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How to improve your financial health

How to improve your financial health

Improving your financial health involves strategic planning, informed decision-making, and constant adjustments. There are many factors to consider – so how do you know where to begin? While everyone’s circumstances are unique, there are steps you can take to enhance your financial well-being. Here are some actions you can employ to boost your financial wellness.

Develop a budget

Creating an in-depth budget is a fundamental step toward financial stability. Begin by thoroughly understanding your monthly income and paying attention to all sources of revenue. You should identify your fixed income and also any additional earnings or irregular income streams.

Next, categorise and track your expenditures, distinguishing between essential expenses, such as housing and groceries, and discretionary spending, including entertainment and non-essential purchases. This breakdown helps provide a clear picture of where your money is going.

If possible, you should also allocate a portion of your income towards savings and targeted financial goals. For example, you could designate amounts to help you achieve milestones like homeownership or pay for education expenses. Allocating funds in this way builds financial discipline and ensures that you’re actively working towards both your short-term needs and long-term goals.

And remember: budgeting isn’t a one-time event. You’ll need to regularly adjust your budget to accommodate any changes in income, expenses or financial goals to ensure that your financial plan is effective.

Manage your debt

Effectively managing and reducing existing debts is a must for improving your financial health. Start by assessing all your outstanding debts, including credit cards, loans, and other financial obligations. Categorise debts based on their interest rates, focusing on those with higher rates first. This approach helps minimise the overall interest paid over time.

Once your debts are categorised, you should develop a detailed debt repayment plan. Prioritise paying off high-interest debts first while making smaller payments on other obligations. You could also consider negotiating with creditors for lower interest rates or exploring debt consolidation options to streamline payments.

Systematically paying off debts requires consistency, so allocate a specific portion of your monthly budget to debt repayment and adhere to the plan as well as you can. As you gradually settle your debts, you can reallocate the freed-up funds to accelerate the repayment of any remaining balances.

Once your strategy is in motion, remember to monitor your progress, adjust the plan as needed, and celebrate milestones along the way. By diligently following a well-structured debt management strategy, you pave the way for improved financial health and future financial freedom.

Nurture savings and investments

Establishing a robust savings and investment strategy is integral to achieving financial security. You can start by consistently contributing to designated savings and investment accounts like individual savings accounts (ISAs) and ensuring you make the most of your tax-free allowances. Additionally, you could explore the advantages of stocks and shares ISAs, which offer tax-free investment growth.

Preparing for retirement

Carefully managing your savings and investments can also help you prepare for retirement. Regularly contributing to your pension pot means you can benefit from tax savings while protecting your financial future. If you don’t have a workplace pension, you should consider paying into a personal pension plan to ensure you have enough money set aside to fund your retirement.

Contributions to these accounts often come with tax advantages, providing immediate benefits, while earnings can grow tax-free over time. Regularly review your retirement savings strategy, making adjustments to contributions based on changing financial circumstances and retirement goals.

This proactive approach assures that you optimise available tax benefits and build a resilient retirement fund. Seeking advice from financial experts familiar with retirement options can further enhance your long-term planning.

Diversifying your investment portfolio

Diversification is key when delving into investments. Allocating your funds across various asset classes (such as stocks, bonds and property) can spread risk and enhance the potential returns. This approach may help mitigate the impact of market fluctuations on individual pieces of your overall portfolio. However, you should always consult an expert before making any significant investments to ensure that you make the best decision possible. Routinely reassess your investment strategy to align with your financial goals and risk tolerance.

An expert can adjust asset allocation as needed as your investment options evolve or economic conditions change. Continual observing and periodic rebalancing ensure that your investment portfolio remains aligned with your objectives, providing a balanced approach to wealth accumulation over time.

Build an emergency fund

Creating and maintaining an adequate emergency fund is a cornerstone of sound financial planning. The amount of money you’ll need to save for your fund will depend on your financial circumstances, but you should typically aim to save up enough to cover three to six months’ worth of expenses. Start by setting aside regular payments into a dedicated savings account. This fund should include essential costs such as rent or mortgage, utilities, groceries, insurance, and other crucial monthly expenditures.

