Bookkeeping for recruitment agencies.

Why recruitment books are different

Most service businesses send an invoice, get paid and pay their own costs. A temporary or contract recruitment agency does something harder. It pays workers for hours before the client has paid for those hours. It may sell the debt to a funder to bridge the gap. It may run temps through its own payroll while contractors working through their own limited companies send invoices instead.

Each of those flows has its own paperwork, and they all have to agree. If the books only follow the bank, the agency cannot see which placements make money, which hours were never billed, or how much it really owes its funder. Our job is to keep the three sides together: the timesheet, the sales invoice and the cost of the worker.

Contractor timesheets against sales invoices

The timesheet is the starting point for both income and cost. Approved hours multiplied by the charge rate become the client invoice. The same hours multiplied by the pay rate become the worker's pay or the contractor's invoice. When the two sides are produced from different systems, small gaps creep in.

These are the checks we run as part of the daily bookkeeping:

• Every billed timesheet has a cost. A sales invoice with no matching pay line or contractor invoice usually means a cost is missing from the books.
• Every paid timesheet has been billed. Hours paid to a worker but not yet invoiced to the client are income you are owed. We list them so they can be invoiced.
• Contractor invoices match approved hours. Where a contractor invoices you, or you self-bill them, we check the hours and rate against the approved timesheet before the bill is posted.
• Credit notes are recorded against the right invoice. Disputed hours and rate corrections are posted so the client's balance stays accurate.

At month end, hours worked but not yet invoiced can be shown separately, so your monthly figures are not distorted by when invoices happened to go out.

Margin tracking by placement and client

Turnover tells you little in recruitment. A large temp book can carry a thin margin, while a handful of permanent placements can carry most of the profit. What matters is gross margin: the charge to the client less the full cost of the worker.

For temps on your own payroll, the full cost is more than the hourly pay rate. It includes employer National Insurance, pension contributions and holiday pay. For contractors supplied through their own companies, it is the contractor's invoice. Where your accounting software supports tracking categories or classes, we tag sales and costs by client, branch or desk, so you can see margin where it is earned.

Permanent placements need their own care. A placement fee is usually invoiced once the candidate starts. Many terms allow a rebate or refund if the candidate leaves early. We record any rebate as a credit note against the original invoice, so fee income for the month is not overstated.

Factoring and invoice finance reconciliation

Many agencies fund temp payroll with factoring or invoice discounting. A funder advances part of each invoice soon after it is raised, holds back the rest, and charges fees and interest. When the client pays, the funder releases the balance less its charges. With factoring, the client usually pays the funder directly. With invoice discounting, the client usually pays into an account the funder controls.

This is where agency books most often go wrong. Common problems include advances posted as sales, client invoices left showing as unpaid after the funder has collected them, and fees buried in a single bank line. We set it up so each part is recorded on its own:

• Sales invoices stay as sales. The client still owes the full invoice, so it stays in debtors until the client pays.
• Advances are a liability. Money drawn from the funder is recorded as owed to the funder, not as income.
• Collections are matched to invoices. When the funder reports a client payment, we mark the invoice paid and reduce the funder balance.
• Fees and interest are costs. Service charges, discount charges and other fees are posted to their own expense accounts, so you can see what funding really costs.

Each month, the funder balance in your books should agree with the funder's own statement. We reconcile the two and flag any difference, such as a disputed invoice the funder has charged back. You can read more about matching statements in our guide to bank reconciliation.

VAT on supplying staff

VAT catches out many new agencies. GOV.UK guidance on the supply of staff (VAT Notice 700/34) says that if you make a taxable supply of staff, you must charge VAT on the full amount of the consideration. That includes staff costs you recover from the client, such as salary, National Insurance and pension contributions. So when you supply a temp as principal, VAT is due on the whole charge, not just your margin.

The notice also covers agencies acting only as an agent for the client. There, the agency finds workers who then contract directly with the client. GOV.UK calls this an introductory service, and the agency accounts for VAT on its agency charges.

A business must register for VAT if its total taxable turnover for the last 12 months goes over £90,000, or is expected to go over £90,000 in the next 30 days. For an agency supplying staff as principal, that turnover is measured on what clients are charged, so it can be reached quickly. Once you or your accountant have agreed how your supplies are treated, we post each invoice consistently. See what the VAT threshold is in the UK.

Contractors, off-payroll rules and intermediary reports

Agencies supplying contractors who work through their own limited companies have extra duties. GOV.UK says that under the off-payroll working rules, often called IR35, the client usually decides the worker's employment status. For small clients outside the public sector, the worker's own company decides. All agencies, whatever their size, have some responsibilities where the rules apply.

The status decision is passed down the supply chain in a status determination statement. The deemed employer is the person or organisation at the lowest point in the chain, above the worker's company, that meets the conditions. Where that is the agency, it is responsible for deducting Income Tax and employee National Insurance and for paying employer National Insurance. We keep contractor costs split between those inside and outside the rules, so the deductions and the cash paid agree in your books.

GOV.UK also says that agencies and other intermediaries must tell HMRC about people they pay but do not operate PAYE for. The report is uploaded every 3 months, and a penalty may be charged if it is late, incomplete or incorrect. Clean contractor records make each report a short job.

What is included, and what is quoted separately

Every package covers the same daily work: bookkeeping every UK working day in your existing software, bank reconciliation and receipt matching, finance inbox monitoring, missing invoices and receipts followed up, and a monthly financial summary in plain English.

We work in Xero, QuickBooks, Sage, FreeAgent, Dext, VT Transaction+ and others. You keep your software and your subscription. If you also use a separate timesheet or recruitment system, we work from its exports and approvals.

Some work sits outside the monthly packages. Intermediary reports are not part of the daily bookkeeping. Catch-up work, tax returns, payroll, CIS returns, VAT return submission and statutory filings are quoted separately. If your books are behind, start with catch-up bookkeeping. If you place permanent staff only, see our page on bookkeeping for agencies and consultants.