Transcript –
Hi everybody and welcome to Ascentis TV, my name is John Oddy, you’ll have noticed that my usual partners in crime Mark Overend and Lee Kaznowski are missing, because if they’ve got any sense on this lovely bank holiday Monday, they’ll be enjoying the sunshine. On this month’s show we’ve got a fantastic interview with Starling Bank Mark Overend will be doing tax tips as usual along with a quick tip. Lee Kaznowski will be doing admin min and this time on Back to Basics we’re going to look at the tricky one that is the cash flow. But let’s get on with this video that I shot with Oli Krishnan from Starling Bank earlier this week.
Okay, I’m delighted to be joined this morning by Oli Krishnan from Starling Bank. Hi Oli, how you doing? Hey, John. Yeah, very well. Thanks. Thanks for having me. Well, first of all, tell us a little bit about yourself.
Yeah, sure. So my background is, I’ve been with the bank for just over two years now at Starling. I’ve been in the industry, working with digital banking and supporting SMEs for around five years now. And day today, I work closely with hundreds of accountants around the UK to help support their clients with business banking needs.
Okay, fantastic. Starling bank. Tell us all about it. When did it start? who started it? Why? Sure.
So Starling was founded back in 2014, by an industry leader, banker, being Ann Bowden who’s our founder and CEO, Anne really recognised how technology could transform the way people were going to be managing their money and servicing customers in the way that traditional banks hadn’t been. So took the bold step to set up and start a bank in 2014. Anne had a banking history herself? Yes, Anne had worked in banking as sort of Chief Executive sort of an executive-level position for sort of around 20 years in the industry, starting her career in Lloyds. her most recent role before Starling was CEO of Allied Irish Bank, but really wanting to take the pledge to ultimately build a banking proposition from scratch, which was technology lead. And that sort of allowed us to grow very quickly in terms of our offering, we got our banking licence in 2016, with the FCA and PRA, and then went to market with a current account proposition for personal customers in 2017. And since then, we were very fortunate that we’ve been both voted the best British bank three years in a row, and also top the Which accreditation as well for customer satisfaction, but happy to go into a bit more detail with you as well. But sort of the short of the high-level summary is that we have over 2 million customer accounts now. We’ve supported over 2 billion in customer lending a lot of that through the government schemes over the last 12 to 15 months, and have over 6 billion in customer deposits. And we’ve become very quickly a bank of choice for a lot of new customers from a personal level, but also businesses in the UK. Tell me about the main features that Starling bank has? Yeah, sure. One of the main ones for Starling is that we can open an account significantly quicker than a traditional bank. So I think the first point for us is the starting point being the online application with Starling is five or 10 minutes that you can do from the comfort of your own home, or office, or both for many people now. And it’s the slickness of being able to efficiently set up an application, applying five or 10 minutes and the application is split into two halves. One is, who you are, as an individual know, your customer. And the other half of sort of five to 10 minutes is let’s understand a bit more about your business from KYB perspective. We’re also from a value point we are very competitive in the UK because we don’t offer a monthly fee or annual charge. And that’s an indefinite proposition for our business banking customers, the only real item was a fee for using style and is the post office being our branch network for depositing cash, you know, as we’re a completely digital bank. So we feel that our actual offering is very competitive in comparison to other providers, whether they’re, you know, another Neo sort of challenger in the UK or an existing High Street bank. Many of those providers will come with maybe a free monthly, you know, sort of incentivised period. But after that there’ll be a lot of itemised fees. So we think from a fair value proposition to the end client, we’re very, very fair and very competitive in the UK. We’re also fully integrated with leading accounting software to the likes of Xero, QuickBooks and free agent. And I think one of the big differentiators from us to some of the legacy banks is that we offer a real-time transactional feed. This is really valuable not only to the end accounting partner, but obviously in the end customer, because they’re then being able to reconcile and keep up to date with their transactional data in real-time, as opposed to, you know, previous working day pause or Friday’s transaction shown on Monday. So it’s being able to have your data at your fingertips, so you can stay on top of your cash flow, more importantly, we also offer spending insights and real time spend notifications, which has become really popular with our offering. So anyone that’s a customer styling, whether your personal joint or business customers, or using our multi-currency accounts, you get a real-time spend notification. So if I was to send a payment to you today, or vice versa, you’d be notified, your balance would update in real-time. And basically we auto categorise those transactions into expenses as well. And that allows our business customers to get a bigger picture of where they’re spending their money. And the analytics tool, and the insights give you an idea in terms of where your costs are going for a business and being able to spend that. The final one without going into our features too much is, you know, I think a really popular one has been our spaces section. A lot of our customers refer to it as business goals. It’s available for personal and joint customers as well. And, you know, for business customers, you know, you can use that for your VAT and Tax Management, or it could be used towards a team night out or a new piece of equipment. But it’s a really nice way to segregate your actual transactional banking to the, you know, segregated fund where you can
It’s the same accounts isn’t it? it just hides off an amount of money and shows separately, we do the same with our tax savings for the practice here.
