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Christmas Office Closure

The Cooper Faure Limited office will be closed for the Christmas vacation from the end of business on Friday 20th December until Wednesday 2nd January 2014.

We will be processing the December payroll on Thursday 19th December.  As a result, if you have Expense Reports for inclusion in this payroll, please could you ensure that we receive them by close of business on Tuesday 17th December and that these are emailed to the expenses@cooperfaure.co.uk.

We will reply to the emails received during the office closure upon our return.  However, should any invoices need to be raised or issues arise of an emergency, please text us on either +44 (0) 7789 228054 or +44 (0) 7795 417984 and we will endeavour to assist you.

Please could you ensure that your emails are sent to admin@cooperfaure.co.uk to allow us to deal with them effectively upon our return.

The UK Economic Recovery and SME Businesses

Last week, speaking at The Telegraph’s Festival of Business in London, the UK Chancellor of the Exchequer, George Osborne, gave one of his most confident economic assessments saying “We are on the path to prosperity, we’ve got the fundamentals right and we’ve got an economic plan that is delivering what very many countries would crave, which is certainty, predictability and competitiveness.”

The SME sector is a vital part of the recovery and the Baker Tilly Your Business Outlook 2014, which surveyed 750 small and mid-sized enterprises, showed indications that the recovery will be far from smooth.

The underlying level of risk aversion remains remarkably high and this is suppressing the levels of investment, expansion and employment.

As has been well documented, over the last few years it has been incredibly difficult for SME businesses to borrow from High Street banks.  This has caused the evolution of more modern methods of funding such as crowd funding and peer-to-peer finance.  Indeed, one of the leading peer-to-peer sites, Funding Circle, is partly underwritten by the government.

Although these alternatives often offer finance at a lower interest rate than High Street banks, according to the survey, less than one in four companies would consider them.

Broadly similar levels of only one in five respondents indicated that there were planning to increase staff numbers, capital expenditure, R&D and sales and marketing spend in the next year.

The lack of communication of the available government support to the SME sector and the complexity in the application process for the various schemes, resulted in almost nine in ten companies not planning to make use of them.

Whilst the heartening conclusion of the survey was that the over-whelming majority of respondents were satisfied with the current position of their business, there remains an underlying lack of confidence that is holding back investment and the development of new markets.

This reluctance of companies to pursue bolder initiatives tends to suggest that the recovery will be slower and more uneven than the latest forecasts.

It will be interesting to see whether the Chancellor uses his Autumn Statement on 5th December to unveil new policies to stimulate business confidence in the SME sector.

Pension Planning

As the United Kingdom slowly shows signs of emerging from the longest economic downturn in recent memory, people are beginning to look to their future and their Pension Planning and many are concerned by what they see.

In general, the UK stock market is at the same level as it was five years ago and money on deposit is generating little yield.

These factors have been reflected in recent surveys on retirement which have found that people consider themselves poorly prepared, not confident in their decisions and downgrading their expectations for life after leaving work.

As a result of the impact of the economic downturn and the general decline in livings standards, these surveys have found that pension saving is not seen as ‘salient’ or meaningful to the here and now to the vast majority.  Only 16% of respondents are saving regularly with a staggering 50% not saving at all.

Those respondents who are saving are showing a tendency to park the money in cash largely through a sense of loss aversion fuelled from the dot.com crash and the 2008 economic recession.  People are seemingly prepared to accept the small loss of keeping cash on deposit at interest rates below inflation rather than to make investments with a risk of a larger loss.

The impact of the increased life expectancy has the effect of pushing back the notion of retirement and, therefore, the start of serious Pension Planning.  In the 2001 UK census, the population aged between 65 and 75 accounted for 8% of the total population.  In the 2011 census, this age category had increased to 16% of the total population and is anticipated to continue to rise.

At the same time the government is looking to pension savings as a source of tax.  As we outlined in an earlier Newsletter, from 2014-15 tax year the level of Pension Tax Relief, the annual allowance of pension savings qualifying for tax relief an individual can make, is coming down from £50,000 to £40,000.

