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Do you need an accountant?

If you have set up a limited company, must you have an accountant? By law, no, you don’t require one. It’s not a statutory obligation. But you must prepare an annual set of accounts which need to be filed with Companies House and you must have a full set of corporate tax accounts to show HMRC.

For financial years beginning on or after 1 January 2016, companies are also exempt from being audited, if they have at least two of the following:

  • an annual turnover of no more than £10.2 million
  • assets worth no more than £5.1 million
  • 50 or fewer employees on average

The only exception is if one of the shareholders who owns at least 10% of the shares demands an audit. 

What will an accountant do for you?  

It’s often thought that accountants just compile your accounts at year-end and submit your VAT  returns. A good accountant, however, will help with a wide range of other duties, such as:

  • Registering the company with the relevant tax departments – VAT, Corporation Tax, PAYE 
  • Setting up and running the company payroll, in line with the Real Time Information (RTI)  rules    
  • Monthly bookkeeping (with online accounting – you may prefer to do this yourself and save extra fees)
  • Dealing with the authorities on an ongoing basis (HMRC, Companies House)
  • Providing tax planning advice
  • Offering dividend advice
  • Providing professional references for mortgages, lettings, other services

Services will differ from accountant to accountant so make sure you know what is included. 

An accountant’s role is to provide you with advice. You may have a query about what expenses you can offset against Corporation Tax or be unsure as to whether you have enough retained profit to declare a dividend legally. Whatever the issue, it’s good to have an experienced professional on hand.  

One major advantage is that a professional accountant will be experienced in dealing with the tax authorities should an enquiry arise. They will know the correct format to submit any information and will understand the various subtleties of different regulations.   

If someone does decide to look after their own affairs, they need to be aware that they must maintain their accounts in line with the Generally Accepted Accounting Practice in the UK. It’s their responsibility to submit their information in a timely and accurate manner so as to meet statutory legislation.

On balance, most people decide that once they’ve calculated how long it takes to prepare the accounts, do the bookkeeping and liaise with HMRC, a small business accountant would save them both time and money, while enabling them to get on with running their business.

Sources
https://www.companybug.com/do-i-have-to-use-an-accountant-for-my-company/

https://www.gov.uk/audit-exemptions-for-private-limited-companies

How to get the best deals on a cruise

If you’re dreaming of getting away from the cold, dark days of winter, the idea of a last minute luxury cruise might have crossed your mind.

Unfortunately, however, gone are the days when you could just turn up on the quayside with your luggage and negotiate a deal. By law, cruise lines must submit their passenger manifests within 24 to 48 hours of departure. Nonetheless, there are some great offers to be found. 

‘Last minute’ is normally used in the industry to refer to a cruise due to sail anytime between several days and three months in the future. So keep your eyes peeled for travel agencies trying to fill ships for cruise lines as departure dates draw near. 

But as with any bargain, there are likely to be pros and cons, so bear the following points in mind:

Get your timing right 

The best time to find a bargain is about 60 to 90 days before the ship sails as this is the point by which travellers must have cancelled if they are not to incur a penalty. For some cruise lines, it can even be 120 days. Once the cruise line knows how many empty cabins are left, they will start to discount heavily.

Travel out of season

Not surprisingly, it won’t be the bestselling cruises that have last minute availability so be prepared to compromise on your dates. The most popular times for cruises are Christmas and New Year, Easter week or the August Bank Holiday so you’re unlikely to find any bargains on these dates but this still leaves several months throughout the year where you could be lucky. There’s usually lots of potential in the Mediterranen between October through to April.                  

Investigate ‘repositioning’ cruises

Unusual routes that don’t sell out also provide an opportunity for a good deal. Look out for ‘repositioning cruises’. These are when a vessel is changing region and needs to get back to its original port so it may take a different route than usual. Voyages can take 2 weeks or so rather than the usual 7 days and will include more sea days than normal with a variety of ports. Repositioning cruises can offer you an interesting itinerary at a reasonable price but be aware that because they will start in one port and end in another you could end up paying an expensive one-way air fare. The significant savings on the cruise though can still make it worthwhile.              

Shop around

Look around for the best deals. The cruise lines are bound by tight restrictions on travel agency discounting but agencies can have access to good deals depending on their booking bonuses.  Check the agencies’ web pages on a regular basis and sometimes it’s worth phoning up too as some admit they have low prices they can only tell customers about over the phone. 

Take careful note of what’s included – service fees, government taxes and port charges may not be part of the quoted price. Booking late inevitably means you’re getting what’s left over so you’re unlikely to get a balcony cabin or a prime dinner table but if you go with a flexible attitude, you could end up having the trip of a lifetime. Happy Sailing!