Exactly. And you know, there’s a lot of partners that we work with, and also customers that are becoming familiar with profit first models, and, you know, being able to set aside your corporation tax or VAT with that coming around quarterly, and been able to stay on top of that. And what you can do is also round up towards your goals and set up recurring payments. And it’s just a nice way to actually tailor it as well, you can put a picture behind it. And also actually set a target amount. So every time you spend with Starling, you can actually put towards that. And I suppose from a personal level, whether that’s home improvements, or holidays whatever, yeah, anything that you know, you’re interested in, it’s a nice way to make that visually and you can see that in your actual banking space. We’re very feature-focused with our banking offerings.
Yeah, I can certainly echo what you said about the ease of opening an account. I already had a business account. And I think it took me less than two minutes to actually open a personal account. Yeah. And my debit card arrived about three days later in the post. Yeah. So who makes an ideal customer for Starling bank?
So I would say you know, it’s an SME banking proposition for business customers, I think where we solve most problems, and are probably best positioned in our journey at the moment, you know, being the fact that we started offering our accounts in 2018, will continue offering more and more developments. But for us, I would say, really, any startups, small businesses, sole trader, contractor Freelancer or an established SME, but probably more, you know, sort of between, you know, the zero to 5 million pound turnover mark is probably where we’re best placed. That’s not to say we can’t support a business with a 10 or 20 million pound turnover. But we generally find as the businesses continue to grow and have maybe quite complex requirements, we’re still building some sets of products and features, I think will be better placed for those sort of high turnover and maybe faster growing businesses beyond the audit threshold. So within the next 12 to 18 months, so yeah, very much more of the S and a little bit of the M of SMEs probably where we’re best suited at the moment.
Oli, when I’ve, when I’ve talked to potential customers about joining Starling, there’s some nervousness, around it being a digital bank and having no High Street presence. How would you respond to that?
Well, one thing I’d like to put in terms of adding confidence to customers that are considering digital banking is that the most important aspect of that is that we are a bank. We’re a licenced bank in the same way, as a legacy bank that has a high street presence. And I’d also like to add the fact that we are actually on the high street, but through the strategic partnerships that we have in place with the post office, which is our branch network and acts as our branch network. And we’re actually finding that that’s becoming a more popular choice for a lot of local towns and communities in terms of how they will carry out their cash deposit banking. And we’re very proud to be partnered with the post office, you’ve got access to over 11 and a half thousand branches in the UK. And that’s all in real-time. So if anyone wants to deposit cash at Starling, you get a real-time notification into that cash entering your account as you would like a local branch visit. We also accept cheque payments as well. So you can either send that through to us at a free pay. Again, it’s not obviously becoming, popular payment option now with access to things like faster payments, but if a customer wants to still deposit a cheque with Starling, we actually have a cheque scanning upload facility up to the value of 500 pounds and anything above that we have a free post service. But yeah, it’s letting you know that security is fundamentally at the forefront of what we take really importantly, we have industry-leading security functionality. And you know, all of the funds are protected in the same way with the financial services compensation scheme.
What about speaking to somebody Oli? If I want to talk to someone, I want some support? I’ve got a question to ask, I can’t go into a branch.
So we’ve got a number of different ways, we offer 24, seven customer support 365 days a year. And there’s, you know, four or five key ways that customers can actually reach out to us there’s the live in-app chat, which is probably the quickest way that customers can get in contact with us today. So you can, you can go straight into the app and start a conversation. As a bank, you know, we employ real people, which is obviously a really important part of that aspect in service and customer needs. There’s also an online help centre. And that’s actually a really good functionality where you can type in your question, and based on the algorithms, it will pre-populate that with the recommended answer to what question you’ve put in, which is becoming a very popular choice. There, of course, is our customer support, telephone number, and email line, and also a really extensive FAQ page on our website. And I think just a touchback on, you know, the perception of digital bank, I think the growth of Starling, but also other neobanks, has played a significant role in changing perceptions in terms of how many customers, you know, are currently part of Starling, you know, is the reason why we’ve become the first mobile bank to become profitable, we go to the Best British bank three years in a row. And we’re actually seeing the highest voluntary accounts, switches out of all the banks, because of the technology is still at the centre of what we do. And I think the prominent proof of that principle for digital banks is it’s been a result of the global health crisis. You know, we’ve been living through that over the last year. And I think COVID-19 has accelerated the rate of change, not only in banking, but in so many other sectors by 15 or 20 years. So people that previously would have, you know, gone into a branch and carried out their bank and in that way, that’s consistently evolving in the industry. And more and more people are now you know, the primary way that they’ll carry out their banking is going to be app-based. And that’s where we think that we’re a leader in what we do.
