When you started up you were careful with money, so outsourced accounting for your construction company wasn’t even an option! But things have changed, so is now the time?

What does outsourced accounting involve?

By this we're talking about all the accounting work that you've never been keen on and are now realising isn't the best use of your time.

Bookkeeping and VAT

It need to be done, but let's be honest, it’s not really work that you value and it doesn’t generate the cold hard cash you want. 

Payroll and CIS

It's a hassle to deal with so easy to get wrong.

Management accounts

You're starting to feel like you need more information to be able to make strategic business decisions and this is where regular management accounts come in.

How do I know the time is right for outsourced accounting?

You’ve grown

As the company’s grown you’ve found you’re left responsible for a multitude of tasks that are outside of your comfort zone.  You’re not only in charge of finding the work but running the jobs and supervising them too. There’s also the marketing, not to mention the accounting side of things.

You want the company to continue growing, but already feel as if every minute is packed with things to do. If only you could only free up some time to focus on what’s really important!

You’re tired

You already work hard all day. The only time you have available to do the additional stuff is in the evenings, or at the weekends – which quite honestly sucks.  But at the moment, it’s either that or allocate time in the week and lose out on actually generating income.

You’ve lost focus

It’s well known that multitasking never produces the best outcomes. It’s less productive and you’re bound to take your eye off the ball meaning something will go wrong. Perhaps you already feel like it’s just a matter of time?

Just remember, you can’t do everything … and you shouldn’t have to.

Something has to give. It’s time to get the help you need and invest in outsourcing now!

What are the benefits of outsourced accounting?

There are so many benefits but here are the main ones.

It generates more time

Spending less time on your accounting will free you up to do what you do best. This leaves you in a better position to scale the core business and ultimately generate more income. 

Or perhaps you could use the extra time to relax and spend it with your family instead. After all, they’re what’s driving you to want to be successful in the first place.

By passing the accounting to us, you’ll free up so much time. However, even if you decide not to take up a full package we can still help. We’ll use our experience to introduce you to ways of working smarter and more efficiently. For example, we recommend all clients use Xero and link it to their company bank account. They can then raise sales invoices directly in the system, link to receipt capture technology to collect all purchases invoices and set up bank rules which all save time.

It will be more accurate

Bookkeeping isn’t given the respect it deserves and its importance is often overlooked. Many forget that it’s the foundation used to see how well the business is doing. It’s also what you’ll use to make business decisions and forms the basis of the tax you’ll pay; what could be more important than that?

As qualified accountants we’ll take care of the bookkeeping, giving you peace of mind it's being completed correctly. We'll be able to spot and correct any errors you’ve made which may be costing you money. In fact, we find clients are extremely happy when we point out things that they are entitled to claim but have been missing out on!

It’s cost effective

We realise it can be hard to justify the thought of paying for outsourcing. It's therefore a good idea to work out how much time you spend doing it yourself and to put a value on it. We guarantee it’s likely to be far more than you thought!

As trusted advisers, we’ll manage your finances on your behalf so that you don’t have the headache of wasting valuable time and can spend it doing what’s needed to grow. Most clients tell us that with our help, they free up enough time, to generate income which more than covers our fees. 

You'll have better quality management information

Accurate and up-to-date financial records play an important part in the success of a business, giving better data from which to make important business decisions.

As progressive accountants, specialising in the construction sector we’ll ensure you have expert advice and high quality information from which you can ultimately make more informed business decisions.  Our management accounts package provides all the information you'll require to see how your business is really performing. Plus, we’ll explain it to you in the format you prefer, be that written or via recorded video, with a follow up meeting to discuss it.

If you'd like to find out more about how we can help your construction company with it's outsourced accounting, book your free 15-minute discovery call today.

If you run your own Limited company this phrase has probably been thrown into conversation a fair bit - but what does it actually mean? This blog clearly explains how director's loan accounts work in small construction companies.

