Recent Blog Posts

When Paul McCartney sang “When I’m 64” at the height of Beatlemania in the 1960s he couldn’t possibly have imagined what life had in-store for him at 64. What about you? Have you thought about what’s in store for you once you reach retirement age? 

Whether you approach retirement with trepidation or with a big sigh, glad to leave working life behind and do the things you’ve always dreamt of, will largely depend on how much planning you’ve done and how early you started to save for your retirement.

Whilst in the 1960s retirement might have all been about a quiet life, nowadays we’re living longer, are healthier and more affluent. And many of us are taking advantage of retirement to see the world, move abroad or do something we’ve always wanted to do. For some downsizing and releasing equity to help children is popular, and 1-in-20 retirees or “olderpreneurs” now set up businesses having never had the opportunity before.

So, I suppose the lesson in all this is that retirement means different things to different people. But the one thing that we all have in common is a need to finance our retirement, whether that’s having enough money to buy a holiday home abroad or just to live out our days fairly quietly and not be a burden on our family.

I know I sometimes sound like a broken record when it comes to pensions and retirement planning but I make no apologies, as the cost of not planning ahead is really really serious - just ask the Government who are starting to realise the impact on inadequate pension provision for the country as a whole.

Everyone needs to save for retirement and pensions are by far the most tax-efficient way of doing so. You can pay in up to £50,000 per year to a pension and the big advantage is that contributions are made out of pre-tax earnings, so the tax man actually adds to whatever you pay in. In simple terms, a £1,000 contribution will cost a 20% taxpayer £800, a 40% taxpayer £600 and a 50% £500.

Yes, the assets you hold in a pension are locked away until your selected retirement age (often 55), but at that point you can take 25% as a tax free lump sum.

Why do people avoid pensions planning?

Many people shy away from making proper pension provision because they see it as complex or risky. The reality is that pensions are not that complicated, in principle at least. You save, the Government adds to your savings, your savings grow tax-free and they ‘mature’ at a certain point in time when you can take a tax free lump sum and regular taxed income.

They’re not risky either – or at least they are as risky as you want them to be. You can choose, either alone or with the help of an independent financial advisor, where you want to invest and the level of risk you are prepared to take. As with any investment the more risk you are prepared to take the greater the potential gain.

The first step for most people is to start thinking about when they want to retire and what their financial goals are. I’ve written before about knowing what your financial number is. Once you understand how much you need in your retirement pot you can work backwards to plan for the kind of retirement you really want.

Remember the old adage – to fail to plan is to plan to fail, true in business and in retirement planning.

Andy Parker
Chartered Accountant and Chartered Financial Planner

And while we can’t pretend the outlook’s completely positive, perhaps it’s not as bad as some in the media make out. Two new surveys show confidence from UK businesses. Optimism among smaller manufacturers rose for the first time since the mid-2011, according to the CBI. And the UK Business Confidence Monitor found confidence improved in the last three months, suggesting the UK will return to growth in the April-June quarter.  
We’ve already seen growth in certain sectors, for example, look at the growth in online sales. Last year consumers spent more than £50m over the internet. That’s an increase of 14%. The trend looks set to continue into this year and beyond. Savvy shoppers are turning to online shopping because it’s convenient, simple and secure.

Traditional high street stores may be suffering from the boom in online sales. But many smaller companies are taking advantage of selling online now. And social media platforms such as Facebook and Twitter are helping businesses reach wider audiences than ever before. Selling online benefits retailers of all sizes. The overheads are lower, there are no expensive high street rents to pay and wage bills can be reduced. The need for careful management still applies though. Online businesses need an effective business plan, robust systems and good accounting practices.

The feel good factor

Olympic fever is set to sweep the country in a few weeks time, giving us all the ‘feel good factor’. The London Retail Consortium has estimated the UK will benefit from a £512m boost in retail sales, with the capital set to gain the most, of course.

On a local level, Coventry recently hosted an Olympic football test event, and will stage a further 12 matches during the Olympics. This is a real coup for the area, not to mention a profitable one. Sales of food, drink and souvenirs accounted for £200m worth of revenue during Euro 2004. Eight years on, Coventry retailers are expecting a similar boost in sales.

However, any business considering channelling its energies into Internet sales or looking to cash in on the Olympics, still needs to make sure it has sound business practices in place. Decent management systems and an accounts package that delivers useful management information. Xero’s online accounting software for example, is ideal for web-based traders who are used to working with online systems and embrace their flexibility.