Though an emergency fund may take some time to build, it can provide you with a financial safety net. Your fund can help protect you against unexpected circumstances like job loss, medical emergencies, personal issues, or unforeseen costs. It also reduces the need to rely on credit cards, loans, or other high-interest borrowing methods during times of financial stress.

We rcommend setting up a separate account for your emergency fund to minimise the temptation of dipping into it for non-emergencies. Consider using low- risk accounts that are easily accessible like instant-access savings accounts or easy-access ISAs to ensure you can withdraw funds when needed.

Life events such as marriage, births, or changes in employment may warrant adjustments to your emergency fund, so frequently evaluate and update it as your financial situation changes. Prioritising the maintenance of your emergency fund strengthens your ability to navigate unanticipated challenges with confidence.

Comprehensive insurance coverage

Acquiring appropriate insurance coverage can also give you an added layer of protection, but it’s important to choose the policies that work best for you.

Private health insurance, for example, can offer benefits such as quicker access to specialists and elective procedures.

Meanwhile, life insurance can provide financial protection to your loved ones in the event of your death. There are various life insurance options, including term life insurance that provides coverage for a specified period and whole-of-life insurance that covers you throughout your lifetime.

Comprehensive property coverage can also safeguard your property against fire, theft, or accidents, so reassess your insurance policies often to check they align with familial changes or changes in homeownership. Acquiring good insurance is especially important if you run a rental business or own a large property portfolio.

Seek professional help

Hiring a professional adviser can give you greater financial peace of mind and make it easier to achieve your personal goals. As your accountants, we can offer financial expertise in numerous areas, providing tailored guidance to align with your particular goals and circumstances. We’ll analyse your current financial situation to create a plan that changes your financial well-being for the better, whether that means helping you protect your wealth, maximising your savings, or recommending investment strategies suitable for your risk tolerance.

Additionally, we can offer valuable insights into tax planning to ensure you’re not overpaying your personal tax bill. Regular consultation with a financial adviser can help facilitate informed decision-making, long-term financial well-being, and a healthier pursuit of your financial aspirations.

 

Contact us today to learn how we can help you improve your

An essential toolkit for business owners

In today’s economic landscape, where financial acumen plays a pivotal role in the sustainability and growth of any business, the importance of effectively managing business expenses cannot be overstated.

Recognising this critical need, we have developed this valuable resource for business owners. This guide aims to simplify business expenses within the UK, shedding light on the strategies essential for optimising financial health and ensuring tax efficiency.

We also address the practical aspects of expense management, advocating for the adoption of digital tools and accounting software. This approach facilitates more streamlined, accurate, and efficient expense tracking, which is indispensable in a fast-paced business environment.

Introduction to business expenses
Both capital allowances and allowable expenses are deductions that businesses can claim to reduce their taxable profits. However, they apply to different types of spending.

Capital allowances offer a method for gaining tax relief on tangible capital expenditure, enabling it to be deducted from a company’s pre-tax income. This relief can be immediate or spread over several years, depending on the type of asset and applicable allowance. Typically, capital expenditure involves the acquisition of long-term business assets, such as machinery, business vehicles, and equipment.

These allowances are determined based on assets deemed capital in nature, meaning they benefit the business over multiple years, rather than being consumed within the year of purchase.

While it’s noted that the tax advantage for these expenditures is often recognised over several years – particularly for assets falling into the main rate or special rate pool – it’s important to highlight that most assets may qualify for either the annual investment allowance (AIA) or first-year allowance (FYA).

These allowances allow for the tax benefit to be fully realised in the first year of purchase, providing significant tax relief upfront for qualifying expenditures.

According to HMRC, allowable expenses are costs incurred wholly, exclusively, and necessarily in the running of a business. These expenses can be deducted from a firm’s revenue to calculate its taxable profit. Essentially, for an expense to be allowable, it must be incurred in the direct course of the business operations.

