How to deal with overdue invoice payments

Late payment continues to prove a major headache for many small businesses. According to the Federation of Small Businesses, late payment impacts 52% of small UK firms, with an estimated 56 million hours of productivity lost each year and 50,000 small firms going bust as a consequence.

In September 2024, the government unveiled a new Fair Payment Code as part of a package to tackle late payment in the UK. The Code is a tiered system of awards that acknowledges best practice in payment.

Reasons for late payment

Late payment can cause serious cash flow issues and otherwise good customers can be bad when it comes to paying you on time. Large companies are often the worst culprits, with their accounts people habitually ignoring suppliers’ payment terms because they believe they can get away with it.

Even if cash flow impact is manageable, having to chase repeatedly for payment can be irritating and time-consuming. In limited instances, your invoice may have genuinely been mislaid, or not sent on by your contact to accounts for payment. If this happens, send a replacement and request payment to existing terms.

Sometimes late payment can be your fault, with incorrect details on your invoices leading to unnecessary delays. Your customer should have raised any problems long before they received your invoice, so this isn’t a valid reason for not paying you when due. Sort out any genuine issues quickly and make sure you send your invoices as soon as possible.

Sometimes customers have understandable reasons for late payment. They could be waiting for payment from their customers. If you’re not expected to wait a long time, showing some flexibility is advised. Obviously, you’ll want to protect your customer relationships, so your approach must be tactful and professional. However, if they end up not paying you, they’re not a customer, while some customers can, quite literally, be more trouble than they’re worth.

“Some customers can, quite literally, be more trouble than they’re worth”

Chasing unpaid invoices

If you still haven’t been paid the day after the due date, contact the customer to politely request immediate payment. Never let days (let alone weeks) go by without chasing unpaid invoices, even if it’s something you hate doing or worry that it will upset a customer. Be friendly, but firm. You’re asking for money that is rightfully yours.

Some customers try to delay payment as much as possible, which can damage your cashflow significantly, especially if you have more than one late payer. There is also a risk that the more time you give, the more customers will expect, so stick to your agreed credit terms (30 days is standard). Any delays should bean exception.

If a customer asks for more time to pay, you’ve every reason to ask why and when they expect to pay you. If it’s a few days, fine, but several weeks or more is a much bigger ask. Agree a deadline, expect payment then, and (to protect yourself) suspend any further sales or supplies until the bill is paid in full. Good customers will understand. Constant broken promises and not replying to your phone calls and emails are bad signs, which should prompt you to up the ante.

“You can claim interest of 8% over the Bank of England base rate for B2B transactions, as well as debt-recovery costs if a business is late paying you.” 

Charging interest and debt recovery

Bylaw, you can claim interest of 8% over the Bank of England base rate for B2B transactions, as well as debt-recovery costs if a business is late paying you. If a payment date has not been agreed, by law, late payment is 30 days after supply of the invoice or the goods/services (if later). Telling a customer that you plan to add interest to an unpaid invoice can be enough to secure payment.

When dealing with larger amounts, offering to accept instalments can help your customer, while ensuring that you get all or most of your money. Emails and letters are easy to ignore, so always speak to customers when chasing unpaid invoices, following up with an email or letter to confirm if a delay has been agreed.

Invoice factoring can ease your short-term cash flow pressures. Effectively, this is where a bank or other invoice factoring service provider buys your unpaid invoices for less than the stated value and either they pursue payment or you do and pay them when your payment is received.

If all your efforts fail, consider contacting a reputable debt-recovery agency. Some don’t charge if they don’t recover debts. Get references and find out exactly what fees or commission they charge before coming to a decision. If matters get really bad, you can apply to the court to ‘wind up’ a company if it cannot pay its debts.

• This blog was produced for Coconut Accounting Software.

Six key things to consider when choosing an accountant

Choosing an accountant is a key decision. Find the right one and they’ll make your life easier, while helping you to maximise your income and minimise your tax bills.

Some sole traders and small private landlords don’t use an accountant. They take a “DIY approach” to bookkeeping and completing their tax returns. Software makes this possible and it enables them to save money.

But for an easier life and peace of mind, many other sole traders and small private landlords do use accountants. Choosing an accountant is a key decision. Find the right accountant and they’ll make your life easier, while helping you to maximise your income and minimise your tax bills. Make a bad choice and you’ll earn less income and end up frustrated at the poor service you receive. So, before choosing an accountant, what key factors should you consider?  