So, enough of the bad news, let’s celebrate the good news, and spread the positivity. And if you need any help and advice setting up your business systems, give us a call.

Andy Parker
Chartered Accountant Birmingham

Credit agency Graydon and the Forum of Private Business (FPB) published the findings of research into the impact of late payment on small business owners. Such was the severity of the report that it was discussed by a House of Commons summit attended by some of the leading lights of the UK’s financial world. They included the business department, the Labour Party, the Institute of Credit Management, Lloyds, and the Association of Certified Chartered Accountants.

The research revealed: 

• 51% said late payments had affected their ability to trade
• 23% admitted it presented a ‘serious problem’ 
• 65% experienced issues with customers extending their payment terms of their own accord 
• 14% had seen customers demanding discounts on prompt payment without prior agreement 

The report goes on to talk about the knock-on effect this has further down the line, with cash flow problems being caused by late payments.

This backs up the Bank of England’s evidence that late payments are an increasing problem for small companies, particularly those dealing with larger corporations. As a result, they have called for the Government to step in to help stop the practice. Many smaller firms feel powerless to change the situation, and believe they have no choice but to accept the retrospective changes in terms and conditions imposed on them by their larger counterparts.

Many small businesses are also loath to resort to factoring their invoices or charging interest on unpaid bills for fear of being blacklisted by large corporations or being perceived as facing financial difficulties.

Solving the late payment problem

The Forum of Private Business would like the Government to force FTSE-listed companies to release information regarding their timeliness when it comes to paying their invoices. Graydon also stated it needs “the business community and the Government to join forces to protect companies by stamping out the UK’s late payment culture.” This will help certainly.

However, most of the businesses surveyed in the report didn’t have formal credit control procedures in place. Those that did were much less likely to experience late payment problems. We always stress the importance of having a credit control process to our clients. And of course when you’ve exhausted these processes you can always use a debt recovery service. A client of ours The Debt Recovery Bureau offers a really efficient no success, no fee service for debts over £300. If you get your contract terms right, their services can even be at no cost to you.

If politicians and business owners push the subject into the public domain, maybe naming and shaming and the potential loss of reputation of the late payer will make the offenders think twice. Until then, let’s hope these big businesses wake up and see the damage they’re causing to the economy and business growth.

Andy Parker
Chartered Accountant and Chartered Financial Planner

As an investor you could be excused for being somewhat confused by the fluctuations in the markets over recent years and the apparent mismatch between the depressing news headlines and the buoyancy of the FTSE100 for example.

The FTSE 100 index has risen from 5000 to nearly 6000 and back to 5750 in a matter of months. Back in September/October 2011 when the FTSE 100 was touching 5000 points some days, the news headlines certainly weren’t predicting this kind of improvement:

"I don’t think we’ve seen the lows for the year by any stretch. Things have to get much worse before they get better." Wall Street chief equity strategist (September 19, 2011)

"The world economy once again stands on a precipice." Journalist (September 23, 2011)

"I don’t see anything changing in the next two or three years." Investor (September 26, 2011)

"Unless politicians act more boldly, the world economy will keep heading towards a black hole."  Economist cover story (October 1, 2011) 

Around mid March 2012 the FTSE100 was just under 6000 points, a 1000 point increase from six months earlier. The news headlines from around that time still painted a pretty bleak picture:

"This is a business-as-usual overpriced market and you’ll get a zero return for seven years." Money manager (February 27, 2012)

Eurostat reports that Eurozone unemployment in January reached 10.7%, the highest in fifteen years. (March 2, 2012)

"The stock market has effectively doubled since the March ‘09 low, and we’re still in redemption territory for equity funds." Strategist (March 12, 2012)

"Expectations for earnings have been steadily scaled back this year, as the mood among companies has worsened." Journalist (March 19, 2012)

As I write this blog the FTSE 100 closed at 5745 (18th April 2012). If there is one thing we can be sure of it is news headlines do not drive equity prices. As you can see above, news is bad even as the markets climb 1000 points. Just to prove there was not a spell of good news between October and March here are some headlines as the markets rose:

"Petrol prices are at the highest point ever for a new year.” (January 6, 2012)

"Developed and developing-country growth rates could fall by as much or more than in 2008–09." World Bank (January 18, 2012)

"Eastman Kodak files for bankruptcy.” (January 18, 2012) 

"Global elite fears renewed downturn." Report from Davos World Economic Forum (January 25, 2012)      

So, it seems that markets are optimistic but nobody else is, certainly not the press. It is clear that predicting markets is a frustrating business. There is a saying that “stock markets climb a wall of worry”.