Some of the common categories of allowable business expenses include:
• Office costs (such as stationery or phone bills)
• Travel (including fuel, parking, train and bus fares for business trips)
• Clothing (uniforms, protective workwear, etc.)
• Staffing costs (such as employee salaries or subcontractor wages)
• Items you buy to sell on (including stock or raw materials)
• Financial costs (including insurance or bank charges)
• Costs of your business premises (such as heating and lighting bills, and business rates)
• Advertising and marketing (such as website costs or marketing fees)
• Training courses (for improving skills or professional development).

Certain expenses require careful navigation due to their complex nature:
Client entertainment: While business entertainment costs are not usually allowable expenses, understanding the specifics of these costs is essential for accurate reporting.

Home office expenses: Sole traders working from home can often claim a proportion of household expenses based on the portion of the home used for business purposes. For a limited company, these costs can only be recognised if they exceed what would otherwise have been incurred if the individual did not work from home. For example, if a sole trader believes 30% of their time using WiFi is for work, they can include 30% of that cost. For a limited company, if that WiFi cost is a fixed monthly fee, then HMRC would argue that cost would be the same whether there was some business use or not, and thus nothing can be claimed.

Personal vehicle use: If you use a vehicle for both business and personal purposes, a proportion of the vehicle’s running costs can be claimed based on the percentage of business use. These costs are recognised through the business by using HMRC’s approved mileage rates.

Key differences
Nature of expenditure:
• Capital allowances are claimed on long-term assets.
• Allowable expenses are for day-to-day operational costs.

Tax treatment:
• Capital allowances are spread over the useful life of the asset, providing tax relief over several years.
• Allowable expenses are deducted in the year they are incurred, providing immediate tax relief.

Types of costs:
• Examples of capital allowances include machinery and
• Examples of allowable expenses include rent, salaries, and utility bills.

Claiming capital allowances
To claim capital allowances, you must first identify which assets qualify. Generally, the asset must be used for business purposes, and there are specific rules regarding what constitutes qualifying expenditure. Once identified, calculate the appropriate allowance using the relevant rates and include this in your business’s tax return.

It’s important to keep detailed records of the assets purchased, including invoices and dates of purchase, to support your claim.

Strategic considerations
Capital allowances can significantly reduce a company’s tax liability, making them a key consideration in financial and tax planning. Businesses should consider the timing of large purchases to maximise tax relief, especially in light of any changes to allowance rates or thresholds announced by the Government.

For more complex assets or situations, it might be beneficial to seek professional advice to ensure compliance with HMRC rules and to optimise your tax position. Keeping abreast of any changes to capital allowances regulations is also crucial, as these can impact the tax efficiency of future investments.

Effective tracking and management of expenses
Accurate and efficient management of business expenses is non-negotiable. Leveraging technology through digital tools and accounting software can greatly enhance the precision and ease of tracking expenses. Here are some key strategies you can employ:

Implement expense management software: Using digital tools and accounting software is a game-changer for businesses of all sizes. Opt for software that seamlessly integrates with your existing accounting systems. The ideal software should offer features like real-time expense tracking, categorisation, and even the ability to scan receipts. This not only simplifies record-keeping but also ensures every transaction is accurately logged and classified, facilitating easier identification of deductible expenses and capital allowances.

Regularly review expenses: A regular review process is vital for keeping your financial records accurate and up-to-date. Schedule monthly or quarterly reviews to go over your expenses. This practice helps in identifying any discrepancies early, ensuring that all expenditures are appropriately recorded and classified. Regular reviews also provide insights into spending patterns, helping businesses make informed decisions about budgeting and cost-cutting measures.

Educate your team: The effectiveness of expense management often hinges on the awareness and cooperation of your entire team. Educate your employees about what constitutes an allowable expense versus a capital expenditure. Clear guidelines should be provided on how to report expenses, the importance of accurate documentation, and the company’s policies on expense claims. A well-informed team is less likely to make errors in expense reporting, which can save time and reduce the risk of compliance issues.

Hire a professional bookkeeper: For many business owners, managing expenses, alongside other responsibilities, can be overwhelming. Hiring a professional bookkeeper can alleviate this burden. Bookkeepers are skilled in managing financial records, ensuring that all transactions are recorded meticulously and comply with relevant tax laws. Their expertise can be invaluable in maximising tax relief through allowable expenses and capital allowances, while also freeing up your time to focus on core business activities.

