SECTOR GUIDE · PROFESSIONAL SERVICES
Professional services. WIP-heavy, partner-paid.
The pattern we see
Professional services firms. Accountants, solicitors, consultancies, architects. Share a balance sheet shape that confuses every cash forecast. Work in progress carries a lot of value that hasn't yet invoiced. Accrued income carries more. By the time the bills go out, a chunk has already been spent on the salaries that produced the work, and the cash arrives after VAT has already been accounted for.
Two structural details matter most. First, VAT cash accounting (the scheme that lets you account for VAT only when you've actually received payment) is available up to £1.35m in turnover and pulls VAT timing into line with your cash. Above that threshold you're back on invoice basis and the VAT bill lands whether the client has paid or not. Most firms grow through the threshold without restructuring how they manage VAT and find the first big bill on invoice basis lands unexpectedly hard.
Second, partnership and LLP structures put profit through partners as personal income, but limited company professional services firms hit Corporation Tax on retained profit. A profitable year for an owner-managed practice often produces a CT bill that lands the same month the partners want to take a year-end distribution. We see this every January.
Which products fit
Bill type, size, and lender appetite for this sector.
| Bill type | Likelihood | Typical size | Lender appetite |
|---|---|---|---|
| VAT | High | £15k–£200k | Strong for ltd companies; LLPs need partner guarantees on bigger tickets |
| CT | High | £25k–£400k | Strong on clean filed accounts |
| PAYE | Low | — | Rare; PAYE-heavy firms usually manage from working capital |
| R&D | Low | — | Tech-led consultancies with genuine R&D occasionally; most claims fail HMRC scrutiny |
Real example
A 22-partner law firm structured as an LLP came to us in early December with a Q3 VAT bill of £140,000 due 7 December. Two large property completions had slipped into January, taking the cash with them. We placed a nine-month VAT loan against the LLP, settled HMRC on time, and the firm repaid early in February when the completions finally landed. No partner guarantees needed at that ticket size with the lender we used.
Anonymised. Names, locations, and trading details changed. Numbers indicative.
Watch-outs
- Cross the £1.35m turnover threshold and VAT cash accounting eligibility ends. Plan the transition VAT bill. It can be 50% larger than what you've been used to.
- WIP and accrued income sit on the balance sheet but don't pay HMRC. Forecast on cleared cash receipts, not headline revenue.
- Partner draws and director loans interact with HMRC differently. A drawing pattern that worked when profit was modest can attract DLA tax surprises in a strong year.
- IR35 reforms catch some consultancy structures retrospectively. Worth a sanity check before assuming PAYE liability is what your payroll software says.
Professional Services bill on the horizon? We'll quote it.
Funded direct to HMRC. No cost to enquire.
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