In November we held the latest in our series of “expert sessions” for Entrepreneur Academe. Previous sessions have looked at subjects such as fundraising, business development and technology. Today was all about professional services. This, of course, is a wide-ranging topic, and this was reflected in our diverse panel of experts:

James Fulforth, Kingsley Napley (commercial law)
Sue McLean, Morrison & Foerster (commercial law)
Sonia Girgis, Morrison & Foerster (tax law)
Caroline Stakim, Morrison & Foerster (HR law)
Natasha Frangos, haysmacintyre (accountancy)
Lisa Thomson, Blue Acorns (accountancy)
Jeanne le Roux, JLR People Solutions (HR)
Melina Jacovou, Propel London (recruitment)
Mark Pattenden, haysmacintyre (accountancy)

The conversation covered everything from tax regulation to employment law. Some of the highlights included:

  • There was a concern about whether one’s personal tax or financial advisor should be the same as the one operating for the business. The consensus on the panel was not only that this is ok – it’s actually preferable, especially for early stage companies where the professional and personal are so tightly interwoven.
  • That said, James pointed out that small companies tend to stick with small (and cheap) financial advisors and lawyers, and that this can be frustrating when there’s a large deal to be closed and speed is of the essence. Once a company sale is on the books a larger accountancy firm with expertise in company sales may well be necessary.
  • There was a lot of discussion about what, exactly, constitutes an employee. The first issue to get out of the way is that founders and owners are employees, even when they’re not paying themselves a salary. Beyond that, it is vital to establish whether the people working for you are employees or contractors. This can get especially murky in the early stages of a company’s development, where people are often friends and may be working in exchange for equity. Remember that PAYE and NI contributions are the responsibility of the employer.
  • Founders also need to consider they will get equity back from any team members who leave having worked at least partly for that equity. That said, this can be tough, so again, you need to be clear about how this will happen from the moment you make the deal. But as with investment later down the line, the objective here is to limit the dilution of your own equity as much as possible.
  • When it comes to getting overpaid tax back, in theory this should be automatic. But in practice, as Mark put it, “you need to be all over it”. This is especially the case with PAYE mis-payments as it’s still accounted for by HMRC on a year-by-year basis, with no automatic roll over.
  • There was a detailed question about a specific mistake that one participant had made in share allocation. This isn’t the place to go into detail, but the important takeaway is that this kind of mistake can easily be rectified retrospectively, as long as everyone is in agreement
  • There was, as you might expect, quite a lot of discussion about the status of interns. The plain truth is that with the exception of a few schemes to place overseas students as short-term interns, you cannot employ people for free or on the cheap. Some work shadowing and work experience is admissible – but interns need to be paid minimum wage plus tax and NI.
  • As we said above, of course, as a founder you don’t have to pay yourself at all. But once you do, beware of the threshold above which you start paying PAYE and NI. As we’ve said elsewhere, the HMRC website is incredibly helpful in this area, as in many others.
  • Remember that all PAYE must be accounted for monthly.
  • And on the subject of PAYE, you need to be clear about legitimate expenses vs taxable benefits. A lot of employers fall over here, especially around things like travel and phones. Again, if in doubt, consult the HMRC website.
  • It’s also almost certainly worth outsourcing your PAYE admin as this can generally be done cheaply and alleviates a lot of headaches – and gives you back some precious time.
  • With regard to VAT, it’s vital to understand that the threshold is calculated on a rolling basis – not year to year. Again, this has been known to catch entrepreneurs out. But in general with VAT, registering isn’t just about the threshold – it’s about balancing the overall pros and cons financially.
  • An acceptable way to bankroll a company early on is to make a personal loan into the business account. But remember to keep an accurate paper trail, keep things transparent and above all, ensure that you as an individual and the company are strictly separate entities.
  • With regard to pensions, the law changes significantly from 2017 on. From that point on, companies will have to put employees on a pension plan after three months of employment. The employee can choose to opt out, but the employee certainly can’t advise this. If you don’t have a company scheme set up the pension regulator have a default scheme, but in general it’s advisable to at least look into a group personal pension scheme.
  • Be cautious in employing overseas contractors. Any legal agreement with them will need to take the law in their country into account. This is especially important to consider with developers, with whom issues of IP are likely to arise.
  • Full employment rights don’t rights don’t come in until two years of continuous employment, but technically this can apply even if an employee has been on back to back short term contracts on different projects.
  • When employing anyone from overseas, the obligation is on the you as an employer to check his or her immigration status.
  • If you’re setting up an overseas company, seriously consider setting up a group structure, with the new company as a subsidiary, which can alleviate some of the worse aspects of withholding tax and transfer pricing problems, although you need to expect any international expansion to come with attendant legal and logistical complexity and, again, engagement with the law of that country.
  • There was an amusing discussion about how to get customers to pay (in a B2B context, that is). There was some disagreement here about whether personal relationships are useful or whether it’s worth getting in someone at arms length to chase payments. What was agreed on is that large corporates tend to be the worst offenders and that interest charges are essentially an idle threat.
  • There was a lot of discussion about just how difficult – and potentially expensive – recruitment is at the moment. It’s something of a cliché that there’s a lack of talent out there, especially in key areas like programming. If you’re going to compete with the tech behemoths that are in constant recruitment mode and can almost certainly out-pay you, then you need to sell the culture of the company. But you have to be authentic in this – don’t pretend to be something you’re not as you’ll lose your new hire, and all the money that went into their recruitment.