For those of you who don’t like reading I’ll say right at the start that I think YOU SHOULD GET REGISTERED FOR VAT AS SOON AS POSSIBLE unless a large proportion of your work is for private individuals or non-registered businesses.

I’ve made a calculator to show how much extra profit you’d make by being VAT registered and to work out whether the Flat Rate Scheme is better for you.

While processing our suppliers’ invoices it never fails to amaze me how many courier owner drivers and even small courier companies aren’t registered for VAT. With the VAT rate due to increase to 20% in January it seems to me that it’s now essential that everyone in this business gets VAT registered as soon as possible.

How far would you drive to save 20p/litre on fuel costs? How much haggling would you be prepared to do to knock £2,000+ off the cost of a new van? How about all your customers agreeing to increase your rates by 20%? This is what you’re missing out on by not being VAT registered.

Many people seem to be scared of registering for VAT – worried that the paperwork will be too much or that they’ll have VAT inspectors visiting every few weeks maybe. The paperwork is simple, and under the Flat Rate Scheme it’s so simple that it shouldn’t take more than a few minutes every three months to administer.

Using the Flat Rate Scheme you add VAT (currently 17.5%, increasing to 20% in January 2011) to all your invoices (this will make no difference at all to most of your business customers because they can claim the VAT back) and then pay a lower percentage (currently 9%, going up to 10% in January. 1% reduction in the first year in both cases) of the total to HMRC once a quarter.

In case you’re not good with numbers that means (from January) that when you charge £100 for a job you’ll invoice for £120 including VAT and then have to pay £12 (£10.80 in your first year of registration) back to HMRC. That’s 8% of your turnover added straight onto your bottom line profits.

So what about the paperwork? Using the Cash Based Turnover Method of the Flat Rate Scheme you only account for VAT on payments you actually receive – so for many owner-drivers and small courier companies all that’s needed is to sit down once a quarter with your bank statements, add up all the payments you’ve had into your account and multiply the total by the Flat Rate percentage. That’s it. No piles of fuel receipts to sort through, no working out how much VAT you paid on the printer ink you bought with the shopping from Tesco, no messing about. You only claim back the VAT on capital purchases over £2,000 so everything’s made simple for you.

And there’s more good news. Providing you’ve still got the goods and the VAT receipts at the time you register you can claim back the VAT on any goods you bought for your business up to THREE YEARS before your registration date. So that van you paid £12,000 for 2 years ago is now worth a VAT reclaim of nearly £1800 to you. And the VAT on any ‘services’ you’ve paid for in the last 6 months (your CX subs for example) can also be claimed back, as long as the service didn’t relate to goods which you don’t own any more (repairs to a van which you’ve sold on for example) and you’ve still got the receipt.

For businesses which subcontract a lot of work out to VAT registered subcontractors or which rent or lease their vehicles it can be more profitable to pay VAT in the normal way rather than using the Flat Rate Scheme. The paperwork is slightly more complicated but it’s still pretty simple and isn’t really a lot of extra effort added onto your existing responsibility for keeping proper financial records.

Most people have an idea of how standard VAT works I think, but the basics are that you charge vat at 17.5% (20% from Jan) on all the work you carry out. You then owe that 17.5% to HMRC but before paying them you deduct from it any VAT you’ve paid out in connection with your business – so you’re claiming back the VAT you pay out on your fuel, vehicles, subcontractors, phone bill, computer equipment, CX subs etc. If, like most courier businesses, you tend to pay your suppliers before you get paid by your customers you should opt for the ‘Cash Accounting’ method of accounting for VAT – so you only have to pay the VAT to HMRC when you’ve already been paid by your customer and you claim back the VAT you’ve paid to suppliers only when you’ve paid it.

Whichever scheme you opt for, stop handing over your money to the Government for nothing and register for VAT as soon as possible. There’s a bit of a delay in registration and it can make it a bit messy invoicing customers while you’re waiting for your registration to be confirmed (see here) but you can avoid any problems by setting your registration date a couple of months after the date you apply. That way you’ll already have your VAT number by the time you have to start charging your customers VAT.

