Receiving payment on account/up front

[WordIsBond]

I also agree. I use retainers with foreign clients and make sure SDC is clear. Of course, HMRC has not investigated me for IR35, so maybe if they ever do I'll regret using retainers. I don't do much in the UK, but when I do have domestic clients I don't use a retainer both because I'm less concerned about payment hassles and because I don't want a sniff of MOO with UK clients. If IR35 weren't around, I'd use a retainer here, too. One more example of bad tax law distorting good business behaviour.

My contracts have a cancellation clause that says unused retainer will be refunded.

My approach is somewhat different from what you've mentioned, though. My retainer is paid monthly at the beginning of the month, and is 75% of what I estimate average monthly billing will be. At the end of the month I bill for the excess over the retainer. That way most of the funds are received timely, and the rest comes when it comes.

[jamesbrown]

Agree with the above comment. Should be easily guarded against. Retainer-type arrangements are common practice, and make good business sense, which always comes before IR35.

[TheCyclingProgrammer]

I think the MOO argument can be successfully guarded against in this case by making it clear, similar to a retainer agreement, how and when the prepaid time can be used and by making it clear your right as a supplier to cancel the agreement (and refunding the client).

If they are paying for several months I would look to ensure you both have the right to terminate at the end of every two week block of work given sufficient notice.

That said I think so long as your working practices are in order wrt direction and control then I wouldn’t worry too much about this.

[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).

[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.

[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]

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]

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]

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.

[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.

[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??

[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.

[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?