VAT Flat Rate Scheme Approval

After your FRS application is approved you should receive a confirmation letter like this one.

As soon as you get that please let us have copy so that we can make sure our systems are up to date and we help you to get the next VAT return in, with the right amount, and on time!

New Starter Process

When you have a new starter please ask them to provide you with a copy of the form P45 from their last employer, and to help you compile a data set for us as the payroll bureau.

If your new starter does not have a P45, then they must down load and complete this New Starter Checklist.

The data set we require (on a Word Doc, a TXT file or a CSV file) is:

Family name
First name
Residential address including post code
National Insurance number
Date of birth
Mr/Mrs etc
Date employment commenced
Job title
Employee’s email (for the individual electronic payslip)
The annualised salary
First pay date

If any adjustments are required to the pay for the first payroll period, then please let us have precise details.

Then place the completed employee data set and the form P45 (or a New Starter Checklist) into the Dropbox folder pending/payroll. Please send us a short email to let us know, and then we can move on to the next step.

We would ask you to try and do this by the 19th of the calendar month in which your new starter is going to be paid!

Thank you.

VAT Certificate

HMRC first introduced digital processes in 2007 and (as at 1 Jan 2021) has not yet abandoned the use of paper. Some things are only set out on paper, like a VAT reporting cycle!

That means that we need a copy of your VAT Registration Certificate. A form VAT4. HMRC normally posts this about 7-14 days after registration.

It looks a bit like this example and (amongst other things) it tells us if you have a March, June, September, December reporting cycle or some other pattern.

Payroll Reports Completed

The payroll reports for this period have been completed. Payslips have been sent by e-mail (either directly to the staff or to the HR manager as specified by you) and the monthly report has been added to Dropbox.:

Please check the 677470 report which combines a full payroll summary and copies of all the payslips in one document. You will need to make a payment by the 19th of next month. Use your internet banking facility to make a payment to:

• Account name – HMRC Shipley
• Sort Code – 08 32 10
• Account number – 12001020
• Ref – your Accounts Office number as per our email

The Accounts Office reference number looks something like 123PP00123456 9999 where those last 4 digits represent the tax year and month, skewed to fit the tax year and not to fit the calendar year! That reference changes each month and you need to quote the exact AOB reference as per our email.


When a payroll is set up part way through a tax year, there can be a disproportionate amount of tax-free pay and NI-free pay, because some employees and directors may be entitled to the unused allowances covering all of the previous month’s in the tax year. If the net pay is uncharacteristically large and the employer’s NI cost is surprisingly low, it won’t last! By the end of the tax year, the monthly take home pay will reduce and the remittance to the Accounts Office will increase. This can be incremental and sometimes there can be one month (usually around October) when a significant hike in the figures occurs. That’s because the calculations have to be done on a cumulative basis throughout the tax year – and not in equal increments!

A New Payroll Account

HMRC requires all employers who operate a payroll to maintain a PAYE account.

This is needed in order to make remittances of tax and national insurance, and equally to file a monthly report when you need to declare that no tax and NI is due.

For historic reasons a PAYE account is called a “scheme” and it has two different reference numbers, one for the Inspector of Taxes (a PAYE ref) and a different one for the Collector of Taxes (the Accounts Office ref). The use of this archaic structure and terminology has not changed with the advent of digital services. And hence we need both of those reference numbers!

HMRC normally posts a letter (like the one above) about 7-14 days after PAYE registration, and it states the:

• Accounts Office reference
• Employer PAYE reference

As soon as you have these, please let us know what they are. We don’t need the letter or any other PAYE paperwork, we just need the two reference numbers. Thank you.

The 5 steps to ensure you get paid

Business is business, and your clients know (just the same as you do) that if payments are not made properly, then the business relationship they have with you will ultimately die. Here are 5 key steps to help you ensure that things are kept under control.

1. Terms and Conditions. You need to manage expectations, and a properly drafted set of terms and conditions (T&C) sets the scene immediately. Don’t start work without one. It allows both you and your client to understand the roles and requirements of each party. It should set out:

• the scope of the work
• what is required in order for the work to be performed
• the time frame
• the fee structure and payment terms; and
• proposed remedies to help resolve conflicts

There is no need to get legal advice (unless you really want to) and normally, a straight forward document written in plain English is perfectly adequate. The objective is to avoid the need for the involvement of legal experts later, but it’s worth bearing in mind that if your terms and conditions document does ever end up in court, then it has to be clear enough to help the judge make an informed decision.