Do it today.

How to Register for VAT

Flat Rate Scheme for VAT

Cash Accounting Scheme for VAT

Reclaiming VAT on goods you bought before registration

Reclaiming VAT on services you bought before registration

Download the template here (MS Excel template file) or view it as a pdf file here.

Of course you don’t have to invest in a copy of Excel just to produce a few invoices, OpenOffice.org has most of the functionality of Excel (and other MS Office products) and it’s free. The template opens OK in OpenOffice but needs some slight adjustments for page margins and layout etc.

Google Docs allows you to produce invoices and other documents online and export to Excel or OpenOffice if required. They have their own invoice templates available and again it’s all free of charge.

Zoho.com is another online office suite, similar to Google Docs, with a lot more thrown in as well. They have their own dedicated online application for raising invoices invoice.zoho.com but annoyingly they’ve now seem to have started charging for its use.

Microsoft Office Accounting Express is FREE, fully featured, small business accounting software. For a free product it compares very well with the basic versions of Quickbooks and Sage, allowing you to raise and track invoices, enter bills, keep track of what you owe and what you’re owed etc, and did I mention that it’s FREE? It’s even upgradeable to the more advanced Microsoft Office Accounting Professional for about £150 if you find that you’ve outgrown it.

To satisfy HMRC you need to include on your invoice:

The date of issue of the invoice.
A sequential number that uniquely identifies the invoice.
Your business’s name, address and VAT registration number.
The name and address of your customer.
Your customer’s VAT registration number (only if they’re VAT registered in another EU country and you’re invoicing without VAT).
The date of supply of services (the date you did the work).
A description of the services supplied (from a VAT point of view ‘Courier work’ would be OK – your customer may want more detail).
The VAT rate applied (normally 17.5%).
Total amount of VAT payable.
The total amount payable for the whole invoice excluding VAT.
The total amount of VAT charged at each VAT rate (normally just one entry for the 17.5% rate).
The unit price of the services supplied and the number of units charged for – if this is normal practice for your industry (as far as I’m aware it isn’t normal practice in the courier industry) or required by your customer. In practice you can ignore this unless you charge your customer by an agreed price per mile or hour worked AND they’ve asked you to include the figure on your invoice. For example ’200 miles @ 70p/plm’.

To satisfy Companies House and Trading Standards:

If your business trades under a name other that its actual name then you must include the actual name on your invoice, as well as the trading name.

If you’re a sole trader John Smith and you trade as ‘John Smith’, ‘J Smith’ or just ‘Smith’ then that is the only name that needs to appear on your invoice.
If you’re a partnership of John Smith and Alan Jones, and trade under any combination of the names (‘Smith & Jones’, ‘J Smith & Alan Jones’ etc) then those are the only details needed.
If your business is a limited company and it trades under its own name ‘S&J Courier Services Ltd’, then that’s the only name that needs to appear on your invoices.

In any other case, where the business trades under a name that is not its actual name, the full actual name of the legal entity behind the trading name must be shown on all invoices. So if John Smith trades as ‘John Smith Couriers’, or John Smith and Alan Jones trade as ‘J&A Couriers’, or even if S&J Courier Services Ltd trade as ‘S&J Courier Services’, then the actual name of the sole-trader, the partners or the limited company must be shown on the invoice.