1. Experience

You’re looking for a well-established accountant with years of experience of working for sole traders and landlords. If they’ve worked for sole traders in your sector, it can be hugely beneficial. They’ll be familiar with the unique challenges faced by sole traders in your sector, which should enable them to give you reliable practical advice. And although you’re likely to have to pay more for it, they or someone within their network should also be able to advise you on other important matters, such as growing your business or property portfolio, future investments, your pension, etc.  

Top tip! Seek recommendations from other landlords or sole traders in your sector. Ask them which accountants they use and whether they would recommend them. Also find out how much they pay and what services they get in return.

2. Qualifications

An accountant should of course have the necessary professional training and membership of relevant professional bodies. In the UK and Ireland, leading chartered accountancy bodies include the Association of Chartered Certified Accountants (ACCA), Chartered Accountants Ireland (CAI), the Institute of Chartered Accountants in England and Wales (ICAEW) and the Institute of Chartered Accountants of Scotland (ICAS).

Top tip! Qualifications and memberships will only tell you so much. The right accountant will also understand you, be committed to working hard for you and want to build up a strong professional relationship with you.

3. Services

You also need to find an accountant who can offer the services you require, now and into the future. While basic services such as bookkeeping and tax returns are essential, you might also gain from tax planning and business advisory services. If you run a business and it grows, consider whether the accountant can help to enable your growth and support you as your needs change over time.

When weighing up your options, get prospective accountants to explain what specific services they offer. Also find out about their culture and approach to customer service. You should be sure that they will respond quickly and satisfactorily to your requests for support, not leave you waiting ages for a reply.  

Top tip! Find out who your regular contact will be at prospective accountants and ask to meet them. This is the person with whom you’ll need to establish a good working relationship. Crucially, they need to be someone you can trust.

“When weighing up your options, get prospective accountants to explain what specific services they offer. Also find out about their culture and approach to customer service.” 

4. Reviews

Prospective accountants will probably tell you how wonderful they are and how much their existing clients love them. Their website might also contain glowing quotes from satisfied clients. But you need to do some of your own research. Look on social media and review platforms such as Trustpilot to see what clients are actually saying and what ratings they have given. You need to be able to trust your accountant, they need to demonstrate integrity and professionalism.

Top tip! Even the best accountants attract negative reviews – sometimes unfairly. As well as the glowing reviews, read the bad ones to see how the accountant has responded. It can reveal much about their customer service and explain bad reviews.

5. Value

Although, obviously, you’ll want to minimise your accountancy costs, going for the cheapest option can be unwise. Generally, you get what you pay for. You need to consider what value you will get, not necessarily what price you pay. An accountant who charges you slightly more might offer you greater quality. They could be much more reliable and give amore responsive, personalised service.  

Top tip! Accountants either charge a fixed monthly fee for specific services or a set fee for a specific task (eg complete a tax return), possibly an hourly fee for other work. Make sure you understand what you’ll pay and what you’ll get for your hard-earned cash. Transparency is essential, there should be no hidden costs. And be sure to claim back all accountancy fees as an allowable tax expense.

“Make sure you understand what you’ll pay and what you’ll get for your hard-earned cash. Transparency is essential, there should be no hidden costs.”

6. Software

As a sole trader or landlord, you realise the importance of keeping accurate, up-to-date financial figures, so you’re happy to use accounting software. But you just need accounting software that’s quick and easy to use, gives you basic functionality and gives you access via your smartphone if you’re out and about. You want something that enables you to manage and minimise your expenses, something that saves you time, effort and costs when completing your Self Assessment tax return.

Top tip! Ask prospective accountants what software they’ll expect you to use. Also ask them how quick and easy their preferred client accounting software is. If it comes with complex and unnecessary “bells and whistles”, ask for something simpler.

And finally…

Leave yourself enough time when searching for an accountant. Rushing your decision can lead to mistakes. Seek recommendations from other sole traders or landlords. Make time for a brief face-to-face meeting with accountants, to get a better idea of who will be working for you.

Have conversations with a few shortlisted accountants before making your decision. Be clear about how much you’ll pay and what services you’ll get. Speak to some of their other clients. Find out whether they think they’re getting good value for money. Choose an accountant that uses the right software for your practical needs, software that saves you time, effort, money and makes your life easier. Ultimately, you’re hiring an accountant for the same reasons.

• This blog was written for Coconut accounting software.

Do I need to file a tax return for my side hustle?