Keep hold of receipts: Maintaining a comprehensive record of all business expenses is fundamental. This means keeping hold of all receipts and invoices, whether they’re physical copies or electronic records. Organised documentation supports your expense claims, making it easier to substantiate these expenses during tax filing or in the event of an audit. Utilise digital tools to store and organise receipts electronically, which can simplify retrieval and review.

The benefits of online accounting
Online accounting platforms offer a transformative approach to mastering business expenses, providing businesses with the tools necessary for efficient and accurate financial management.

By automating the tracking and categorisation of expenses, these digital solutions greatly reduce the risk of human error and ensure a real-time overview of financial data. This immediate access to financial information enables business owners, finance managers and accountants to make informed decisions swiftly, enhancing tax efficiency and aiding in strategic planning.

Furthermore, online accounting software simplifies compliance with HMRC regulations by streamlining the process of recording transactions, generating reports, and preparing for tax submissions. The integration of cloud-based technology facilitates seamless collaboration between team members and financial advisers, ensuring that expense management is both proactive and informed by expert insights.

In essence, online accounting is a cornerstone for businesses aiming to optimise their financial health and master the complexities of managing expenses.

Compliance with HMRC guidelines
Staying compliant with HMRC’s guidelines is imperative. This involves keeping accurate records of all business expenses for at least six years, understanding the deadlines for tax returns, and being aware of the consequences of non-compliance. It’s also advisable to stay informed about any changes in tax laws and regulations that could affect business expense claims.

The bottom line
Mastering business expenses is a critical aspect of financial management for UK businesses, essential for ensuring tax efficiency and compliance. By understanding what constitutes an allowable expense, effectively tracking and managing these expenses, and navigating the complexities of tax relief and refunds, businesses can safeguard their financial health.

As your accountants, we’re here to help you control your expenses, guide you through the intricacies of tax legislation, and ensure that your financial practices are both efficient and compliant with HMRC regulations. We can use our expertise to help you identify cost-saving opportunities, maximise your tax relief entitlements, and avoid common financial pitfalls.

With a proactive approach to expense management, our aim is to not just manage your financial obligations, but to optimise them in a way that supports your business’s growth and profitability. Remember, mastering business expenses isn’t just about staying within budget; it’s about making strategic decisions that enhance your overall financial performance.

Need assistance? Contact us and we can steer you towards financial success, ensuring that every pound spent contributes positively to your business’s objectives.

 

Starting on 4 February 2024, HMRC is writing to company owners regarding the potential under declaration of dividend income.

The correspondence is prompted by a decrease in company reserves despite reported profits, hinting at undisclosed dividend payouts.

Recipients are urged to acknowledge the letter by either disclosing any unreported dividend income or confirming no additional income exists. For those with undeclared income, HMRC recommends utilising an online disclosure facility.

The process involves registering, receiving a payment reference number (PRN) by mail, and using the same online platform to settle dues, encompassing interest and penalties, within 90 days of receiving the PRN.

The letter does not mention alternative reporting avenues like the contractual disclosure facility, which is more suitable for instances of tax fraud. If recipients assert that they have no additional income, they can communicate this to HMRC via the provided telephone number or email.

Failure to respond may lead to HMRC initiating a compliance check, potentially resulting in heightened penalties. This outreach once again reiterates the importance of prompt and accurate income reporting.

Get in touch about your personal tax obligations.

The Government has committed to supporting 5.5 million small businesses by updating its Help to Grow campaign and introducing a new Small Business Council next month.

Building upon existing initiatives, the council will create a platform for SME leaders nationwide to actively engage with the Government.

With small businesses constituting 99.9% of all UK enterprises, employing 27m people, and generating £4.5 trillion in annual turnover, the Government designates 2024 as “the year of the SME”.

The Help to Grow campaign and website have been updated to serve as a comprehensive resource hub for SMEs. A notable addition is the Help to Grow management scheme, a 12-week intensive program enhancing SME leadership skills. This initiative, which is 90% subsidised by the Government, has already been utilised by nearly 8,000 businesses, aiming to support up to 30,000 throughout its duration.