Oli, I think we’re just about up to time there. So it just remains for me to say, thank you very much for joining us. And I hope you’ll come back and give us an update in the future.
Yeah, of course. Thanks for having me, John. Great to be part of the session today. Bye for now.
Thanks for that Oli. Oli Krishnan is the accountancy partnership manager at Starling Bank, and Starling Bank is one of about half a dozen fairly well-known what are called Neo banks now, banks that were started from the very beginning to be digital cloud-based banks. So if you’ve got that kind of accounting system in place, and all of our clients do, they’re all on Xero, Starling makes a fantastic pairing for that, certainly offers a unique set of benefits compared to the usual High Street Goliaths that we’re all used to. If you’d like to apply to Starling bank, then you can do that through our website as well. We’ve got a dedicated page as Starling partners. As I say there’s about half a dozen of them. But reputationally, and for us from personal experience, Starling is definitely the best. Okay, so next on the show, we’re going to look at back to basics. It’s part three of back to basics and it’s the cash flow statement. For non-accountants and even some accountants, actually, the most difficult statement in a set of financial accounts to understand, and for that reason, I’m going to break it down into two sittings, we’re going to first of all look at the difference between capital and revenue expenditure. And next time, we’ll tie it all together by actually producing the cash flow statement.
Hello, everybody, and welcome to back to basics is Episode Three, and this time, it’s the cash flow statements. And for those of you that watched episodes one and two, with the profit loss account and balance sheet and found those to be rather simple, they were deliberately so, and you’ll see why later because the cash flow statement is going to represent much more of a challenge to you. I’m actually going to break the presentation of this down into two episodes, Episode One will be an explanation, and episode two will be the preparation of the statement itself. So first of all, let’s get some terminology out of the way because the term cash flow suggests to a non accountant, that that is a projection of income and expenditure into the future. They often refer to them as their cash flows. To an accountant, it means reconciliation between the profits and the movement in the bank account. Taking our example in Episode One of where I use somebody’s payslip to walk you through your profit and loss accounts, that person when they got the payslip after the deductions would naturally assume that the net pay would appear in the bank account at the end of the month. It’s not the same with the profit in a business appearing in the bank account at the end of the month. In my example here 750,000 pounds profit does not appear in the bank at the end of the month. My example here, I’ve moved by 520,000 pounds. So why is it different? It’s different for two principal reasons. That is because of the nature of the expenditure. And on the timing of the expenditure. Let’s just jump back to the profit loss account for a moment, the timing of the expenditure, income and expenditure appears in a profit and loss account when it’s incurred, not when it’s paid for. Let’s frame that with a couple of examples, shall we? If I had 50,000 pounds worth of sales of cans of beans on the 25th of March, and I give my customer trade credit, say 30 days, it occurs in March. Therefore it’s included in sales in March, and it’s included in the bottom line profits in March. But it’s not in my bank account. Actually, it’s in debtors in trade debtors. Conversely, if I had bought some cans in March and the 15th of March, I bought 10,000 pounds worth of cans, it’s included in my cost of sales, therefore it’s reduced my profit. But I’ve not paid for it out of my bank account yet actually it’s included in trade creditors. So that deals with the timing of expenditure. Now let’s deal with the nature of expenditure. Because transactions don’t just appear in the profit and loss accounts they appear in the balance sheet as well. transactions in the profit and loss account are known as revenue transactions, whereas transactions in the balance sheets are known as capital transactions. And very broadly speaking, the difference between the two is to whether they have an enduring benefit to the trade their capital expenditure, or whether they relate to the normal ongoing trading of revenue if you like it, revenue income of the business. So sales, cost of sales, heat, light rent rates, insurance, they’re all everyday ordinary expenses that are incurred on the profit and loss account. They relate to the trading of the business.