To keep you customer happy

The date you did the job.
The collection and delivery details – I prefer the format ‘XYZ Semiconductors, London E14 – ABC Computers, Manchester M30′.
Any reference if you’ve been given one by the customer – otherwise use the name of the person who booked the job.
Any purchase order number supplied by the customer – if it’s the first job you’ve done for them it doesn’t hurt to ring them and ask them what they need to appear on the invoice.
The POD for the job – often not essential with end-users but other transport companies like to get their PODs. Also attach the original hard copy POD to your invoice, KEEP A COPY FOR YOUR OWN RECORDS THOUGH.
Your bank details. – Most companies pay by BACS or internet banking these days. Make the payment process as simple as you can for them and avoid any excuses for late payment.
Invoice promptly – if it’s a one-off job then don’t leave it until the end of the month, do it now.
Invoice accurately – only invoice for the agreed amount. if there are any additions for waiting time, call-outs etc then agree the charges with the customer at the time that the cost is incurred.
Don’t backdate your invoice. If you don’t get round to sending your invoices until the middle of the month then don’t date them at the end of the previous month. Large companies may not notice and you’ll be paid as and when your invoice is cleared, small companies may get annoyed at being presented with an invoice due for payment within a few days of receipt.

To avoid any problems in the future

Spell out your payment terms and the due date on the invoice.
Explain the methods of paying the invoice – “Cheques should be made payable to XYZ Couriers…etc” “BACS payments may be made to Account no……etc”
Don’t mention unreasonable and un-agreed penalties for late payment on your invoice.
Draw the customer’s attention to the Late Payment legislation – “WE UNDERSTAND AND WILL EXERCISE OUR STATUTORY RIGHT TO INTEREST AND COMPENSATION FOR DEBT RECOVERY COSTS UNDER THE LATE PAYMENT LEGISLATION IF WE ARE NOT PAID ACCORDING TO OUR CREDIT TERMS.”
Draw the customer’s attention to your Conditions of Carriage, Conditions of Trading, Terms & Conditions, or whatever “ALL BUSINESS UNDERTAKEN IS SUBJECT TO OUR CONDITIONS OF TRADING – A COPY OF WHICH IS AVAILABLE ON REQUEST – or go to www.quietlyefficientcouriers.co.uk/conditions.pdf” This won’t automatically mean that the job you’re invoicing on this occasion will be covered by those conditions, you should have agreed that in advance, but it will help you show that your Conditions apply to any future work you carry out for the customer.

CMR stands for “Convention relative au contrat de transport international de marchandises par route” which translates as “Convention on the Contract for the International Carriage of Goods by Road”. It was devised by the United Nations Economic Commission for Europe and was brought into UK law by the Carriage of Goods by Road Act 1965.

When does CMR apply?

It applies to every contract for the carriage of goods by road in vehicles for reward, when the place of taking over of the goods and the place designated for delivery, as specified in the contract, are situated in two different countries, of which at least one is a contracting party to CMR.

The current contracting countries are: Albania, Armenia, Austria, Azerbaijan, Belarus, Belgium, Bosnia and Herzegovina, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Georgia, Germany, Greece, Hungary, Iran (Islamic Republic of), Ireland, Italy, Kazakhstan, Kyrgyzstan, Latvia, Lebanon, Lithuania, Luxembourg, Malta, Mongolia, Montenegro, Morocco, Netherlands, Norway, Poland, Portugal, Moldova, Romania, Russian Federation, Serbia, Slovakia, Slovenia, Spain, Sweden, Switzerland, Tajikistan, The former Yugoslav Republic of Macedonia, Tunisia, Turkey, Turkmenistan, Ukraine, United Kingdom, Uzbekistan.

It doesn’t apply:

(a) To movements between the United Kingdom, The Republic of Ireland, The Channel Islands and the Isle of Man;
(b) To carriage performed under the terms of any international postal convention;
(c) To funeral consignments;
(d) To furniture removal;
(e) To movement of your own goods.

What does it mean to me as a same day courier?

Surprisingly enough, given all the fuss that people make over it, it means very little to you. It simply provides a standardised set of Conditions, which you’re not permitted to contract out of, which replace your own Terms & Conditions (if any) when carrying out deliveries to which CMR applies.

The two main issues that concern same day couriers are paperwork and the issue of insuring for liability under CMR.