2. A credit control process. We all go through minor cash flow problems from time to time and one missed payment should not mean having to recall Parliament. A simple message to the client to let them know that you have “noticed the difficulty” should be sufficient. Ask when payment is going to be made, and keep notes about the discussion and the temporary variation to the normal T&C. Also let the client know that one-off occurrences like this do not usually lead to a suspension of work. In effect, it’s business as usual and you are waving a green flag.

Quite often, this “green flag” step is a one-way process, and client’s who are on the verge of “catching up” with payments will often prefer to make a payment within a few days of your message, rather than enter into a dialogue about “credit control”. People don’t like talking about money. If you can overcome your reluctance to talk about it, then you will do well in business.

Don’t be tempted to skip this step, because if things do happen to get worse, then it will be harder to move onto the amber flag if you missed out the green stage. You need to have proof that you followed your process. The key to receiving payment is to have a mixture of consistency and persistency.

If you do end up in court, then the judge will want to see that you have taken reasonable steps. That probably makes the green flag step the most important step of all.

3. The amber flag. Assuming that there is definitely something wrong with your client’s cash flow, the amber step is often the last chance to keep control of the business. By all means send a letter or email first, but you must then be prepared to get on the phone and talk directly to the person who controls the purse strings. Talk business with them and make sure that they are satisfied with the service you provide. Check that they are intending to retain your services, and if that’s the case, then point out that “business is business” and that you are entitled to be paid.

On the basis of that conversation, you may agree to allow some flexibility in payment terms. Whatever you agree, write it down! Send it to the client, and ask them to agree that this is an accurate record of the conversation;

“Please let me know if this does not correctly reflect what we said.”

If you have a handful of clients, then managing a variation or two is not difficult. If you have hundreds of clients, then you may need to establish a “variation” process. You won’t want to do things fifty different ways for fifty different people. Decide what’s sensible for you and offer one, two or three alternative payment plans, and no more than that.

Experience tells us that these temporary variations need monitoring on a weekly basis. Doing it monthly is too long a gap, and doing it daily is impractical. Make weekly phone calls if you have to, because they are the most effective way to get payments in. If you don’t have the stamina to do that yourself then pay somebody else to make the calls.

You may find that some clients learn your system (especially if, like us, you have published it on your web site) and they will play the game and repeatedly push you to the amber step. If it’s habitual, then skip this step, and go straight from green to red.

4. The red flag. Stop work. Tell them why. And tell them what happens next, whether that’s some way of redeeming the situation, or whether that’s the complete termination of the contract.

The chances are that you will want to give them a further 14 days or 28 days to put things right. Whatever your plan, do no work during this “red flag” period, no matter how convincingly the client protests. If the client asserts that there is some particularly acute issue at stake, then it works in your favour. Still – do no work. A client would rather pay you than suffer grave consequences.

If you give in at this stage and continuing working without being paid, then word will spread and you will get a reputation as the organisation that is willing to work for free. Is that what you want? More problem clients?

5. Legal action. After the red flag step, you could try legal action, or you could put it down to experience.

If the debt is less than £100 then there is no point in commencing proceedings in the County Court. Write it off. Other “small claims” can be handled by way of County Court Judgments and the fees are relatively modest.

If the debt is more than £750 and the client is a Limited Company (and you are expecting to do no further business with that client) then you could go for the jugular and consider issuing a Statutory Demand – contact a legal stationer.

The beauty of a Statutory Demand is that it’s like “going in with the big guns first”. However, to be valid, you must complete the document correctly, and follow the guidelines precisely. If you get any of that wrong, then any later court action may fail on a technicality.

If neither of those two options looks right, then in all other cases you will need some middle ground and that means you will need to take professional legal advice.


This 5 step process has been developed by Proactive over a number of years. They commenced in business in 1997 and clearly have been getting something right! This document is copyright protected © 2011 Proactive. It may be reproduced in its entirety without modification, provided that this footnote is included referring the reader to

The bookkeeping reports

Every time a bookkeeping exercise is done we generate a number of reports. Amongst other things, the reports will tell you how much profit you are making, how much your tax reserve should be, and how much your customers still owe you. Dates are shown in scientific notation YYYYMMDD so that when you view a folder, files are listed first by document type and then by date.