transactions that are of a capital nature have an enduring benefit to the trade. They last for much more than one year. And they don’t relate to the normal trading. Let’s frame that with a couple of examples. If I pay my rent in March, that naturally relates to the trading in March and it should be expensed through the profit and loss account, it should be reflected against the income in that particular month as well. It’s a revenue expense. And other examples I’ve said before the heat, rent, rates, insurance, that kind of thing. However, if I purchased a new counting machine that has an enduring benefit for the trade, it doesn’t relate to March it relates for many years. Therefore, it will be added to the balance sheet. Other examples of capital transactions on the balance sheet might be in terms of expenditure would be the repayment of loans. And on income might be the issue of new shared capitals, you can see there’s an awful lot of transactions on the balance sheet that don’t appear in the profit and loss account. And therefore your profit and loss account movement in any period is never going to relate never going to agree to the movement in the bank account. It’s quite often why you get the mischievous press reporting, for example, that a company’s made millions of pounds an hour, what they fail to point out, is that companies probably investing hundreds of thousands of pounds an hour if not more, on the balance sheet. Conversely, for new business startups that are losing millions of pounds, but they’ve still got money in the bank, therefore they’ve got income, that income is capital income, it’s been injected into the business. And it’ll appear on the balance sheet. So how do we reconcile in an exact way, the movement on the profit and loss account to the movement in the bank account and understand the timing of income and expenditure and the nature of income and expenditure as well that’s done in the cash flow statement. And that’s what we’ll be looking at next time. So in my example, here, I’ve got a 750,000 pounds profit, and I’ve got 520,000 pounds movement in the bank. So where did the rest of the money go? We’ll take a look at it next time. Okay, so in comparison to the profit loss account and the balance sheet that we did in the last couple of months, you can see that the cash flow statement is a lot trickier. we’ll tie it all together next time when we actually do the statement and those explanations that I’ve just given there should make much more sense. Okay, now it’s time for tax tips with Mark Overend and he’s going to tell us about R&D.
Okay, so this month’s tax planning section focuses on r&d tax relief. First of all, what is r&d tax relief? Well, it’s a relief against corporation tax. So it only applies to limited companies doesn’t apply to unincorporated partnerships LLPs, or sole traders. And being a corporation tax relief, it offers the opportunity for any qualifying costs to be enhanced by 230% for corporation tax purposes. That means that if you spent 100,000 pounds on qualifying r&d activities, then in your corporation tax return, you will be showing as having spent 230,000 pounds. Now obviously, that’s going to make a pretty significant change to your profit subjects to corporation tax, if you’ve got such qualifying activities, and have a huge reduction in your cut potential reduction in your corporation tax bill. Indeed, it has such a big impact that perhaps not just reducing your corporation tax bill, it may wipe it out completely, or even turn your profitable company into a loss-making one for corporation tax purposes. Just worth noting that it doesn’t affect your statutory accounts. If you do make a loss for corporation tax purposes, as a consequence of making r&d relief, then you have a couple of options. One is to offset that loss against another accounting period. So potentially carry the loss back against prior profitable years, or indeed carry it forward against future years if you envisage returning to be in a profitable company in the future. If you’re a company in startup mode, or indeed, you simply want the cash in order to accelerate your business, cash flow falls and things going forwards, then you can surrender the loss for the repayable tax credit. Now, the surrender role loss pays a 14.5% tax credit back to you. So it’s slightly less favourable than surrendering for corporation tax relief, which at the moment will give you 19% in terms of a payback, but if it’s cash is king in any business. And if your business needs the cash, then that is a very generous offer. So the next question, of course, is who qualifies for r&d relief? Now, to quote HMRC guidance? First of all, your company must be attempting to resolve scientific or technological uncertainties. And what does that mean? I hear you ask. So I suppose, First of all, there’s no restriction on any industry sector. I suppose when we talk about r&d, people immediately think of people in white coats in laboratories making scientific discoveries, perhaps looking for a COVID vaccine most recently, but it doesn’t have to be anything created in a science lab, you could be looking at developing a new project, sorry, a new product that’s innovative in the way it’s designed the way it works. You could be taking an existing product, you could be making it lighter, you could be making it smaller, you could be making it faster, any of these things where essentially, you look at the proposition on the table, someone’s had an idea, and the rest of the people around the table think, not really sure that’s going to be possible. If that’s the reaction, then the development work that goes in afterwards, perhaps you take a feasibility study, start with some initial drawings, some initial thoughts on what you’re going to do. And then really work through whether the concept is actually going to work and actually put it into practice, then that is likely to qualify for r&d purposes and qualify for r&d tax relief. They can of course once you’ve gone through all this, you’ve gone through the uncertainty created a product, it works brilliant, everybody’s happy. Often there is an ongoing development of such products after that. If there isn’t any uncertainty around that ongoing development, that aspect won’t qualify for r&d relief. And I mention that because often people will create a new product, they’ve overcome the uncertainty, but will get customer feedback in terms of how they can develop the product further might be in terms of aesthetics, design around you know how things look or how things feel. But if the technology required to achieve the changes isn’t new technology, then it’s likely that those aspects will fall outside of r&d relief. So it is an area where you need to be careful what you include as well as what you don’t include in terms of putting a claim together. The mechanics of putting an RD claim together are identifying what we like to call projects. So in a project, the initial concern Since he will be your first project, the project to overcome the uncertainty to decide whether the product you’re going to put to market perhaps is feasible.
