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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

Ensuring harmony after death

With an estimated 60 per cent of people dying without having made a will, it’s troubling to think that their life savings and property may not be passed on according to their wishes.

One way of guaranteeing that those closest to you are taken care of is simply by making a will.

A will ensures that your assets are shared in the way that you would like. If you’re an unmarried couple, you can make sure your partner is provided for and if divorced, you can decide whether to leave anything to your former partner.

You are never too young to make a will. An online YouGov poll undertaken by children’s charity Barnardos found that of those people who have made a will, a surprisingly savvy 61 per cent did so before the age of 41.

More than one in five (22 per cent) cited having a child as a key driver whilst almost a quarter (23 per cent) stated financial planning as the reason for writing a will.

Although it is possible to write a will yourself there are various legal formalities you need to follow to make sure that your will is valid. Importantly, employing the services of a Solicitor can ensure the process is smooth and that you don’t pay more inheritance tax than necessary.

Begin by taking some time to think about what you want to include in your will, look at how much money and what property and possessions you have. Crucially, think about whom you want to benefit from your will and who is best placed to look after your children if under the age of 18.

Also consider who you would like to sort out your estate and carry out your wishes after your death. You can appoint an executor at any time by naming them in your will.

In England, Wales and Northern Ireland, two witnesses are required to be present when a will is signed and they must have no beneficial interest as this could make it invalid.

Remember once you’ve made your will it’s important to keep it in a safe place and tell your executor, close friend or relative where it is. You should also consider reviewing it every five years and after any major change in your life – such as separation, marriage, divorce, having a child or moving house.

Sole trader vs limited company?

When people are setting up a business, one of the first questions they have to grapple with is what legal structure they are going to trade under – sole trader, limited company or partnership.

If you’re one of our clients, you will already have made this decision but we thought it would be useful to give a quick outline of the differences.  

Sole trader

Being a sole trader is the most popular legal structure. Approximately 3.4 million sole proprietorships were created in 2017 and they accounted for 60% of small businesses in the UK. 

On the plus side, there are no set up costs and it’s very simple to get up and running. The only requirement is to inform HMRC by 5th Oct of your business’ second tax year. There is very little paperwork and you don’t have to have any dealings with Companies House. None of your information is held on the public record.    

As a sole trader, however, you are completely responsible for your business and its finances. You need to be aware that if your business goes bust or you have any business debts, your personal finances and assets could be in danger. Legally, your liability is unlimited.

It’s advisable, therefore, to take out small business insurance policies. This way you can avoid getting sued personally should there be any legal disputes. Remember, the buck stops with you! 

You and your business are treated as a single entity, which is also significant for tax purposes. You will have to pay tax on the profits that are above your personal tax allowance (£12,500 for the 2019/20 tax year). This is calculated through the self-assessment system and you will also pay Class 2 and Class 4 NICs.

Being a sole trader is thought to be less tax efficient than being a limited company as there is less opportunity for tax planning via the self-assessment system. 

Limited company

The second most popular legal structure is a limited company of which there were 1.9 million in 2017. There is a certain amount of paperwork required and you need to deal with Companies House but it is relatively straightforward. Note that your company details will be on public record.   

The main advantage of having a limited company is that you have limited personal liability should something go wrong. The business is treated as a separate entity from its owners so your own assets are protected.    

Despite the higher dividend taxes that were introduced in 2016, a limited company is still  considered to be more tax efficient. The company will pay corporation tax and dividend tax and employer’s Class 1 NICs on salaries, while staff pay employees’ Class 1 NICs on salaries. Under the limited company structure, there are more possibilities for tax planning by delaying dividends, for example, until a future tax year to minimise the tax liability. 

One of the disadvantages, though, is that you are obliged to prepare annual accounts which need to be filed with Companies House. You also need to file a full set of corporate tax accounts for HMRC. As a limited company, it’s advisable to use an accountant to make sure the accounts are done thoroughly.

Sources
https://www.companybug.com/limited-company-better-than-sole-trader/
https://www.companybug.com/do-i-hav-to-use-an-accountant-for-my-company/

Can I afford to retire?

Retirement has often been described as “the longest holiday of your life.” But attractive as that sounds, can you afford to pay for the holiday?

Research by one leading insurance company shows that 69% of people over the age of 50 are concerned about their income in retirement.

Many people underestimate how much income they will need when they retire. If you’ve been used to having two cars, going on foreign holidays and eating out then it is unlikely that you’ll want to give those up simply because you’ve stopped work. In fact, many people find that their need for income actually increases when they retire. After all, if you’re behind a desk all day, the only money you’ll spend will probably be on a sandwich at lunchtime. Contrast this with how much you spend on a day off.

As worries about income in retirement increase, so do people opting to keep working after their normal retirement date.

Many people who have their own business argue that “my business is my pension.” Again, that works well in theory – but it assumes that you can sell the business for the price you want at exactly the time you want. With technology changing ever more quickly and more and more businesses losing market share to the internet, relying on your business to fund your retirement can be a high risk strategy.

More than any other aspect of financial planning, your retirement demands careful consideration. From checking on your likely state pension to tracking down any previous pensions you might have to making sure you’re contributing sufficient to your current pension – retirement planning needs to be done thoroughly and reviewed regularly.

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