What about Liability and ‘CMR Insurance’

Under CMR your liability for loss or damage to a load is strictly limited to 8.33 SDRs (Standard Drawing Rights) per kilo, unless you’ve chosen to offer your customer a higher level of liability. That’s currently (11th July 2008) equal to £6.87 per kilo of damaged, lost or stolen goods, or the actual value – whichever is lower. While that’s a higher rate than standard FTA or RHA limits of liability (£1.30/kg) it’s still less than that offered by most couriers’ standard Terms & Conditions.

Despite what you may have been told ‘CMR Insurance’ is NOT compulsory by law, in fact there’s no such thing as CMR Insurance – it’s just Goods In Transit insurance that meets your liabilities under CMR. Since your liabilities under CMR are usually more limited than your liabilities under UK Common Law, or most couriers’ Terms & Conditions, then this issue of ‘CMR Insurance’ shouldn’t really exist for same day couriers; it’s only the ‘Territorial Limits’ of standard GIT cover that make it an issue.

Of course if you’re carrying out work for another transport company then they’ll probably consider that you have to have ‘CMR Insurance’ in order to protect their interests. You may also feel that your chances of theft or damage to your load are increased when travelling abroad, particularly during the often unavoidable overnight stops.

Paperwork – the ‘CMR Note’

Again, despite what you may have been told, it’s not compulsory to have a ‘CMR Note’ of the ‘standard’ design in a 4 part NCR set etc. However, the law does stipulate that certain details must appear on the consignment note and that observations & remarks should be entered in the appropriate places.

Given that foreign officials (and the consignee) will be more familiar with the standard design of CMR note it would probably be foolish not use it.

A downloadable 4 part CMR Note from the IRU Website is available through the link here http://www.deliver-it.biz/couriers/useful-sites-and-tools/ and guidance on completion is available at  http://www.iru.org/index/en_services_cmr – although you’ll need to register to access it.

The full text of CMR is available at  http://www.unece.org/trans/conventn/cmr_e.pdf  and the Carriage of Goods by Road Act 1965 which enacts it in UK law is available at http://www.opsi.gov.uk/RevisedStatutes/Acts/ukpga/1965/cukpga_19650037_en_1

 If you can’t see the ‘instruction’ labels in the video then double-click on the image to view it through Youtube.

If you still can’t work out how to do this then please call CX, not me. You pay them for the service they provide.

Unless you only ever carry goods under your own ‘Terms and Conditions’ or ‘Conditions of Carriage’, which you make available to your customers before you carry out any work for them then you could be wide open to a claim for unlimited damages from your customer or even from your customer’s customer.

Your Goods In Transit insurance might well cover you for £15,000, but what if the goods you’ve collected are worth far more than that? A consignment of computer chips or a pharmaceutical sample can be worth many times that and if it was lost, stolen or damaged while under your control you would be liable for the full value unless your Conditions limit your liability.

That’s not the worst of it though. Most couriers’ Conditions quite rightly disclaim any liability for consequential loss. Without this essential restriction to your liability your losses are potentially unlimited should a late, lost or damaged consignment cause your customer any financial loss due to your ‘negligent act’. A ‘negligent act’ could be as simple as you leaving goods in your vehicle overnight and them being stolen, being late for a delivery because your cambelt broke due to being overdue for replacement, subcontracting your delivery to a muppet or just sending a document by overnight delivery and it being misrouted.

In the absence of suitable Conditions the only defence that you may have against a claim is to be able to prove that your customer’s loss occurred through no negligence whatsoever on the part of you, your employees or your subcontractors. In practice this may mean a delay or loss caused by an ‘act of God’ (exceptionally severe and unexpected bad weather for example) or a catastrophic and entirely unpredictable delay on the motorway system  – for example if you collect something the day before for 0900 delivery to London then a 1 hour delay on the motorway at Luton would not excuse a late delivery because it should be anticipated. If the motorway was closed for 4 hours because of an accident then it may be a delay that you could show that you were not able to anticipate.

What does consequential loss mean and isn’t it already covered by your Goods in Transit Policy? Consequential loss applies not to the value of the goods that you’re carrying but to the financial loss that may be suffered should they not be delivered according to the customer’s requirements. By way of example, imagine a simple job where you collect an envelope from your customer for deliver across town within 2 hours. You leave the envelope on your dashboard and it blows out of the window without you noticing and is lost forever.