Business and Trade Secretary, Kemi Badenoch, said:

“Small businesses are the lifeblood of our local communities and drive the UK’s economy, supporting jobs and wages across the country.

“This new council will mean SMEs have a clear voice at the table and we can deliver on the key needs for business.”

Talk to us about your small business.

Chancellor Jeremy Hunt has said that there is little scope for further tax cuts in the Spring Budget.

In last year’s Autumn Statement, the Chancellor announced various tax breaks, including a cut to the main rate of National Insurance from 12% to 10%. In January, he suggested that he intended to reduce taxes in the upcoming Spring Budget.

Furthermore, while addressing the annual World Economic Forum in Davos, Switzerland, he highlighted that nations with lower tax rates experience more “dynamic, faster-growing economies”.

However, reports from The Times state that during a recent cabinet meeting, Hunt acknowledged “major structural weaknesses” in the economy, citing low productivity as the primary cause. This casts more doubt on the possibility of significant tax cuts in the upcoming Spring Budget on 6 March.

Speaking on the BBC’s Political Thinking podcast, the Chancellor said:

“It doesn’t look to me like we will have the same scope for cutting taxes in the Spring Budget that we had in the Autumn Statement. But we also want to be clear that the direction of travel we want to go in is to lighten the tax burden.”

In response to the reports, Mr Hunt mentioned that he is awaiting the “final numbers” from the independent Office for Budget Responsibility (OBR) which guides the Government’s budgeting decisions.

Despite the tax burden reaching a record high, further tax cuts may be improbable. The Institute for Fiscal Studies (IFS) recently highlighted the need for the next Government to secure an additional £20 billion to sustain current spending levels.

Contact us about your tax liabilities.

House price declines are gradually easing as sales volumes increase across the UK. In October 2023, prices dropped by -1.4%, slowing to -0.8% by December.

The East of England (-2.5%) and the South West of England (-2.2%) experienced the most significant declines in 2023. In contrast, house prices in Northern Ireland increased by 3.2%. Despite this, higher mortgage rates are expected to persist, influencing house prices throughout 2024.

Data indicates that sellers are consistently reducing asking prices to attract buyer attention. More than 20% of sellers are now agreeing to discounts exceeding 10% of the initial asking price, and this figure rises to 25% in London and the South East of England.

Prices have stalled for various reasons, including:
• tax alterations restricted property acquisition by investors and international buyers
• the Brexit vote impacted job growth • the pandemic closed cities which altered work patterns
• elevated mortgage rates disproportionately affected pricier housing markets.

It is unlikely that mortgage rates will fall significantly in the near future, staying within the 4% to 5% range.

Interestingly, Nationwide’s January index found that the average house price had increased by 0.7% during the month, a significant turnaround from the December figures.

Talk to us about your property finances.

In a bid to tighten tax regulations and combat tax evasion, HMRC is implementing measures affecting sellers on platforms such as eBay, Vinted, Airbnb and Etsy.

Effective from 1 January, many digital platforms are now mandated to collect under new international rules adopted by the UK through the Organisation for Economic Cooperation and Development (OECD).

The reporting obligation applies not only to the sale of goods, such as second-hand clothes and handmade items, but also encompasses services like taxi hire, food delivery and short-term accommodation letting.

Currently, individuals generating income exceeding £1,000 annually through online side hustles must register as self-employed and submit a self-assessment tax return. While those earning below this threshold are often exempt from filing a tax return, it is recommended that they maintain records in case of inquiries.

Online platforms are mandated to report seller information to HMRC, with the first reports expected at the end of January 2025. As a result, sellers are advised to stay informed and comply with tax regulations to avoid potential penalties.

While this move will have a wide impact, tax experts at the Low Income Tax Reform Group reassured taxpayers that their obligations have not changed:

“The new rules have caused a great deal of confusion, but they simply mean that HMRC is receiving more information from online platforms than before.

“If you are following existing rules and declaring your income as required, then you don’t need to worry or do anything differently.”

Contact us to discuss these changes.

In a move to ease financial burdens on UK households, the Government has implemented a historic National Insurance (NI) cut, providing relief for 27 million taxpayers.