Sources
https://www.cruisecritic.co.uk/articles.cfm?ID=68

How the gender gap even affects children’s pensions

We’re familiar with the gender gap in pensions for adults but there is evidence that this actually starts much earlier on. According to data from HMRC, parents and grandparents are more likely to save into a boy’s pension than a girl’s.

A Freedom of Information request by Hargreaves Lansdown revealed that 13,000 girls aged 15 or under had money paid into a pension for them in 2016/17 compared with 20,000 boys. The disparity means the pension gap can actually start from birth onwards.

This only exacerbates the situation as women are likely to have less in their pension due to the gender pay gap. Nest found men are twice as likely to be in the highest income bracket and women are three times as likely to be earning less than £10,000 per year, which is the auto enrolment threshold for a single job.

Women are also more likely to take career breaks or work part-time to bring up a family. Added to which, they are more likely to live longer and spend longer in retirement so, in reality, will need more in their pension pot than men.

Research in 2017/18 by the union Prospect found that the pensions gender gap equated to 39.9 per cent or a £7,000 gap in retirement income between women and men.

Hargreaves Lansdown has calculated that paying £100 per month into a child’s pension until the child reaches 18 can increase their savings by as much as £130,000 by retirement. Yet the cost is only £21,600 plus tax relief of £5,400. Forward planning pays off!

Someone without any earnings can pay up to £2,880 each year into a pension and receive 20 per cent tax relief (up to £720) so it’s possible for parents and grandparents to make a significant difference to a young person’s financial future by starting a plan early. An added advantage is that once the money is in a pension, it can grow without attracting capital gains tax.

It’s unclear why the anomaly between paying into boys’ and girls’ pensions has existed in the past. Some feel it may be because gifting has traditionally come from the baby boomer’s generation where men were more likely to have had the greater share of pension in retirement.

Whatever the reason historically, the current message is to use children’s pensions to give the younger generation a helping hand but to do it equally.

Sources
https://www.ftadviser.com/pensions/2019/10/04/gender-pension-gap-seen-among-kids/

https://citywire.co.uk/new-model-adviser/news/gender-pensions-gap-begins-at-birth/a1277113

Financial lessons for parents of students

If you’ve got a son or daughter at college or university, you could have some stark financial lessons ahead. Getting the grades may have dominated the household up to now but budgeting for their life as a student can require just as much focus.      

Tuition fees and student loans are usually top of the agenda. Most universities charge £9,250 for tuition fees but the financial help available to students for their living costs will differ. Maintenance loans are calculated according to where the student is going to study, where they plan to live and how much their parents earn.

As an example, the maximum maintenance loan is £11,672 if the student is an undergraduate,  studying in London and not living at home, but this would only apply if the gross household income was below £25,000 (after pension contributions). If the household income is greater than £67,000, the maximum a student can borrow for their living costs is £5,812. You would be expected to provide a parental contribution of £6,000 to make up the shortfall.              

A recent survey revealed that parents of students could be found to be contributing an average of £360 a month. Half of them said they had not anticipated that they would have to give as much financial help. Luxury items such as new cars and exotic holidays were sacrificed while six per cent of respondents said they had taken a second job.

Despite this, students faced an average monthly shortfall of £267, according to the 2019  National Student Money Survey. Although some had taken part time jobs, 49 per cent relied on  overdrafts and 14 per cent on credit cards.

Not surprisingly, the main expense is accommodation.This has soared in recent years due to the increasing amount of university accommodation being provided by commercial operators, which costs significantly more than traditional halls of residence. Students can find themselves paying up to £9,000 a year on rent in London and £6,366 elsewhere.

Students also get tied into lengthy commercial tenancies of up to 46 weeks. Some landlords may even charge for 51 weeks. To make things even more difficult, the rent may be due before the maintenance loan arrives.         

Despite the high costs, demand is high so students may be expected to start a tenancy in June for the forthcoming academic year. That can mean deposits of three months’ rent need to be paid in advance before the Easter term.

Parents are often called in to meet these costs and act as a rental guarantor. One advantage is that large providers like the Unite Group will allow you to pay by credit card so you can stack up lots of loyalty points. 

It’s an exciting new chapter of life and with a bit of careful ongoing planning and budgeting, you can make sure you minimise any surprises.

the impact of climate change fears on ethical investing

As pressure mounts on governments and financial institutions to do more to combat climate change, the demand for ethical investment opportunities is on the rise. 

Triodos Bank’s annual impact investing survey has found that nearly half (45%) of investors say that they would be keen to move their money to an ethical fund as a result of news surrounding the environment. When asked, investors state that they would put an average of £3,744 into an impact investment fund, marking an increase of £1,000 when compared with 2018. 