The reports usually relate to one quarter in isolation, and this is what we normally prepare:

– 300330 VAT return
– 300335 VAT acknowledgement
– 488120 ledgers’ report
– 488160 interim balance sheet
– 488220 aged debtors
– 488240 interim profit and loss account

If you’re not VAT registered then ignore the fact that there are no 300330 and 300335 reports.

The 300330 report – A software version of the HMRC VAT return

The figures on this report are prepared in accordance with MTD for VAT and are submitted from our software directly to the HMRC mainframe. This copy of the VAT return is now the only version which is available under MTD for VAT.

The 300335 report – A software version of the HMRC submission receipt

This is the only proof you have that the VAT return was submitted.

The 488120 report – a full list of which transactions go into which ledgers

The general ledger is prepared the way that accountants and bookkeepers like to do it. The ledgers’ report lists every single transaction . . . twice. If you like double entry bookkeeping then this is the report that will show you how everything is recorded.

What you should be especially interested in are the sections of this reports that list the Debtors and the Creditors. These sections set out (on a case by case basis) who owes your business money, and who is owed money by your business.

Most importantly, if you’re a director of a limited company, then you will probably feature in this report as a Creditor. Look for a sub heading like:

Creditors: 1111111111 Your Name

It will be much nearer to the end of the ledgers’ report than the beginning. Generally, the Creditor ledger in your name shows how much you have taken out of your business. We try to keep the balance on that account as close to NIL as possible.

The report is presented from the company’s perspective. So if your Creditor balance is Black, you may owe the company money. The Company is “in the black” and that’s good from the point of view of the company. The problem is that it’s not good for you and (unless corrected with a dividend, then) you have an interest free loan from your company. HMRC does not like directors having interest free loans. When that happens they may charge you extra income tax on a benefit in kind.

If your Creditor balance is Red then that’s good for you (and not for the company) as the company owes you money.

Moreover, if our records do not wholly agree to your records, this 488120 report will help you establish any differences. Amendments to our records involve double entry bookkeeping, so if you want something changed you will need to tell us which two entries in the 488120 report are wrong and which two entries you were expecting to see. That could mean four bits of information for each amendment.

The 488160 report – an interim balance sheet – a snapshot of the business on that single day.

The balance sheet tells you where you stand with all of your various stakeholders, and it tells you what the business might be worth on the open market.

Fixed Assets – the value of the assets owned by the business (after allowing for depreciation). These items tend to be the major bits of plant and machinery. Normally, computers are not recorded here on the balance sheet, unless they are particularly hefty pieces of kit. Computers tend to appear under “equipment expensed” in the profit and loss account.

Other Debtors – For example a VAT refund, or SMP funding which HMRC sometimes pays to companies.

Customers – How much your customers owe you. If this figure is negative it will be in brackets and that means that your customers may have overpaid you.

Suppliers – How much you owe your suppliers. Negative figures (in brackets) mean that you owe them. Positive figures mean that they owe you.

Other Creditors – People you owe, like HMRC (for corporation tax) and the VAT office. This list of “Other Creditors” can include directors and employees who may be owed some money for expense claims. If any director has a positive figure by their name then they actually owe the business some money. Also, pay particular attention to the Corporation tax figures and due dates.

Total Funds – The Balance Sheet Value – the net worth of the company. If this is negative (if it’s in brackets) then technically you are insolvent. It is illegal to continue trading if you are insolvent. Talk to us because a short term deficit may be tolerated, but a persistent deficit needs remedial attention. If the Balance Sheet Value is positive, then this is the combined value of all the shares, and it’s the amount you (along with and all the other shareholders) might expect to receive if you sold the business on the open market. Don’t get too excited. If this figure is less than one million, it’s unlikely that anybody will be interested in buying you out!

The 488220 report – a list of aged debtors – customers who have not paid you

The oldest unpaid invoices are on the right. You should chase these customers and collect these overdue payments.

If there are entries in red under “unallocated creditors” then the records are showing that you have been paid by a customer, but either you have not invoiced that customer or there is a mismatch in invoicing and amounts received. Whether it’s an overpayment by them, or a missing invoice in your system, you need to correct the mismatch before the end of the following quarter.

Do not ignore aged debtors – they owe you money! If your records show that the old amounts have actually been paid before the end of the quarter date, then you need to let us know how and when the payment came in, because we didn’t see it arrive in your company!

The 488240 report – an interim profit and loss account for the year so far

The first set of columns gives the figures for This Quarter. That is normally a three month period which fits in with the VAT quarters.