Side hustles have become very popular. According to some sources, more than a third of UK adults already have a side hustle and that could soon increase to half. A side hustle, of course, is a way to earn cash in addition to your main source of income, whether you’re employed or self-employed.

The explosion in side-hustler numbers hasn’t escaped HMRC’s attention. Last year, the UK tax authority warned that it had told popular platforms to reveal side-hustle income so that it could go after unpaid tax. HMRC had in its sights those making extra dough from eBay, Amazon, Etsy, Airbnb, Fiverr, Uber, Uber Eats and Deliveroo, as well as those using platforms Upwork and Fiverr to earn additional money by freelancing.

Selling personal possessions versus side hustle income

If you’re occasionally selling personal possessions via an online marketplace, perhaps old vinyl records or football programmes on eBay, clothes on Vinted or other unwanted things from your loft or garage at car boot sales, no tax is payable. You’re just selling off your personal possessions.

However, if you’re regularly buying things to sell on for a profit or you’re buying materials to make things (eg greetings cards) to sell for a profit, you’re trading and tax may be payable. The same is true if you’re selling your professional services regularly, where income can also be taxable over certain thresholds.

When is side hustle income subject to tax?

If you are trading, thanks to your “Trading Allowance” you can earn up to £1,000 a year of side-hustle gross income (ie your total sales) tax-free, because HMRC views this as “casual or miscellaneous” income. You don’t have to register or fill in a tax return, you can relax.

But once your side-hustle trading gross income goes over the £1,000 Trading Allowance threshold, Income Tax can be payable, depending upon how much taxable income you earn from other sources. If you earn taxable income from more than one side hustle, the £1,000 threshold applies to your total taxable side-hustle income.

Registering to pay tax on your side hustle income

Most people earning taxable side-hustle income pay tax via Self Assessment, after registering as a “sole trader” (rather than setting up a limited company). Visit government website GOV.UK to register as a sole trader. It’s quick, free and easy.

If you haven’t done this before, you must register before 5 October following the end of the tax year in which you earned taxable side-hustle income. The UK tax year runs from 6 April until the following 5 April. If you don’t register in time, you can be fined.

Once registered, each year you must complete and file a Self Assessment tax return, as well as supplementary tax return pages SA103 to report your side-hustle income, plus any tax expenses and allowances you wish to claim. Depending on your other sources of taxable income, there can be other supplementary pages to complete. You must file your Self Assessment tax return before the online-filing deadline of midnight on 31 January, otherwise there’s an immediate £100 fine.

How much tax will I pay on my side-hustle income?

Sole traders pay tax on their net profits, which is their sales minus their costs. HMRC allows you to deduct some costs (“allowable expenses”) from your gross sales/income, which reduces your tax bill. Other other tax allowances and reliefs may also be claimable.

The Income Tax band into which all of your total taxable income falls (not just your trading income) determines how much tax you pay. As well as your £1,000 Trading Allowance, you don’t pay Income Tax on your first £12,570 of gross taxable income, because this is your tax-free Personal Allowance.

• You’ll pay the basic rate of Income Tax of 20% if your total taxable income is between £12,571 and £50,270 a year.

• You’ll pay the higher rate of Income Tax of 40% if your total taxable income is between £50,271 and £125,140 a year.

• You’ll pay the additional rate of Income Tax of 45%, if your total taxable income is more than £125,140 a year (2024/25 tax year).

• Income Tax bands and rates are slightly different in Scotland.

What about airbnb or other property rental income?

If you earn less than £1,000 gross rental income via airbnb, you don’t have to report it to HMRC. Thanks to the Property Allowance, it’s tax-free income. As soon as you earn more than £1,000, it’s reportable taxable income.

• Contact HMRC if your annual rental income is between £1,000 and £2,500.

• You must complete and file a Self Assessment tax return and supplementary pages SA105 if your annual rental income is more than £2,500 after allowable expenses or £10,000 before allowable expenses.

What if I don’t pay tax on my side-hustle income?

Reportedly, digital platforms will only pass on data to HMRC automatically if a seller is selling 30 or more items a year or they have total earnings over €2,000 (about £1,700). But even if your taxable sales are just over £1,000, registering for Self Assessment and paying any tax due is recommended.

If you know that tax is payable on your side-hustle income and you try to conceal it from HMRC, you’re guilty of tax evasion, a type of fraud and a criminal offence, of course. The financial penalties for tax evasion can be severe and in the worst cases it can lead to a prison sentence. Trying to hustle HMRC is not advised.

• This article was written for GoSimpleTax in 2024.