With proper Conditions you may be liable for around £15 for the loss of the paper and the envelope and you probably won’t be able to charge your customer for the delivery. Without any Conditions your moment of inattention could mean that the multi-million pound property deal that your client was about to seal with the contract that you were carrying doesn’t go ahead and YOU are legally liable for their entire financial loss. You’re a sole trader – so if they claim their losses you lose everything, all your savings and all your possessions.

Maybe that scenario seems a bit far-fetched, so how about that custom-made machine part that you’ve just collected from a freight forwarder for delivery to a manufacturer? The production line’s been down for 3 days at a cost of £20,000 per hour. You ‘thought’ that you’d strapped the pallet down properly but you take a corner too fast, the pallet slides and damages the goods. That’s say £40,000 for the damage to the machine part (only £15,000 covered on your insurance) and a further 3 days at £20,000 per hour (a further £1.44 MILLION in costs) for the stopped line while a new part is manufactured and delivered.

Without proper Conditions you are liable for losses like these. The good news is that it’s very simple to avoid the risk of being held liable for this type of claim. If you’re a CX member you have the benefit of being able to use their “Model Terms and Conditions”. If you’re not a CX member then the FTA allows use of their “Model Conditions of Carriage” by non-members as long as their copyright is acknowledged.

In my (non legally trained) opinion, neither sets of Conditions are entirely appropriate to the same day courier industry, but as a stop-gap measure they are better than no conditions at all. I hope to be able to point you towards some more appropriate Conditions in the near future.

In the meantime your main challenge may be to ensure that you can show that your customers have had the opportunity to view whatever conditions you may have before entering into a contract with you. If there’s a clear link on every page of your website and you’ve confirmed that your new customer has visited your website then you should be on fairly firm ground. If you’ve already carried out a job for someone without giving them the opportunity of viewing your Conditions then you can protect yourself in the future by simply adding a notice to the first invoice that all future work carried out will be subject to your Conditions. It doesn’t protect you from liabilities incurred during the first job but if you draw their attention to your Conditions at every available opportunity then you should hopefully be protected against future claims.

You must be able to provide receipts showing the VAT for anything that you claim the VAT back on in this way. Be warned that HMRC are very likely to ask to see all the supporting VAT receipts if you put in a big reclaim of VAT on your first VAT return. This is nothing to get worried about as long as you’ve stuck to the rules.

You can claim the VAT back on any ‘goods’ that you’ve purchased up to 3 years before your registration date as long as you still have the goods on the date that your registration starts. ‘Goods’ would include vans, computers, promotional material, uniform, fax, telephones and even the tank full of fuel you bought the night before your registration started.

You can also claim back the VAT on any ‘services’ that you’ve paid for up to 6 months before your registration date as long as the service wasn’t one that you ‘sold on’ before your registration date. So you could claim back the VAT on your accountant’s bill from 5 months ago but you couldn’t claim back the VAT that a subcontractor charged you last week if you’ve invoiced your customer for the job before your registration date. *See below.

The good news is that you can still claim back the VAT on these pre-registration expenses even if you’ve registered under the Flat Rate Scheme (FRS).

Normally under the FRS you can only claim back the VAT on purchases of ‘capital assets’ costing over £2,000 including VAT; so as far as couriers are concerned usually just on the purchase of a van. When claiming the VAT on pre-registration expenses however you can claim back the VAT on all the purchases mentioned above as if you weren’t on the FRS. So if you were to buy your new laptop 2 weeks before you registered for VAT on the FRS then you’d still be able to claim the VAT back on it. If you bought it just after registering for VAT on the FRS you wouldn’t be able to claim the VAT unless it had cost you £1702.13 plus VAT (£2,000) or more.