It’s an area we could talk about endlessly, really for many, far longer than we have available here. So if you’ve got any other questions, please do get in touch, we can talk in much greater detail about perhaps r&d projects that you’re looking to undertake. Okay, this month’s Quick Tip is about subletting offices and VAT. aware that many businesses might be considering subletting all of our part of their offices due to the impact of COVID, you might move to a position where you now got your teams working exclusively from home. And perhaps you’re going to stay like that, or perhaps you’re just going to have the first return, and we’re only a small part of the team returned to the office. And it, therefore, makes sense to sublet the rest of the office space to somebody else. Vat is an often overlooked area when considering subletting your offices. The starting point is that even if you are a VAT registered business, and even if you aren’t being charged VAT by your current landlord, your charge of rent to your sublessee will be exempt from VAT unless you do something about it. Now, you can opt to tax the building yourself. And that will be a separate option to tax your landlord’s option. And if you do that, then you will charge rent VAT on the rents that you charge to your new tenants. Suppose the little concern there is if you happen to have a tenant who isn’t VAT registered, then, of course, it’s going to increase the cost of the rent by 20%. And so you might think actually, I won’t bother opting to tax and charging VAT, I’ll just leave my renters VAT exempt, and I won’t worry about it. Now, the big concern there is that if you have exempt sales in your VAT calculations, it can impact your ability to recover VAT on all of your overheads. So perhaps a small sublet. When you’ve got a fairly large operation, this won’t be much of an impact. But if you already have exempt sales, in the arena that you operate, and this adds to your exempt sales, you may drop yourself into what’s called the partial exemption for VAT which prevents you from recovering VAT on all of your overheads as I mentioned, so very much the tip this month is if you are going to sublet your office, then do consider the impact of VAT on your wider business operations. And if any doubt get in touch with us, we can help you do the calculations needed to decide whether you should charge VAT on your rent or not.
Okay, so as you can see really important if you are one of the vast majority of businesses, that is changing culturally how they use their workspaces, and maybe you just don’t need that space anymore, you’re going to sublet it out, make sure you take proper advice, lots of pitfalls, that can be easily avoided. Okay, it’s time for admin min with Lee.
Okay, in this episode of admin min, we have payroll, the P60, the deadline for that was the 31st of May. So that should hopefully be with all your staff by now, I’ve just left that on. As a final reminder, don’t forget, we’ve still got the CJRS claim period. So that’s always 14 days after the month-end. So we’re talking about May’s being filed on the 14th of June. Companies House, last of this scenario really. So June 20, and September 20 both need filing by June 2021. October 20s are due, July 21. Back to normal really from there, although you can still apply for an extension but it’s on an individual basis. VAT last chance saloon for the 30th of April period ends they need filing by the seventh of June. Same applies for the partial exemption, annual adjustment. Possibly the last chance to remind you of a VAT deferment. So this was for VAT arrears from March 2020. The application for that you need your own government gateway, and you need to get that in by the 21st of June. Cooperation tax pretty standard. So September payments, September year ends are due for payment on the first of July. And in other areas, we’ve got these business rates so the 100% relief ends on the 30th of June. That’s going to be replaced by a 66% reduction which effectively means you’re going to be paying a third of your rates bills from the first of July and a little bit of advanced warning rarely that the second payment on account for personal tax is due on the 31st of July. In Ascentis news, save the date on the 24th of June. We’ve got a fantastic webinar coming out. John and Andrew are going to take us through how to avoid recruiting the wrong people somehow going to link Dolly Parton and donkey from Shrek. So it’s a fantastic watch and a must-watch for all our viewers.
Okay, guys, that’s the end of the show. Thank you very much for joining us subscribe, hit the bell, all that kind of stuff if you’ve enjoyed it, and we look forward to seeing you next time.