So what is an investor to do? There are so many factors affecting markets that no one individual can second guess all the events that will impact share prices. News travels so fast that all news is already factored in to the price. As demonstrated above the headline news was not the actual news that stock markets were factoring in.

So here are some of my tips for things you should consider when making investments:

1. As you can’t second guess market movements you should remain invested and weather out the short term volatility. Over the long term the volatility is much less. 
2. Remember that investing in shares is long term, 5 years minimum. If you don’t want to tie your money up for that amount of time invest in the building society and accept the real purchasing power of your money is going to fall over time. 
3. Have a clear understanding of how a stock market works. Investing in stock markets carries more risk (as measured by volatility) than investing in the building society and hence the return it gives you is higher. Indeed why would anyone invest in equities if they did not believe they would obtain a higher return than say investing in government gilts. This can be proven by back testing a fully diversified portfolio of equities. Long run returns should be around 7 to 8% per annum.
   

If you would like a copy of the Investment Philosophy we use when advising clients on investment please give me a call.

Andy Parker
Chartered Financial Planner, Birmingham

Many were dismayed when Gordon Brown abolished the 10% tax band for the lowest earners. However, with a little creativity, 10% tax still exists – only this time for the UK’s highest earners.

HMRC found that 10% is the average rate of income tax paid by those in Britain on the highest incomes. George Osborne was reportedly ‘shocked’ to discover the wealthiest in the UK pay ‘virtually no’ income tax. Consequently, the Budget was a case of giving with one hand and taking away with another.

The run-up to the Budget saw the media focus on whether the 50% top rate of income tax would be reduced. This is undoubtedly a popular theme, since unlike Americans, the British rather resent the successful and approve of their being taxed to the hilt. In reality, of course, higher tax rates are a disincentive for business and innovation, which is why George Osborne did indeed cut the rate to 45%.

However, to sweeten this particular bitter pill for the population Osborne also announced measures to prevent the very wealthy from exploiting tax loopholes, capping tax relief used to reduce tax bills.

Because the media prefers stories which create outrage this didn’t receive much attention at all, until it was pointed out this would potentially damage charitable donations, at which point media firestorms switched from Osborne helping out the rich to the Chancellor’s effective mugging of charities.

Does anyone like paying tax?

The media presents tax relief as a shambling monster of greed exploited by those with more money than conscience, but if that were the case it would never have been introduced in the first place. Tax relief is intended partly to help people who need it and partly to encourage prudent financial behaviour and good business. People, for instance, are given an incentive to save for their retirement through the tax relief provided on pension contributions. This is sensible, not greedy, and we would hardly look at tax relief here as a get-rich-quick scheme.

This is why there is a real risk that in targeting the super rich, there will be fallout for the much more modest earners who still do well but are hardly going to be found schmoozing on the mega-yachts where Mr Osborne has been found socialising. The average business owner works extremely hard for their success. To chip away at this because of the excesses of the wealthiest in society hardly seems fair, or wise in an economy which needs the dedication of exactly these people.

George Osborne has been faced with a difficult balancing act: encourage business and investment to boost the recovery, but crack down on deeply unpopular tax avoidance by the super rich. Unfortunately, there is an uncomfortable and complex middle ground where these two objectives clash and more modest earners are penalised.

Osborne noted: "I've come up with a budget that has reduced the 50p rate to 45p, so we don't have the highest income tax rate in the world. But I've also asked people who are currently paying zero to pay income tax."

It sounds fair enough in principle, but putting principles into practice is often highly problematic. We have years of experience in helping clients navigate the complexities of tax in order to maximise their income. Evading tax is illegal, but if routes exist to reduce your tax bill perfectly legitimately, why wouldn’t you wish to pursue them? Prudent tax management plans mean you pay your way in society with the tax you pay, but you also pay no more than you need to.

This isn’t immoral, it’s just common sense. And we all know the journalists stoking the flames would do the same too. In fact I invite them to make an appointment with us, and we’ll explore exactly how we can reduce their tax bill too.

Andy Parker
Chartered Accountant and Chartered Financial Planner

The principle behind this move is one which drives many Government policies – simplification. Cash-based accounting removes a great deal of complexity from the business of preparing tax returns. As the Chancellor noted in the Budget:

“This will make filling in tax returns dramatically simpler for up to three million firms.”