53% of respondents believe that responsible investment is one of the best ways to fight climate change and 75% agreed that financial institutions should be more transparent about where their money is invested. 

Gareth Griffiths, head of retail banking at Triodos Bank UK, said: “Many investors are no longer waiting for governments to take the lead in our transition to a fairer, greener society – they are using their own money to back the change they want to see.” 

Ethical investing isn’t a new practice by any stretch. In fact, some ethical funds have been available for the past 30 years, though they still only make up 1.6% of the UK industry total, according to research carried out by Shroders. 

That then poses the question, why haven’t they earned popularity in the past?

The old consensus was that investing ethically meant you were sacrificing performance for morality. A thought which seems to be changing, however, as research conducted by BofA Merrill Lynch found that a strategy of buying stocks that ranked well on ethical, social and governance metrics would have outperformed the S&P 500’s yearly result for the past five years. 

Further to this, a survey conducted by Rathbone Greenbank Investments found that over 80% of the UK’s high net worth individuals are interested in investing ethically. Many want to back the fight against climate change and plastic waste reduction but say that due to a lack of choice they still end up investing in fossil fuels or mining companies.   

The investment industry has recognised the change in attitude, leading to more and more fund management companies including ethical, social and governance factors in their core investment strategies. However, with the movement only just beginning to gain true momentum, it seems that time will tell when it comes to the mass adoption of ethical investment practices. 

If you have any questions about ethical investment please feel free to get in contact.

Sources
https://uk.finance.yahoo.com/news/climate-fears-could-prompt-more-014547488.htm

https://www.independent.co.uk/money/spend-save/good-money-week-ethical-investing-blue-planet-environment-fossil-fuels-plastic-a9142446.html

You have a financial plan, but do you have a financial plan b?

“The best laid schemes o’ mice an’ men, gang aft agley”. So said Robert Burns in his poem ‘To a Mouse’, lyrically summing up the idea that no matter how well we prepare, there are always factors beyond our control that can cause our ‘best laid’ plans to unravel.

Whilst the same can be said for financial planning, there are a great deal of factors that are under our control, one of which is preparing for the eventuality that our plan ‘A’ might not come to pass. Making a plan ‘B’ is not admitting defeat, but pragmatically working on the assumption that nothing about preparing for the future is guaranteed.

When it comes to retirement planning, too many people give themselves a single plan without having an alternative they can turn to. This is most common amongst those who have made plans themselves without consulting an independent adviser. One of the most frequent mistakes made is planning for too short a retirement. It’s always better to be optimistic about how long your pension will need to last. That way, if you overestimate, your money won’t run out and can become part of your legacy.

An increasing number of retirees are planning to continue working in some capacity after they retire, either taking on a part time job or extending their previous career through taking on a consultancy role. Financial advisers, however, are increasingly recommending that any income from working in retirement should be factored in as additional income rather than something you rely on to ensure you have enough money each month. That way you have the freedom to reduce your hours or stop working altogether whenever you want.

Plan ‘B’ is not always about the worst case scenario, however. It could be that your main plan assumes a certain amount of savings in your pension, whilst your backup plan is more optimistic but less likely. If you find that you do reach retirement age with more money available than you expected, plan ‘B’ could be your way of ensuring you make the most of life after work. If you planned to move abroad, look at more expensive destinations that might offer you even greater benefits than your initial choice.

If you’re nearing retirement and would like help putting together your plans, please get in touch.

Sources
http://money.usnews.com/investing/articles/2016-08-03/whats-your-plan-b-for-retirement

The difference between using an accountant and a bookkeeper

You’ll often find the terms ‘bookkeeper’ and ‘accountant’ used interchangeably, a trend which is perhaps understandable outside the field of accountancy. But to a business owner hiring someone to look after their company’s finances, the distinction between the two roles is a crucial one.

Part of the reason many believe the roles of a bookkeeper and an accountant to be the same is that there is a level of crossover between the two roles. As bookkeeping involves keeping complete and accurate records of a business’ financial transactions, it is the first stage of any successful accounting process.

A bookkeeper’s role is essential in allowing a business to run efficiently through recording payments and receipts, as well as ensuring that the correct amounts are paid and received on time. Other bookkeeping tasks include the issuing of invoices and recording of cash receipts from customers, recording invoices from suppliers and making payments to them, recording inventory, and the processing of petty cash and payroll transactions. For very small businesses, this may be enough to fulfil their accounting needs.

However, as stated earlier, bookkeeping is just one part of accounting. It involves financial transactions to be recorded and handled properly, but doesn’t require any analysis on the bookkeeper’s part. This is where accountancy comes in. An accountant takes the information from the bookkeeping process and assesses the overall financial picture. This includes analysis and interpretation of the records, forecasting the business’ financial position, and evaluating how efficiently the business is running.

