The Fizz! Blog

Can I charge interest if my invoice is paid late?

For a long time now, businesses have had the legal right to charge interest (and, in fact, compensation and costs) when invoices are paid late, at 8% above the Bank of England base rate.  In real life, you very rarely see the right exercised, maybe because people don't know they can do it, maybe because for small invoices paid a bit late it's not that much money, but probably mostly because the supplier doesn't want to antagonise a client and colour the relationship. 

But actually businesses that pay invoices late sometimes don't seem too upset when they're legitimately charged interest - they see paying invoices late as a perfectly normal part of business, and the interest as a perfectly normal consequence.  We remember one or two clients who've been very reluctant to charge interest to recalcitrant customers, who eventually found that the customers were quite content to pay.

There's a useful calculator you can use here to work out how much interest you could charge on an invoice that's been paid late, with some helpful wording for the invoice:

https://www.smallbusinesscommissioner.gov.uk/deal-with-an-unpaid-invoice/how-to-chase-an-unpaid-invoice/interest-calculator/

Obviously, maybe you've got a customer who really will be aggravated if you charge interest, and it won't be worth it.  But small businesses should probably exercise the right to do it more often than they do.

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Reimbursing employees for home-working costs

Lately, a lot of people have found themselves working from home for the first time.  There are some rules around employers reimbursing employees for extra domestic costs in those circumstances.  Usually they're a bit niche, but suddenly they've become more mainstream!

 

If an employee has to work from home, then an employer can reimburse them for the extra costs that the employee is likely to incur on heat and light and so on.  For some time, the maximum that could be paid tax-free without any evidence was £4 a week.  Handily, from 6 April that allowance went up to £6 a week.  Technically, it's got to be a requirement of the employee's employment contract that they're obliged to work from home, and with the recent rush to decamp from offices it's unlikely that most employers formally amended contracts in that way, but even so it's unimaginable that HMRC would push that point under current circumstances.  The change is probably implied in the combination of government and employer instructions to stay home anyway.

 

You can pay more than £6 a week without the recipient paying tax if the extra costs they've incurred justify it - you'll need to keep some evidence backing the calculation up, though.

 

If an employee has to work from home as part of their contract, but their employer doesn't pay them an allowance for it, then they can claim tax relief on the £6 a week themselves, which isn't as good as the £6 itself, but it's something.  There's more at https://www.gov.uk/tax-relief-for-employees/working-at-home

 

In real life, these allowances probably aren't being made as often as you'd think.  In large part, that may be because employers and employees alike probably recognise that so much time and money is being saved on travel that many employees are clearly better off anyway!  Plus nobody's needed to have the heating on until this week.  But it still might be a nice way to say "Thanks!" to staff who've pulled together and helped keep your business going in trying times.

 

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Is a Coronavirus Job Retention Scheme or Business Rates grant taxable?

This is a question that's understandably coming up fairly frequently.  The answer is that the support payments going to businesses at present are indeed taxable, but that it's probably the wrong perspective to look at it from.

 

In the case of furloughed staff, the reimbursement from HMRC simply covers salary/NI/pension that you've paid out in respect of your employees.  The money you receive is taxable, but the payments you've made are tax-deductible (as your salary payments to staff always are), and so they just cancel each other out. There's no net income there to be taxed in the end.  You're really just the vessel that passes the money on to your employees and keeps them in their jobs.

 

In the case of a grant for Business Rates, the principle is the same, it's just the link between income and expenditure isn't so clear.  The money isn't reimbursement of a specific cost - but it is intended to help cover business outgoings over these difficult months.  So, in so far as you spend it on business overheads, again there's no net income to be taxed.  Of course, if your business doesn't need the money, so some or all of it ends up simply as profit in your hands, it'll be taxable income for you, just like any other excess of revenue over costs.  But that's fair, enough, right?

 

www.fizzhq.com