In addition, the lifetime allowance, which sets a limit on the amount of tax-relieved pension savings an individual can build up over their lifetime, is reducing from £1.5m to £1.25m.

The most important recommendation coming out of these surveys is to make a Pension Plan with a professional financial adviser.  Increased life expectancy means that it is never too late to start.

For those who are understandably reluctant to take the risk of moving cash into investments, at least make the cash work as effectively as possible.  Recommendations include saving the maximum allowed each year into the Individual Savings Plan and shopping around.  Banks often offer competitive rates both for those who switch bank accounts and those who switch their Individual Savings Plan.

Finally, buried in the detail of the changes to Pension Tax Relief, for those with an existing Pension Plan on 5th April 2014 but without Primary, Enhanced or Fixed Protection, the government is offering ‘Fixed Protection 2014’ that fixes the lifetime allowance at £1.5m.

However, this has to be applied for before 6th April 2014.

If you are unsure of the value of your pension savings and, therefore, whether you qualify for or need Fixed Protection 2014, it is important that you contact your scheme administrator or financial adviser.

Château de Beaucastel Châteauneuf-du-Pape 2010

Just voted into the top ten of Wine Spectator’s Top 100 of 2013.

Definitely a wine worthy of this accolade but it is not an easy wine to find in the UK.

If you happen to find some, its best years are ahead!

High Street Banks – It Pays to Shop Around

Lloyds Bank is the latest High Street bank to announce a cashback scheme for its’ current account holders with the launch later this month of Everyday Offers, a scheme that promises the ability to earn back up to 15% of what they spend at selected retailers.

Whilst the full details of the scheme have yet to be itemized, it is likely to be similar to the scheme that Halifax, who are part of the Lloyds Banking Group, has been running since August.  This scheme offers cashback payments of between 5% and 15% on purchases made using debit and credit cards at selected retailer partners that include Morrisons, Ocado, Homebase and Argos.

The Royal Bank of Scotland and NatWest have also recently launched similar cashback programmes and it is expected that the other High Street banks will follow suit in what is seemingly a response to the success of Santander’s 123 current account.

Traditionally in the United Kingdom, people have tended to show an innate sense of loyalty to their service providers.  However, as the escalation in domestic utility bills has highlighted, it pays to shop around.

Added to this, the Switching process itself has become quicker and more straightforward since September, with the Financial Services Authority requiring banks to switch current accounts within seven days rather than in the previous time-limit of a month.

Banks are actively seeking new current account customers with Halifax and First Direct offering £100 cashback to account switchers and Nationwide and Santander offering marketing-leading interest rates on current account balances between £1 and £2,500 and between £3,000 and £20,000 respectively.

Last week Santander announced that until 31st January 2014 new and existing Santander 123 Cashback credit card holders would earn 1% cashback on all spending at Amazon.co.uk and LoveFilm when using the card on the retailer’s UK website.

However, when considering switching personal bank account, it is critical to read beyond the headline offers and invest the time to find the best option for an individual circumstance.

For instance, the Santander’s 123 current account is not a free bank account as there is a £2 monthly account fee and account holders are committed to paying in at least £500 a month and to set up a minimum of two Direct Debits.

On the flip side, Santander, along with Nationwide, are offering a time-limited 0% overdraft facility to switchers.

All-in-all, it is hard to imagine that there been a better time to get more from a personal current account.

Château Lafon-Rochet 2009 – A Saint Estèphe Classic

On my journeys around the wine regions of Bordeaux last week, I visited the Château Lafon-Rochet estate in Saint Estèphe which can trace its origins back to the early 6th century.

Saint Estèphe is the northernmost of the main communes of the Médoc and is famed for gravelly soil that helps to give its wine a fresher, lighter feel than the other communes in the region.

There 2009 vintage is splendid and will only develop more over the next twenty years and, at a price of around £45.00, not bad value for a wine from the year of the decade.

Help to Buy Scheme and Property Investment

The second phase of the UK Government’s Help to Buy scheme has started to be rolled out earlier this month although it only becomes active in January 2014.

Although on the surface the two phases of the scheme seem similar, there are some important differences that need to be borne in mind.