As of Saturday, 6 January 2024, the main rate of National Insurance has been reduced by 2%, dropping from 12% to 10%. This reduction, exceeding 15%, equates to a £450 saving this year for the average salaried worker earning £35,400.

For a household with two average earners, the annual savings could be worth nearly £1,000, marking a positive impact on the disposable income of families nationwide.

HMRC has launched an online tool to assist individuals in understanding the implications of the tax cut. This tool, hosted on the Government’s cost of living support website on GOV.UK, uses salary information to provide personalised estimates of potential National Insurance savings for employees.

In addition to this historic tax cut, further measures will apply later this year, including a National Insurance cut for 2m self-employed individuals, set to take effect on 6th April 2024. This move, worth £350 for the average self-employed person on £28,200, is part of the Government’s commitment to supporting businesses and households alike.

Chancellor Jeremy Hunt, said:

“With inflation halved, we’ve turned a corner and are cutting taxes – starting with today’s record cut to National Insurance worth nearly £1,000 for a household.

“From nurses and brickies, to cleaners and butchers, 27 million hard-working Brits will have a little more cash in their pockets.”

Talk to us about your personal tax liabilities.

 

In a move to boost international trade and foster greater exporting opportunities for small businesses, UK Export Finance (UKEF) has introduced more flexible and expedited financing.

The Government’s export credit agency made this announcement during its annual conference, revealing it now has the capability to fast-track trade finance applications worth up to £10 million – double the previous limit.

This initiative aligns with the Government’s commitment in the 2023 Autumn Statement to provide additional support for SMEs seeking to access global markets through UKEF.

The measures introduced will also widen the maximum timeframe for loans from the General Export Facility from two to five years. This aims to give businesses more adaptable repayment terms amidst the current challenging economic landscape.

By expanding the ‘auto-inclusion’ scheme, small businesses can now swiftly secure Government-backed credit without manual intervention from UKEF.

Tim Reid, CEO at UKEF said:

“In speaking with our customers – and especially with small businesses – it’s clear that ease of accessing finance and flexibility in repayment terms make a big difference for firms wanting to export.

“We’re confident that our announcements will unlock even more deals for UK firms looking to sell to the world, whether they’re exporting for the first time or looking for the latest in a long line of export successes.”

Talk to us about your small business.

 

Want to talk to an expert?

If you’ve found the topics covered in this report to be of interest or would like to delve deeper into any of them, we welcome the opportunity to engage in a more detailed discussion with you. Our team of experts is always keen to share insights, and we’re confident that a conversation with us can provide valuable perspective.

We are also well-positioned to update you on the latest trends, opportunities, and challenges in the business world. As we all know, staying ahead of the curve is vital in today’s fast-paced business landscape, and we are here to help you navigate it successfully.

If you’re considering getting extra support, we invite you to explore the comprehensive solutions we offer.

To schedule a meeting or to get more information, please don’t hesitate to contact us.

 

Business leader confidence in the UK economy fell to -28 in December 2023 after hitting -21 in November, according to the latest economic confidence index from the Institute of Directors (IoD).

The decline is in contrast to business leaders’ confidence in their own enterprises, which surged to +36 in December – a notable uptick from the +30 recorded in November.

Positive trajectories were also observed in revenue and export expectations for December. The net outlook for revenue in the next 12 months, compared to the last year, climbed from +37 in November to +42 in December.

Similarly, export prospects exhibited an upward trajectory, escalating from +15 to +20 in the final month of the year.

Business investment expectations dropped slightly to +23 from +22 in November, while projections for costs and wages maintained their ground at +74 and +69, respectively. Headcount expectations fell slightly from +25 in November, settling at +24 in December.

Dr Roger Barker, director of policy at the IoD, said:

“Business leaders remain extremely cautious about the outlook for the wider economy over the next 12 months, although they are more optimistic about the prospects for their own organisations.

“In the coming months, the Bank of England will be considering its next step in terms of interest rates. Based on the evidence of this survey, an early cut in interest rates would be justified in terms of helping to kick-start business confidence.”

Get in touch about your business prospects.