Accountancy can also become a much more specialised role than bookkeeping. An accountant might choose to specialise as an accountant in the financial, management, tax or auditing fields, amongst others.

As such, an accountant will hold more specialist qualifications than a bookkeeper, as their role is the more complex of the two. Many businesses will expect their accountant to fulfil bookkeeping duties as part of their role, although larger businesses will often employ people in separate bookkeeping and accounting roles in order to allow the accountant to focus on the analysis and interpretation of the business’ finances.

Sources
http://www.aatcomment.org.uk/bookkeeping-vs-accounting-what-should-you-study/
https://www.babington.co.uk/blog/accounting-blog/difference-between-bookkeeping-and-accounting/#

4 steps to keeping track of your pension

A recent study has revealed the worrying statistic that over a fifth of all people with multiple pensions have lost track of at least one, with some admitting to have forgotten the details of all of them. With around two thirds of UK residents having more than one pension, this amounts to approximately 6.6 million people with no idea how much they’ve put away for their retirement. Double the amount of people admit to not knowing how much their pensions are worth.

It’s an undesirable side effect of the modern working world. Whereas in previous generations someone might stay at a single employer for their entire working life, the typical worker today will hold eleven different jobs throughout their career, which could potentially mean opting into the same number of pensions through as many different providers. The new legal requirement for all employers to offer a pension scheme through auto-enrolment is likely to add further complexities.

As a result, the Pensions Dashboard is set to launch in 2019 in the hope that it will make it easier for savers to keep track of their pensions in one place. Until then, however, there are four relatively simple steps to help you track down information on any pensions you’ve forgotten about:

  1. Find your pension using the DWP Pensions tracing service at www.gov.uk/find-pension-contact-details. Start by entering the name of your former employer to discover the current contact address for them. You’ll then need to write to them providing your name (plus any previous names), your current and previous addresses and your National Insurance number.
  2. In the case of a pension scheme which hasn’t been updated for a while, you’ll be required to fill out an online form to receive contact details. You’ll be required to give your name, email address and any relevant information to help track down your pension details. This could include your National Insurance number and the dates you worked for the company.
  3. You can also receive a forecast of your State pension either online or in paper format by going to www.gov.uk/check-state-pension. After entering a few details to confirm your identity, you’ll be told the date you can access your State pension and how much you’ll receive.
  4. Finally, and most importantly, once you’ve managed to track down all of your pension information, get some advice. Consolidating your pensions might be tempting to make managing your savings easier, but you also want to make sure you don’t lose out on any benefits by doing so. Before you make any decisions regarding your pensions, seek professional independent advice on what to do next.

Sources
http://www.independent.co.uk/money/modern-careers-risk-billions-in-lost-retirement-savings-a7545091.html

Why reading is more ‘taxing’ for some

Books are zero-rated from VAT. Well, traditional printed books are.

If you wanted to read this year’s Booker prize shortlist in hardback, it would cost you approx £90 and there would be no VAT applied.   

A consumer tax of 20%, or VAT as we know it, is levied on all goods sold in the UK. There are some exceptions, however, which are zero-rated, such as children’s clothes, most food and, as mentioned, printed books.      

This is in line with the tradition that knowledge and learning should be accessible.

As Stephen Lotinga, the chief executive of the Publishers Association, explained, “It has been a long-standing principle that governments won’t seek to tax and provide a barrier to books, education and knowledge.” 

But it is not a level literary playing field.   

The zero-rating does not apply to audio books or e-books which can cost up to approx 50% more. Admittedly, while some of the extra cost of audio books is due to the recording costs and the hiring of actors, the levy plays its part in keeping prices high.     

To set this in context, the UK publishing industry generated £3.6bn in total book sales in 2018. Physical book sales accounted for £2.9bn and digital £653m.

The different tax classification discriminates against those who are blind, partially sighted and the elderly. With 2 million people in the UK classed as visually impaired, this is a significant issue. 

For people struggling to read, being able to listen to books or change the size of the font on the screen of their e-reader can have a huge impact.    

But the issue is also affecting the younger generation.The National Literacy Trust has said one in eight children from disadvantaged families do not own books. If books were available in digital formats at lower costs, it’s felt children from low income families would be more likely to access them on their phones or tablets.   

High profile authors and publishers, together with one hundred MP campaign supporters, are putting pressure on the Chancellor, Sajid Javid, to address this anomaly and bring an end to digital VAT in his Autumn Budget.

From a business perspective, the tax is also seen to be a barrier to encouraging innovation in digital formats. 

Let’s hope the story has a happy ending for all those disadvantaged readers and listeners who feel they are being unfairly penalised.