The business world in the UK today
The shape of business is changing and has been for a few years; more and more people are now in business for themselves. Since 2010 there are now over 1 million more self-employed people; in all around 2 million new businesses have been formed during this period.
The profile of people starting and running businesses has changed, for example there has been a big rise in the number of over 50s going into business. More women than ever before run their own businesses (increasing by 2% a year in recent years – source: House of Commons Briefing Paper, 28th May 2015). Slowly, over the past few decades, the tax rules have changed. Leading to a situation where there are some favourable tax positions for the self-employed and for the business owner, if they get their tax structures right.
The retirement picture has also altered, significantly so. Individuals are now living longer (the average age at death has gone up by nearly 5 years over the past 25 years and the nature of the retirement period and years is different. Put simply – retirement requires a far greater sum than it ever did.
People who go into business under their own steam will typically see their business as part of their retirement plan; the success of their business will have a direct knock-on impact to the quality of their retirement.
Hi, if you are reading this you are considering becoming a client of Newbridge Financial Planning. My name is Gareth Elliott and I have been in financial services for 15 years. In that time the profession has changed and regulations have changed dramatically. The one thing that hasn’t changed is the role I play. I do believe that I am here to help people. Help my customers achieve their financial goals. Help take the stress away from not knowing. To educate, to empower people.
Financial Services can be so complicated, that is why I have spent the past 15 years learning, developing and growing so that I can become better at what I do. I do this for my clients, to make sure they are always getting the best advice possible.
Protecting your business
As a business owner, you manage risks every day to keep your business running smoothly. Whether it’s installing anti-virus software on your computers or making sure your building alarm is regularly serviced, protecting your company’s ability to make money is second nature.
In the same way, you’ve almost certainly taken out insurance to cover your business property, machinery, vehicles and more. But many businesses fail to insure equally important risks, ones that affect their most valuable asset – their people.
The death or serious illness of a business owner or key person can have a huge impact on a company’s profitability. In some cases it can even cause the business to fail completely. The good news is that, like many other risks you face, there are straightforward ways to protect your business. And with the help of a professional corporate financial planner, you can find the solutions that will make the future of your business more secure. But what’s the likelihood of your business losing someone through death? Unfortunately, it’s higher than you might think. Here are some figures: If you have five people in your business aged 50 or under, there’s at least a 33% chance that one of them will die before age 65.
Source: England and Wales Life Tables, Office of National Statistics, 2015.
40% of businesses thought they would cease trading in under a year if a key person or owner died or became critically ill.
Source: http://www.legalandgeneral.com/life-cover/microsites/businessprotection/ what-is-business-protection/business-protection-research/
Business expert Charles Keirl says:
Shareholders’ agreements and employment contracts can give a measure of protection against people leaving, preventing business assets – clients, staff, suppliers and know-how – from walking out the door. But when death or critical illness strikes, the impact can be catastrophic.
Roger Downes, MD of Cheltenham-based chartered accountants Andorran, adds:
I advise clients, at the start of their business lives, about protection in the event of something unforeseen occurring. We talk wills, keyman insurance and, if there are two or more shareholders, protection insurance. Some clients listen to me; others don’t, especially in the case of protection insurance which is often rejected as “yet another cost” or “it won’t happen to me”. Sometimes the client is lucky and nothing untoward happens, but the fallout from getting it wrong can be devastating. It always happens, of course, at an emotionally sensitive time
Why Businesses and People in Business will benefit from adopting financial planning practicesThe core principles of financial planning; such as a having a strong relationship with a suitably qualified Financial Planner, working to a structured plan, treating everything on a holistic basis (i.e. what you do in one area may well affect another and vice versa), using targeted goals and outcomes as the basis for the plan and supporting this with regular reviews and updates – are all easily adopted to work for a business.
- A business will probably rely on its owner(s) for its revenue and profits; the fortunes of the business will be correlated to its owner(s) well-being. Likewise the owner’s family is likely to be reliant on the business ‘by association’. If the business owner falls ill or dies it could have extremely detrimental effects on the business and/or on the family. It is common for businesses to be exposed by this. A Financial Planning approach would not allow this to occur; suitable protection plans would be put in place to protect the business, the owner and the owner’s family. Far too many businesses fail to properly plan and protect.
- Tax affairs for people and for the business are going to overlap, different structures have different tax implications. The decision whether to operate as a sole trader or as a limited company (or if possible as a partnership and/or a limited liability partnership) are crucial ones which could have dramatic impact on taxes paid.
- The balance between short term considerations (i.e. how to limit annual taxes such as income tax) against long term goals (i.e. how to maximise a pay out on exit) can be delicate and tricky.
- Exit planning and/or succession planning is of paramount importance to a business owner looking to secure their long terms goals.
If we look at just one to illustrate further: tax planning. Many businesses (and/or their owners) either do not undertake major tax reviews or they leave it to their accountant.
If your approach is to minimise your tax bill in the current year (and therefore you reduce your profit or income) – but then you need to raise finance in 2/3 years to supplement your medium term objectives, have you brewed up a problem? Or if you want to maximise a sale value on exit – how does this stack up against restricting profits (to save tax) in the shorter term? Also how does your business tax planning, interact with your personal tax planning requirements? Is your business structured in a way that will allow you to pass the business onto the next generation ‘tax free’?
Simple things get missed when financial affairs are considered in isolation; for example do you have a life assurance policy which you pay from your personal account to provide protection for your family on your death? And a business which you own, with a business account? If that is the case (and it is for thousands of people in business) then you will probably be paying completely unnecessary tax. As you need to earn income to have the money available to pay for your personal life assurance cover. Yet you could possibly pay for this cover directly out of the business, saving the need to pay yourself, probably saving tax.
Financial Planning is a way of embracing all these considerations and creating one overall plan which balances them out against one another.
Starting from Oct 2012 All employers must provide a workplace pension scheme for employees. How can we help?
- We will inform you of your duties as an employer
- We will help you choose the best scheme for your business
- We will show you how you can cut your costs and provide employees with additional contributions at no or little cost using salary sacrifice
- We will review your scheme on a regular basis
- We will provide access to financial planning for your employees
We don’t just do workplace pensions. We do SMART Workplace Pensions.
We are Corporate Financial Planners, here to protect you and your business.
Salary sacrifice can affect the amount of statutory pay an employee receives. It can cause some employees to lose their entitlement altogether. If a salary sacrifice arrangement reduces an employee’s average weekly earnings below the lower earnings limit, then the employer doesn’t have to make any statutory payments to them.
Once a salary sacrifice arrangement is in place, employers can ask the HMRC Clearances Team to confirm the tax and NICs implications. HMRC won’t comment on a proposed salary sacrifice arrangement before it has been put in place. HMRC Clearances Team , Alexander House , 21 Victoria Avenue , Southend-on-Sea , Essex , SS99 1BD. Alternatively they can email the HMRC Clearances Team. To be satisfied that the change has been effective at the right time and not applied retrospectively, HMRC would need to see:
- evidence of the variation of terms and conditions (if there is a written contract)
- payslips before and after the variation
As Independent financial advisors we can also provide advice to businesses. This is becoming more crucial with the introduction of workplace pensions.
With good planning in place this transition can be brought in with minor disruption. Have you an old Group Pension that has been running for a few years? Is this compatible with the new regulations?
These scheme were set up under commission rules which no longer exist, so it worth looking at to make sure you are not paying too much. Other issues such as shareholder protection, succession planning, key person insurance and group income protection should all be considered as they can add value to what you offer employees thus improving staff retention.