction industry for decades, and I’ve seen my fair share of ups and downs in my time. I’ve learned a thing or two about managing finances along the way, so I’m going to share my tips with you.

Separate Bank Accounts

First things first, set up separate bank accounts for your business. This will help you keep track of your finances and avoid mixing personal and business expenses. After all, you don’t want your accountant or bookkeeper to see exactly what nice presents you got for your other half. Let’s just say we’ve seen some ‘interesting’ personal expenditure when sorting out year end accounts. 

I recommend using Monzo banking, as they offer this handy feature called “Pots”. You can set aside money for specific things, like tax, rent, or, in my case a pot to fund my golf clubs (which by the way, if you’re not into golf, cost an arm and a leg!). I was recommended to Monzo and wondered what all the fuss was about, but I’ve learned it’s a pretty great app for keeping your finances organised. And, even if digital banking and apps isn’t your thing, it’s pretty easy to use. 

Getting Paid Promptly

Getting customers to pay on time is like trying to score a hat-trick against Man City – tough and often impossible, but there are a few things you can do to improve your chances (that’s with getting paid on time, not scoring against Man City – unless you’re Alan Shearer).

• Send clear and concise invoices: Make sure the details are correct and easy to understand. 
• No surprises: Your billing schedule or the details on the invoice should match what the customer is expecting.
• Set payment terms: Clearly state when you expect payment.
• Put your bank details on the invoice: You’ll be surprised how many invoices we receive where we can’t work out how or where to pay. If your invoice will be paid by direct debit, then state this on the invoice. If you want them to press the ‘pay now’ button, then put this on the invoice. You get the idea!
• Follow up: If a payment is late, don’t be afraid to chase it up. A friendly reminder via email or phone can often do the trick.

Cash Flow Forecasting

A cash flow forecast is a prediction of your future income and expenses. It’s a vital tool for any business, but it’s especially important in the unpredictable world of construction and the seasonally impacted hospitality sector. Projects are great as they are a large lumpy sum of money. But the problem is that projects often come with high upfront costs, i.e. to hire the equipment needed or buy the materials to get started.

Projects can get delayed, costs can shoot up out of nowhere, and we’ve already had a rant in this article, about how slow customers can be when it comes to paying. With a cash flow forecast, you can see these potential problems coming and take steps to avoid them. No more unwelcome surprises. 

Minimising Bad Debts

Bad debts can be another major drain on your cash flow. These are, more often than not, due to the long payment terms involved in construction. Of course, it is possible to have a bad debt with a hospitality business but in my opinion this industry is far better at taking payment either at the point of delivery or before an event. 

Here are a few tips for minimising your bad debts:

• Conduct credit checks: Before doing business with new customers, check their creditworthiness. Don’t just take their word for it. Companies House is a great place to snoop or pay for a credit check.
• Require deposits: Ask for a deposit upfront to reduce your risk. Particularly at the start of a project or before you need to buy materials or ingredients.
• Set clear payment terms: Make sure your terms are fair and reasonable, but don’t leave any room for doubt. I.e. these payment terms should be discussed at the point the contract is signed.

Payment Plans and Instalments

If a customer is struggling to pay, consider offering them a payment plan. This can help you avoid bad debt while still getting paid and it’s more manageable for the customer too, win-win. This option applies more for the construction industry rather than hospitality. Funnily enough we have a few payment plans currently in place for our clients who hit a tough spot trading wise. 

Keeping Your Books Up-to-Date

Keep your books in order. By doing this you can see who owes you money, when payments are due, and if you’re heading for some squeaky-bum time when it comes to your cash or money in your bank account.

I’m a big fan of QuickBooks. It means you can run your business from anywhere in the world as long as you have an internet connection. The QuickBooks software tools let you track your cash flow and keep your business running smoothly. But, the best part is saving time on sending invoices, tracking expenses, and preparing your VAT returns. All of the long, boring admin jobs that often get ‘forgotten’ about.

Splitting Finances by Project

Are you working on multiple projects? Do you know which one of these projects are loss making or the ones that are truly making you money? In my experience many construction companies and hospitality businesses don’t know. Everything gets lumped together on one or two lines of the P&L. 

In order for you to grow and put more money into your bank account you want to know which ones are bringing in the profits and which ones are costing you money. If you are a hospitality business you can do this by splitting the revenue lines on your P&L between items such as takeaway, table service or create reports using software to analyse which of your tempting desserts are working for your customers’ palates and your bank balance.

One of the reasons I like Quickbooks is it makes it easy to split up your expenditure and income on a project by project basis. This means someone like you or I can see very quickly which projects are underperforming and how to quote better next time.

To summarise

Firstly, don’t put your head in the sands when it comes to cashflow. The sooner you have a problem emerging the easier it is to deal with it. We are here to help you whether you are worried about cash flow or whether you know you have a cash flow crisis.

Interested to find out more?

Call us on 01617 985789

Or book a meeting at https://calendly.com/d/ckfd-tzk-zbb