The only ‘gotcha’ with regards to the FRS is that if/when you sell anything that you’ve claimed the full amount of VAT back on using the above method (your van for instance) you have to account for the VAT on the sale at the normal rate rather than at the FRS rate. So if you’ve bought your van 3 years ago for £8,000 (plus £1,400 VAT) and claimed back the VAT, then when you sell it next year for £1,500 (plus £262.50 VAT) you’ll have to pay HMRC the full £262.50 VAT when you sell it, rather than £135 under the FRS.

Given that you’ll almost certainly be within a year or so of starting your courier business when you decide to register for VAT, it’s certainly worth going back and claiming all that you’re entitled to.

The Driver CPC is in no way connected with the Operator’s CPC required by Transport Managers etc to become an O Licence holder.

This is guidance for the Driver CPC as it applies to GOODS VEHICLE DRIVERS ONLY. The rules for PCV drivers will be implemented on earlier dates.

The requirement to hold a valid Driver CPC will eventually apply to all drivers of goods vehicles over 3500 kg GVW – so all drivers driving vehicles that require C1, C1+E, C or C+E licences.

All new drivers passing their tests to driver vehicles over 3500 kg after 10th September 2009 will have to obtain an initial Driver CPC qualification in addition to passing the appropriate driving test. The Driver CPC will need to be renewed every 5 years by completing a 35 hour course.

Drivers who have already have C1, C1+E, C or C+E licences before 10th September 2009 will not have to obtain an initial Driver CPC qualification but will still have to undertake 35 hours of training to renew their periodic Driver CPC by September 2014 and every 5 years after that.

Drivers of vehicles driven under B+E licences (van and trailer combinations) do not require a Driver CPC irrespective of the Gross Train Weight

Unless you’ve taken the (sometimes sensible) option of starting your registration on a date in the future you could have a period of 3 months or longer when you’re liable to account for VAT on all your sales but you’re not legally able to charge VAT. This obviously leaves you with a problem.

You’re not legally able to show the VAT as a separate amount on your invoice unless you’ve received confirmation of your VAT registration. HMRC’s solution is for you to issue a VAT-inclusive invoice to your customers. So instead of invoicing £100 you would invoice £117.50 ‘including VAT’. If you’ve got a close relationship with all of your customers and you can get them to agree to this in advance then this is without doubt the best option: please read on however.

Most established companies, particularly in the transport sector, will not pay VAT on an invoice unless it’s a genuine VAT invoice containing a VAT number and the VAT shown as a separate amount. You are not allowed (or able) to supply these details on your invoices until you receive confirmation of you VAT registration. If you use the HMRC approved method above (invoicing inclusive of VAT), without the prior agreement of your customer, you may well find that your customer delays payment of your entire invoice until they receive a proper VAT receipt.

The alternative method of dealing with this problem is to invoice for the normal amount, say £100 using the example above, with a clear notice on the invoice stating that you are awaiting VAT registration and a full VAT invoice showing the outstanding VAT will be issued as soon as your registration is confirmed. This avoids the delay that will almost inevitably be caused if you issue a VAT-inclusive invoice as recommended by HMRC.

Once your VAT registration is confirmed you send them an invoice for the full amount, with the VAT itemised, with a credit shown for the original amount (if that’s already been paid) and just the Vat showing as outstanding. If you’re ONLY invoicing for the outstanding VAT it can be seen as helpful (or at least ‘friendly’) to show the ‘payment due’ date as the last day of your own VAT quarter.

Remember that you can reclaim the VAT on many expenses incurred BEFORE your registration date. I’ll cover that in a future posting.

The claim procedure is straightforward enough but if you’re not used to it then it can be a bit daunting, particularly if the debtor files a defence. Even if you know the procedure it can be simpler and less stressful to pass the debt to solicitors or a collection agency for action.

Direct Route have often been recommended to couriers as the first port of call for debt recovery but there have been mixed reports about their service. Many people report that Thomas Higgins offer a good service and they seem quite open and fair about their pricing. A basic letter before action costs just £2 plus VAT, probably cheaper than doing it yourself. They’ll also collect late payment charges for you.