If keeping your self-employed tax in order drives you nuts, then professionally trained accountants Sam O’Connor and Adam Goodall know how you feel. In fact, it drove them to found Coconut – the bank that gives you a ‘finance team in your pocket’… and what a lovely bunch they are.
Life’s a beach, they say, for the self-employed. Determining their own hours, working at their own pace… if you’re on a nine-to-five treadmill it’s difficult not to envy Britain’s five million self-employed for leading the kind of flexible, independent, and laid-back lifestyle that you covet.
But when it comes to filing anend-of-year tax return, or managing finances as a sole trader or micro-SME owner, that beach can quickly begin to feel like a desert island, marooning you without access to the tools you need to help manage a complex and diverse financial life. Serial entrepreneurs Sam O’Connor and Adam Goodall have spent the past four years devising a fintech solution for just such castaways in the UK. The result, Coconut Bank, promises to deliver ‘the power of a finance team into your pocket’, through a mobile app and a Mastercard-powered current account that’s tailored specifically for the 15 per cent of working-age Britons who currently work for themselves.
“Our vision is to make self-employment easier than being employed. And the first piece of that is accounting and tax, because that’s the bedrock of your business,” says O’Connor, the firm’s CEO, who, like Goodall, trained as an accountant with global firm PwC. You might think that more than prepared them for that castaway life. In fact, they only became aware of how painfully difficult it was after selling their first joint-venture, ProConfirm, to Confirmation.com in 2014.
“The idea came to us when we joined the self-employed community and thought ‘wow, OK. Actually, the accounting and tax side, the running your business side of this, is really difficult’,” recalls O’Connor.
“That’s because you’re stuck with tools like Xero and QuickBooks, that were built in the web era and typically for businesses with 10-plus employees.
“So, we’ve made the ultimate tool for the self-employed, specifically for individuals running a business with fewer than five employees – all the way down to designers or hairdressers who are sole traders. Our customers can connect up their current account from 20 major UK banks, or open a current account with us, and then they’re ready to go – with all of the tools they need for expenses, invoicing, a profit and loss account, tax tools and so on.”
While the spending breakdowns provided by the likes of Monzo solve problems consumers didn’t know they had, Coconut addresses all the problems that the self-employed are all too aware of – answering the desperate SOS signals of those adrift in a sea of accounting documents and tax reminders.
Feedback on the app from Coconut’s customers has been overwhelmingly positive – one of the reasons behind Coconut’s inclusion in Business Insider’s 10 Hottest Fintechs list in 2019. “Every time we go past the tax year-end, our customers tweet ‘ah, I’ve saved 80 per cent of the time that I would normally spend submitting my tax return!’,” O’Connor says. “And that makes me do a little dance around the kitchen.”
Making tax less taxing
Tax is a particularly tough nut to crack for the self-employed. They work hard for a full financial year only to find HMRC gobbling up their savings when they run their books. From the start, Coconut has aimed to make this unpleasant surprise a thing of the past.
“We forecast your tax bill as you get paid,” explains O’Connor, “so you can set aside the right amount and then, when you get to the end of the year, you don’t have a surprise about how much tax you owe. And we’ve got a really handy report that you can use to submit your tax easily.”
At the beginning of last year, Coconut also added a corporation tax feature for customers running limited companies. It’s little wonder, considering their enamoured customer base, that Coconut chose to follow the crowdfunding route for a second time last month. Having closed its first round in 2018 at 400 per cent of its funding target, this year’s round saw more than 3,000 investors pledge in excess of £2.5million, or 350 per cent of its target, over Crowdcube.
“Crowdfunding is a really exciting thing to do – and, for us, it’s a very natural fit, because right at the start of our journey with Coconut, we decided to set up a Facebook group called Coconut Bite, and that was really a turbocharged customer feedback forum for us,” says O’Connor. “That very quickly started to build quite a big audience and community around what we were doing – a huge amount of buzz and excitement.”
Coconut Bite is now integrated into the firm’s website, allowing customers to propose patches and new features for Coconut to put its new funding towards. And on top of its wildly successful crowdfund, which increased Coconut’s pre-money valuation to £12million, the fintech has also applied for a share of the £100million Banking Competition Remedies Fund in July; if successful, Coconut could be granted up to £5million more in funding for its next steps.
The cash injection is timely, given that economic downturns tend to force former employees into self-employment, as evidenced in the months following the 2008 crash. With the current furlough lifeline scheduled to be withdrawn at the end of October, the UK’s economic recovery from the coronavirus crisis is likely to feature swathes of newly-displaced, newly-disorientated workers filing self assessments for the first time. It’ll be down to fintechs like Coconut to service this growing archipelago of lonely economic islanders, struggling to efficiently deal with their finances.
Even before lockdown, statistics revealed legions of UK workers jumping ship from their employers and working for themselves. Some 3.3 million UK adults identified as self-employed in 2001, that figure jumping to a record five million at the start of this year. With the so-called ‘gig economy’ also booming – albeit through mostly precarious positions – Coconut’s target market is set to balloon further, post-COVID-19. Co-working spaces are now popping up in towns as well as cities, and older workers, as well as the young, are giving self-employment a shot: indeed, by 2024, over-50s are predicted to make up the majority of the UK’s self-employed. Rishi Sunak’s Self-Employment Income Support Scheme, announced back in March, was yet another, state-sponsored acknowledgement of just how big and important a feature of the economy all these self-starters are.
The trend towards ‘going it alone’ has led to an increase in services for the self-employed, such as UK-based Penfold, which specialises in pensions for the self-employed. Meanwhile, the Independent Workers’ Union of Great Britain (IWGB), established in 2013, has seen its membership double each year since 2016.
“The ecosystem around self-employment is really starting to develop,” confirms O’Connor, “with specialist products focussed on things like sick pay – all those benefits you get when you’re employed, but don’t get when you’re self-employed.”
Coconut is now focussing on establishing itself as the go-to problem-solver for the self-employed, introducing features to help with just such downsides of independence. “There are so many exciting things that we can do for this segment of the workforce,” says O’Connor, “and that’s all coming as part of what this funding round allows us to do.”
One example is insurance, says O’Connor. “Because of the richness of the data we have – when a transaction happens, we categorise it, using our proprietary Accounting Intelligence technology, and it figures out what tax category that’s in – we can look at what you spend on insurance, and say ‘actually, in your peer group, or in your industry group, you’re overpaying’. And we can find you a good alternative deal to help you.”
It already offers bespoke, one-to-one accounting services, connecting beleaguered self-employed workers with professional accountants across
the UK. Its Accounting Partner Services currently boast 1,500 accountants, who look after more than 27,000 Coconut customers and their specific, diverse needs.
So, it looks like there’s no need for the self-employed to feel they’re adrift on a choppy sea of financial admin – and we can all finally go back to sipping our piña coladas and topping up our tans.