The original phase of the scheme was open to both first-time buyers and home movers but only on new-build homes worth up to £600,000 but was on an equity loan basis.  New-build homes are defined as a property being sold for the first time or for the first time in its current form so, for example, a house newly converted to flats would be deemed a new-build. If the person has at least a 5% deposit, the government provides a loan of up to 20% leaving up to 75% to be covered by a mortgage.

The second phase is still open to all but on any property worth up to £600,000 as long as it is not a shared ownership or shared equity purchase, a second home or rented out.  However this is a guarantee scheme rather than a loan.

If the person has at least a 5% deposit, the government provides a guarantee of up to 20% of the mortgage to the lender but it still means that up to 95% of purchase price has to be covered by a mortgage.

This distinction raises a number matters to consider to be able to fully benefit from the scheme.  Firstly, the property itself has to qualify for a 95% mortgage and, in a bizarre incongruity, both first-time buyers and new-build homes usually don’t qualify!

Secondly, the person has to have the necessary income to cover the mortgage.  Bearing in mind that in London the current average house price in London is £437,000 and with the mortgage lenders in the main limiting the amount they lend to four times a person’s income, to meet their criteria for a 95% mortgage on an average house in London, the buyer will need an income in excess of £100,000.

Finally, there are only a limited number of lenders – NatWest, Royal Bank Scotland, Bank of Scotland and Halifax – currently supporting the scheme.  As a result, although the interest rates at around 5.0% are about 0.5% below their existing rates on 95% mortgages, there are more competitive interest rates offered outside the scheme.

Overall, for the first-time buyer, in London and the South-East especially, the value and opportunity remains in the original phase of the scheme.

For the investor, the Help to Buy scheme is not an appropriate vehicle.  However, with house prices and rental values on an upward trajectory, Buy-to-Let property is an attractive investment proposition.

However, the HMRC are targeting tax avoidance in this area through their Let Property Campaign which is offering landlords who have not declared their rental income a window to come forward settle without incurring penalties that could be up to 100% of tax due.

All rental income from letting out a residential property or a holiday home in the UK or overseas has to be declared to HMRC for income tax purposes, even if it is just a single property.  The HMRC have a database of information about property and are working on identifying people who have not paid the tax due.

A Buy-to-Let property can be owned by an individual or a company.

If it is owned by an individual, the income must be declared through a Self-Assessment Tax Return.

The day-to-day running costs of the property can be claimed against the rental income that will reduce the tax due.  These costs include:

–       the letting agents’ fees.

–       legal fees for lets of a year or less or for renewing a lease for less than fifty years.

–       accountants’ fees.

–       buildings and contents insurance.

–       interest on property loans.

–       maintenance and repairs to the property (but not improvements).

–       ground rent and service charges.

–       services paid for by the landlord such as cleaning or gardening.

–       other direct costs of letting the property such as phone calls, stationery and advertising.

The purchase of the property together with any renovation costs are not offset against the rental income but would be included when the property is sold against any resulting Capital Gains.

If the Buy-to-Let property is owned by a company, the rental income would be treated in the same way as any other business income with the day-to-day running costs of the property treated as business expenses.

Escalating property prices in London is impacting the yield from Buy-to-Let property which currently average 4% against the 6-7% across the country as a whole.

In considering whether a Buy-to-Let property is a suitable investment vehicle, a judgement has to made whether to prioritise the higher monthly income that a regional city may offer or the capital growth that London looks set to continue to offer with the seemingly endless pressure on the housing supply.

Ultimately, as with any other personal or business investment decision, the level of risk has to be balanced against the potential rewards together with the time demands that administering the property will make.

Tax Changes for 2014-15

The Chancellor of the Exchequer has announced that the Autumn Statement will be on 5th December.

Over recent years, the Autumn Statement has become an important update of Government finances and policies in the UK and provides a precursor to the Budget, which is normally delivered in March.

In the last week, George Osborne is reported to have said there was “no pot of money for tax sweeteners” in his upcoming statement leading to a flurry of speculation on areas that could face cutbacks with both ISAs and Entrepreneurs’ Relief being seen as potential targets.