What are director’s loan accounts?

In short, it’s simply a record of all the transactions between the company and you, its director.

The loan account (sometimes called a director’s current account) might include any, or all, of the following:

• Money you have lent to the company.
• Money you have taken out of the company, which isn’t otherwise categorised.
• Salary due to you, but not actually taken from the bank.
• Expenses paid by you on behalf of the company which you’ve not been reimbursed for.
• Provisions for expenses, such as using your home as your office.
• Dividends declared to you but not paid from the bank account.
• Interest on the balance.

What types of director’s loan accounts are there?

Transactions between you and the company are tallied up and classified as either:

In credit

The company owes you money.

Overdrawn

You owe the company money.

Why would you loan the company money?

New businesses often need an injection of cash to get them started as they're unlikely to qualify for a bank loan. This means borrowing money from the director is a great way to access funds.

More established businesses may need a cash injection to assist with cashflow for buying new equipment.

The good news is that you can withdraw any monies that you've lent the company with no tax implications whatsoever.  Just make sure, before you repay your loan, that the company can still afford to pay out other creditors such as suppliers and HMRC.

But there’s more good news - the company can pay you interest on the money you loan it!

This is a great way of extracting money from the company in a tax efficient way.

The interest rate you charge can be set higher than the business might be able to get from a bank. This is because the bank would ordinarily be looking for security against assets or perhaps a personal guarantee. However, as you’re not providing these, the loan would be classed as unsecured (meaning it’s riskier).  We therefore suggest that a rate of 8-10% could be considered reasonable.

Always to speak to us in relation to this, as important paperwork is required.  A declaration needs to be made to HMRC, as well as the tax being deducted.  However, if planned well, it might also be possible to recover all, or some of the tax deducted. This is because most UK individuals have a tax-free allowance called a ‘Personal Savings Allowance’.

Are overdrawn director’s loan accounts bad?

With the right planning - not necessarily! 

Surprise overdrawn director loan accounts are usually bad news as there’s little planning that can be done by the time that they are discovered.  These often occur where you draw out more than you’re entitled to in salary or dividends, or if you use company money to pay for personal costs like holidays.

BUT a carefully planned director’s loan withdrawal can avoid costly and unnecessary tax implications and also be really helpful.  Say for example you need a short-term loan to pay your child’s university fees or to put a deposit down on a house – the company could loan you the money.

Important points for taking out a director’s loan:

What if’s over £10k?

If the loan exceeds this amount HMRC consider it a ‘benefit in kind’, meaning you are getting the benefit of an interest free, or low interest loan that would not be available elsewhere.  This means that either the ‘benefit’ you are receiving becomes taxable, or the more common approach is that the company should charge you interest on the loan.  HMRC’s guideline rate for 2021/22 is a fairly favourable 2.25%.

When should it be repaid?

The loan needs to be repaid within 9 months (and 1 day) of the accounts year end to avoid an additional, albeit temporary, corporation tax charge of 32.5%.  However, it’s not necessarily the end of the world if this does need to be paid as the tax can be recovered from HMRC, once the loan has been repaid.  Just remember that it may cause a cashflow issue for the business in terms of paying out the additional tax and having to wait to claim it back.

How is a director’s loan repaid?

In cash

Repaying your loan could be as simple as depositing personal money back into the business account but don’t worry if this isn’t an option, there are alternatives.

Salary

It’s not the preferred way of making a repayment as it’s not usually tax efficient, but a salary could be declared via the company’s payroll scheme, which you do not then take from the bank. 

Dividends  

The most tax efficient way of repaying the director’s loan would be to declare non-cash dividends i.e. dividends which you do not take from the company (as you’ve already taken the money). But planning will be required to assess the company’s profits, and the timing needs to be carefully considered.

We're regularly helping our construction clients get the most out of their director loan accounts. If you'd like to discuss yours, book a free 15-minute discovery call today.