So in theory cash-based accounting will save small businesses money by simplifying what they have to do, but how beneficial will this change actually be?

The big idea for small businesses

The principle of cash-based accounting is simple: tax is raised on the money which actually passes through your business. With the current accruals system, you pay tax on all work done within the period, regardless of whether an invoice has been issued or the client has paid. This also applies to expenditure, so even if you do not receive your telephone bill for January to March until late April – the next tax year – you still have to include it in the previous tax year’s accounts.

With cash-based accounting everything becomes so much simpler. Your accounts are based on what enters and leaves your bank account during that tax period. You don’t need complex calculations because it’s easy to see the movements of money. If you receive a huge order just before the end of the tax year you won’t need to pay tax on it until you have actually received payment. This again makes things easier for small businesses because you only pay tax on what you actually have, not what you’re going to have in the future.

Cash-based accounting is good news, then?

We certainly hope so! In the current climate small businesses need all the help they can get. Ironically, though, with a system designed to make accounting simpler, the devil may be in the detail.

Simply in terms of the overall principles, a downside to cash-based accounting is it provides a less useful picture of the business’s performance. The actual flow of cash can be erratic – paying bills may be delayed, or payment dates might fall at unusual times, meaning a regular bill might be paid twice in one month and not at all the next. This means it is more difficult to analyse how the business is performing and certain trends or dangers could be masked. For all the simplifications, the movement of money can be chaotic, so the owners of small businesses will have to keep a firm focus on the bigger picture – just as they needed to with the accruals system. It will still be important to monitor cash flow and to keep a weather eye on your key performance indicators.

As with any system change, it is likely to cause some confusion in the transition period and very small businesses are not always well-equipped to deal with this. It’s also true that just as the new system will give, it will also take away. You may not have to pay tax on work done in one tax year which is invoiced in the next, but neither will you be able to claim tax relief.

One of the supposed benefits of the Budget’s new system is it will make ‘creative’ accounting more difficult because cash flow is much easier to pin down. However, the new system may also encourage unhelpful practices, such as delaying payments until the new tax year. It may even hamper the efforts of some entrepreneurs to develop their businesses.

It’s important the credibility of the tax system isn’t undermined by this Budget’s change. Business needs to feel confident about the integrity of taxation, but so long as the Government and HMRC look carefully at the implementation of cash-based accounting there is every reason to hope this new approach will free many very small businesses from a bureaucratic burden.

Now they just need to deal with the mountain of red tape which still remains.

Andy Parker
Chartered Accountant Birmingham

The Budget brought excellent news for businesses involved in product innovation: an improved tax credit system will be applied to research and development.

For many companies, growth in years ahead is dependent on research and development now. Tomorrow’s cutting edge products have to be devised today, but in the current economic climate investing the considerable sums of money needed for R&D is a hard and even risky decision. It can be many years before a return is made on such investments and with companies pulling in their horns the future growth of the economy has been in danger as research and development is cut back.

From 1st April 2013, however, the R&D tax relief programme will change. The new system introduces “above the line” R&D tax credits. Currently, R&D tax relief represents a reduction in the tax charged to a company. The new “above the line” R&D tax credits, however, will be recorded in the company’s accounts as profit before tax.

This brings a number of benefits:

• Companies trading at a loss will still be able to claim tax credits. 
• The final rate has yet to be decided but will be a minimum of 9.1%. This compares with the current R&D tax relief benefit for large companies of less than 7.5% of the gross R&D spend – a figure which would fall as corporate tax rates drop. 
• Currently tax relief is something applied after the event by the tax department along with various other claims. An above the line system enables tax credits to be clearly owned by research divisions and made a part of investment decisions. This will make R&D projects more affordable and encourage new investments.

Investing in the Future

The same philosophy has also been applied to other creative fields, with tax relief schemes announced to encourage investment in the UK’s film, television and games industries. The Chancellor noted in his Budget:

"The film tax credit, protected in our spending review, helped generate more than £1bn of film production investment in the UK in the last year alone. Today I am announcing our intention to introduce similar schemes for the video games animation and high-end TV production industry."

Notes of Caution

R&D tax credits have been broadly welcomed by industry and investors and are certain to increase UK R&D projects. They are also a powerful incentive for foreign investors to make Britain the favoured choice for research and development.