We will be issuing a News Alert on reflecting the key announcements in the Autumn Statement that affect individuals and businesses.

However, in this Newsletter, we are looking at policies announced in the 2013 Budget that have will have an impact from the beginning of the 2014-15 tax year on 6th April 2014.

The Personal Allowance is set to increase to £10,000 (£9,440 in 2013-14) whilst the Basic Rate Limit will reduce to £31,865 (32,010 in 2013-14).  Overall, for a Director/owner earning a salary of £15,000 per annum and without any other source of income, this means that the total amount of tax-free Dividends that can be declared will increase to £24,178.50 from £23,805.00 in the current year.

The policy that will have the biggest impact on small businesses is the National Insurance Employment Allowance of £2,000 per year that is due to come into effect from April 2014.

Whilst the precise mechanism of how this allowance will be claimed is yet to be announced other than “as part of the normal payroll process through Real Time Information (RTI)”, the policy has moved a step closer to becoming law with the First Reading of the Bill passed on 14 October 2013.

It is important to bear in mind that this allowance is against Employer’s National Insurance contributions and does not affect the amount of National Insurance deductions from employees’ pay.

The exemption threshold for Employer provided Beneficial Loans will increase from the current threshold of £5,000 to £10,000 from the 2014-15 tax year.

As long as the total outstanding balance on all such loans to an individual does not exceed £10,000 at any time in a tax year, there is no taxable benefit nor tax charge.

However, the corporate rules regarding the mechanism of using Director’s Loans as a way to effectively extract funds from a company are being tightened.

Under the existing rules, if a Director has a loan at the end of a company’s financial year, so long as that loan is “repaid” within nine months of this date there is no company tax liability.

If the loan runs beyond this nine month period, a “notional tax” of 25% of the outstanding amount of the loan is payable to HMRC. This notional tax is repaid once the loan has been repaid.

The Government has announced three changes to tackle perceived avoidance of this tax charge:

• the use of an intermediary such as a trust or partnership to receive the loan on behalf of the Director will be within the scope of the charge.

• the transfer of value other than monetary loans will be brought within the scope of the charge where the Director receives a corresponding value.

• the definition of repayment will be reinforced so relief is only given for ‘genuine’ repayments and not, for example, where loans are repaid within the time limit only then to be re-granted shortly afterwards.

However, the HMRC is campaigning for further changes with the options of increasing the notional tax charge to 40% of the outstanding balance or replacing the notional tax by a non-refundable annual charge on loans owing at the company’s year-end both mooted in a recently completed consultation.

Any resulting proposal from this consultation will be outlined in our Newsletter as soon as we are notified.

Another significant change from the 2014-15 tax year revolves around Pension Tax Relief.  This is the annual allowance of pension savings qualifying for tax relief an individual can make and this amount is coming down from £50,000 to £40,000.

In addition, the lifetime allowance, which sets a limit on the amount of tax-relieved pension savings an individual can build up over their lifetime, is reducing from £1.5m to £1.25m.

The impact of these changes should be discussed with your pension advisor before April 2014.

Finally, a new scheme to support Childcare Costs remains scheduled to be phased in from the autumn of 2015 as the current systems of Employer Supported Childcare are phased out with the consultation process on this scheduled to begin shortly.

The overall concept is that for childcare costs of up to £6,000 per year per child support of 20% will be available worth up to £1,200. From the first year of operation, all children under five will be eligible and the scheme will build up over time to include children under twelve.

The scheme will be open to all families with individual incomes of less than £150,000 and, therefore, not subject to the child benefit limits where if the highest earner in a family earns over £60,000, no child benefit is payable.

On the subject of Child Benefit, please be aware that if your family receives child benefit in the UK and the income of the highest earner is over £50,000, it is now mandatory to submit an annual Self-Assessment Tax return.

Our next newsletter is scheduled to be published on 28th October and will be focusing on the upcoming second phase of the Help to Buy scheme.

In the meantime, if you would like any further information or have any questions or comments, please do not hesitate to contact us.