The second set of columns shows the whole trading Year To Date. That’s provided so that you can asses the activity in the current quarter and see if it is in character with all the data we have since day one of this trading year.

The Expense categories are the ones that we know about. It’s worth having a proper look at these in case something obvious is missing, or in case expenses are being categorised incorrectly.

A forecast of the Corporation Tax due. You should keep a tax reserve to one side so that you’re ready and have enough funds on the due date. Corporation tax does not appear on self employed accounts, because income tax for the self employed depends on many factors and not trading profit alone.

The bottom line – this is your Net Profit or loss.

Disbursement or Expense?

What is the VAT treatment on recharged expenses?

There is little logic in VAT legislation, and so the system is set out here for your information. Whether we like it or not, we have to follow the rules!

If you are VAT registered, then you charge VAT to your clients, on top of the cost of your product or services.

If in the course of doing that you incur expenses and you want to recharge those expenses, then you have to charge VAT on top of the expenses as well. The rate is the same rate that you would use for charging VAT on fees (and that can vary). The absurdity of this “VAT on recharged expenses rule” means that (for example) the cost of a train ticket which is normally exempt from VAT, becomes a VATable item the moment you recharge it to a client. The same applies to a postage stamp, or a carton of milk, normally these are non-VAT items, but they become VATable items the moment you recharge them to a client.

Any expense which you “modify” or “process” or “consume” before you recharge it to your client falls into this VAT trap. The only time you can avoid charging VAT on an expense is when it falls into the narrow definition of a “disbursement”.

That’s for things that undergo “no change” as part of your service, but which you pass on intact to your client, or on behalf of your client. In the case a solicitor handling a house purchase, the stamp duty is a disbursement and not an expense. It is not “modified, processed or consumed” as part of the service which the solicitor has provided.

Likewise, if I recharge the costs of providing my clients with tea, coffee and milk, then I need to add VAT to the bill (even though food is not normally subject to VAT). Whereas if I bought a carton of milk for you and handed it over, unused and unopened, then it would be classed as a disbursement.

Crazy, but true. As a general rule add VAT on top of all the expenses that you recharge to your clients!

Please also bear in mind that if you want money from your customer then it is always done on invoice. The expression “expense claim” is something that employers and employees use. On a business to business level you do not claim, you invoice. A full run down of “Invoicing and Sales” is set out at step 2 on this page.

VAT Payments

VAT is normally due within one calendar month of the VAT quarter.

Even though the quoted date may be 7 days later than the month end, it still makes sense to think of the payment as being due at “the end of the following month”. The reason for this 7 day grace period is that HMRC’s bank does not operate the “faster payments service” and it can take up to 7 days for your payment to reach them!

Please make the payment to the “VAT Controller” in good time, based on our quarterly email. The 300330 report which we prepare also shows this figure at line 5

Your bank may list the VAT controller under HMRC or under VAT. It may also show either the SHIPLEY address or the old SOUTHEND address. If the online banking facility is not clear, then you should specify these details:

• sort code 08-32-00
• account no. 11963155
• ref – your VAT number

The other way to pay is to set up a direct debit, so that they can simply take the money off you when they like. Debits are normally taken one month and 11 days after the end of the VAT quarter. Be sure to have funds available in your account by the 11th of the relevant month.

Approval of Formal Accounts

In the old days traditional paper accounts were sent out by post, for approval and signature. Nowadays, HM Revenue & Customs will accept authorisation electronically and that speeds things up. That means that we now prepare PDF files and email instructions for clients:

  • 4xx600 full accounts
  • 4xx610 abbreviated accounts (Limited Companies only)
  • 4xx660 letter of representation
  • 4xx770 tax computation (adjusted profit for tax purposes)
  • 6xx700 corporation tax return (Limited Companies only)

Please check the PDF files you receive, because they are based on the records that you provided. By responding with the relevant “approved” message you are signifying that you are in agreement with all the reports that have just been sent for approval.

The formal process of preparing accounts for all businesses, no matter how small, ensures that no steps are overlooked. That way, when self assessment tax returns are finalised, we can be sure that we have each and every business recorded correctly.

We have one or two legacy cases still, and any paper documents which you sent to us are batched up at this stage and are returned to you by regular post. These need to be kept safe for a period of 6 years after the end of the trading period. If you have any queries on the accounts, then please let us know before the accounts are approved. Thank you.