However, R&D tax credits already exist for SMEs but the time taken to process claims is sometimes a problem. We’d like to see the process speeded up. Whilst it’s only a small move by the Government to encourage growth it’s one we should definitely welcome.

The UK is renowned as a great centre for innovation and creativity, and these tax breaks can only help capitalise on the wealth of talent in companies nationwide.

Andy Parker
Chartered Accountant Birmingham

It was great to be invited into the BBC WM studio this morning to comment on the 2012 budget.

As I said to presenter Phil Upton I think it was a pretty good budget for business, for employment and for the economy.

Although they didn't get much airtime in the budget coverage I think things like the the tax simplification for small firms, the £20 billion National Loan Guarantee Scheme, the tax breaks for UK video games companies, of which there are a lot here in the Midlands, are all good news for businesses and the economy.

There was no mention by the chancellor of the new Seed Enterprise Investment Scheme which I believe is a great opportunity for small businesses to grow, but these substantial tax incentives will be available from April this year.

What's your view of how the budget will affect you and your business, I'd really like to hear.

Andy Parker
Chartered Accountant and Chartered Financial Planner, Birmingham

The news today is all about the budget. As promised in previous statements the BBC is reporting that the Chancellor will increase the personal allowance to £9,205, which might sound like good news but, read on.

The personal allowance trap is the little-known area of income tax quicksand, which progressively drags you under once your income exceeds £100,000. It creates a situation where individuals pay 60% income tax on some of their income.

How can this happen? It’s all down to the withdrawal of the personal tax allowance by £1 for every £2 that your income exceeds the magic figure of £100,000. And with the large increase in the personal allowance (the plan is to get that up to £10,000 eventually) it is a tax trap that will affect more and more people each year.

The bizarre taxation anomaly this produces is clear when you compare the current impact (tax year 2011/12) for tax payers:

It gets worse…

If you thought the personal allowance trap was bad enough, planned changes to the basic personal allowance will make the situation even worse. The Government plans to increase the basic personal allowance to £10,000, which means even more people will be caught in the personal allowance trap. Even before then the net will widen – consider the figures for 2012/13 based on the planned increase of personal allowances to £9,205:

 
If you then add on your national insurance contributions of 2% if employed or self-employed, the total marginal rate reaches an eye-watering 62%.

The Chancellor may announce a change to the 50% rate of tax today, which could change things at the upper end, but the personal allowance trap will remain.

That’s why we’re here

Professional accountancy services aren’t simply about keeping your books. We’re here to save you money wherever possible. There are several techniques which can be used to avoid this silent tax-grab. If your income falls within the 60% band – or looks likely to do so in the near future – you should contact us for a discussion about the appropriate strategy to deal with this.

There’s no need to get sucked into the personal allowance trap. You shouldn’t be paying a higher rate of tax than someone earning more than you. Although we can’t change the rules, we can steer you onto routes that bypass the income tax quicksand. Call us now and protect your money.

Andy Parker

Chartered Accountant and Chartered Financial Planner

Strangely, nobody ever says, “When I get my tax-free cash lump sum from my pension, I’ll …”. Yet this is much more likely and achievable than waiting in the lottery winners queue.

So to get the ball rolling, we thought we’d help you on your way to fulfilling both those goals by giving you a chance to win the lottery, and the certainty of a cash lump sum when you retire.

How? If you invest in a pension with us before the end of April 2012, we’ll give you a lottery ticket! You’ll have to take your chances in the draw but you will at least know you’re one step closer to a secure financial future when you retire.

Talk about pensions and people’s eyes glaze. They worry about not having provision for the future, but at the same time, many put their head in the sand. With an ageing population, the Government is concerned about pensions, but isn’t doing much to change people’s attitudes.

The director general of Saga, Ros Altmann, has suggested anyone committing to regular pension scheme contributions should be entered for a monthly draw to win £1 million. She argues this will generate interest and excitement and change the whole pension culture. If you’re in with a chance of winning a million a month, it’s easy to see how a frumpy pension could be transformed into a desirable must-have.

We all want to be winners. Years ago we bought Premium Bonds and did the Football Pools, and today it’s the turn of the National Lottery and Euro Millions. But so far the Government hasn’t seen the light.

So now we’re going to help to put the FUN into pension funds. Speak to us and invest in a pension before the end of April 2012, and we’ll give you a lottery ticket for good luck.

Andy Parker
Chartered Accountant and Chartered Financial Planner