Receiving payment on account/up front

[d000hg]

My overseas client has a nightmare getting payments sent overseas which sometimes mean things are late. Not too annoying but a slight source of stress for both sides. They have suggested paying up front a 'buffer' of let's say £10k, that invoices then get taken out of until it's nearly gone, then they repeat the process. The whole point being to give me peace of mind, and them peace of mind that I've got peace of mind!

Does this raise any issues at all? Is there a proper name for it?

[radish2008]

Sounds like a great client.

If you're on cash accounting does this mean you're liable for tax as soon as you receive the money ? What if they pull the plug after a week and ask for their cash back ? I'll let NLUK do the needful.

[northernladuk]

Sounds like a great client.

If you're on cash accounting does this mean you're liable for tax as soon as you receive the money ? What if they pull the plug after a week and ask for their cash back ? I'll let NLUK do the needful.

He needs his toilets cleaning??

[TheCyclingProgrammer]

Also you need to consider the tax point for VAT purposes.

https://www.gov.uk/vat-record-keepin...y-or-tax-point

Might be easier to keep things simple and invoice them for £10k of your time in advance. Send them a weekly statement showing how much time they’ve used and how much they have remaining.

If they have a contractual right to terminate early and they have an unused balance, then depending on your terms you could issue a credit note and refund for the unused balance.

[jamesbrown]

My overseas client has a nightmare getting payments sent overseas

There's no good reason for this, but I suppose you have to deal with the situation as they describe it.

Can't you arrange something firm-fixed price in smaller chunks (say 5k)?

Or extend them credit and invoice less frequently.

Otherwise, yes, you can invoice T&M in advance, but your tax point for VAT will be the invoice date (or you can receive payment without an invoice, and then it will be the payment date). Also, you'll need a (perhaps new) clause for what happens on contract termination.

[d000hg]

There's no good reason for this, but I suppose you have to deal with the situation as they describe it.

I thought the same but they're in HK and it's been something they've struggled with for years - no decent online banking portal, payments frequently fail - getting a first payment to a new account through can take many attempts.

I see no reason to doubt the client and he says is is specific to HK... but they're based there for tax efficiency which is a big deal.

Anyway I'll run it by the accountant but thanks for your thoughts.

[jamesbrown]

I thought the same but they're in HK and it's been something they've struggled with for years - no decent online banking portal, payments frequently fail - getting a first payment to a new account through can take many attempts.

I see no reason to doubt the client and he says is is specific to HK... but they're based there for tax efficiency which is a big deal.

Anyway I'll run it by the accountant but thanks for your thoughts.

Could they use Revolut?

I use this for most of my overseas clients now. Seems like they're in HK too.

https://www.revolut.com/hong-kong

(Bonus: you'll get the interbank rate)

[d000hg]

Is that like TransferWise? I was going to suggest that for similar reasons, but they don't support USD and despite being in HK that is the currency all the accounts he uses are in. It seemed a great option otherwise - he only has to get payments to a single destination to work

[jamesbrown]

Is that like TransferWise? I was going to suggest that for similar reasons, but they don't support USD and despite being in HK that is the currency all the accounts he uses are in. It seemed a great option otherwise - he only has to get payments to a single destination to work

Seems odd they don't handle USD (Transferwise, I mean)? Otherwise, I think they're similar, although I haven't used TransferWise. Revolut is a volume-based subscription service (25 quid per month for all practical purposes) and you don't then pay for individual transfers. They certainly allow sub-accounts in USD, because I have one. If both parties have a Revolut account, the transfer happens immediately (into an appropriate sub-account in USD). If you don't want an account yourself, their having a Revolut account alone should help a lot.

[Lance]

My overseas client has a nightmare getting payments sent overseas which sometimes mean things are late. Not too annoying but a slight source of stress for both sides. They have suggested paying up front a 'buffer' of let's say £10k, that invoices then get taken out of until it's nearly gone, then they repeat the process. The whole point being to give me peace of mind, and them peace of mind that I've got peace of mind!

Does this raise any issues at all? Is there a proper name for it?

It's fairly standard across IT consultancies.
Usually for ad-hoc support that is 'drawn down'.
Basically the customer pays for a number of days up front.
The VAT point is when you invoice them for the days up front.

The only worry a contractor might have is making sure you call down the days against contracted deliverables. Otherwise HMRC might argue that payment upfront is both MOO and SDC (whether they'd argue that successfully or not is anyone's guess).