Author: Helen Whitehouse

Making an informed decision

Many individuals invest in real estate to boost their income and gain greater financial security. But while the journey can be rewarding, it also requires committing a significant amount of your own time and money. So, how do you know if property investment is right for you?

In this guide, we outline what you need to consider when making your decision, from assessing your personal finances and setting goals for the future to exploring the pros and cons of becoming a property investor. Let’s get started.

Making a well-informed decision

Before you step onto the property investment ladder, it’s important to understand your financial situation and the risks involved in this kind of investment.

Do you have a strong financial foundation?
Investing in property requires significant upfront costs, so assessing your current financial situation first is vital. Do you have the funds available to cover a deposit and mortgage repayments? Can you afford to pay for the necessary repairs and maintenance?

Working with a financial expert to assess your income, savings and any existing debts can help you better understand your personal financial health. The stronger your financial foundation, the easier it’ll be to weather potential challenges associated with real estate investment.

What’s your appetite for risk?
While property is usually a safer investment option than stocks and shares, there’s no guarantee you’ll get a good return on your investment. Properties can depreciate in value, and unexpected expenses can add up – so you need to think carefully about your appetite for risk.

What would happen if your property depreciates in value or something else goes wrong? Could you afford to lose the money you’ve invested?

Exploring strategies such as diversification and taking out property investment insurance can help you mitigate some financial risks along the way.

What are your investment goals?
Before you make your decision, you should think about your investment goals. You can start by asking yourself a few questions:

• How will you generate an income? Knowing how you intend to make an income from your investments can help you set achievable goals. Will you rent to tenants, turn properties into holiday homes, or renovate them to increase their market value?
• How much money do you want to make? Think about your financial goals. How much are you hoping to earn from your investments, and in what time frame?
• How will you use the extra income? Will your investments help you achieve a particular financial goal? Perhaps you want to use the profits to help fund your retirement, or maybe you just want to gain more financial freedom.
• Do you want to grow your property portfolio? What are your long-term investment goals? Will you focus on one or two properties, or are you hoping to build a large investment portfolio over time?

Knowing the answers to these questions can help you set realistic, measurable goals that align with your current financial situation and long-term strategy.

Can you take on the extra responsibility?
Money isn’t the only resource you’ll need; property investment is also a significant time commitment. Whether you operate as a buy-to-let landlord or a property developer, property investment requires active management.

Consider whether you have the time to carry out extra responsibilities such as property maintenance and repairs. Furthermore, if you become a landlord, it’s your job to provide a safe home for your tenants, which means you must ensure it meets certain standards before you can rent it out.

How to get the most out of your property investments

Do your research
Aspiring property investors should carry out thorough market research before taking the plunge.

Looking at current property prices and mortgage rates can help you find the deals that work best for you. Keeping an eye on market trends can also help you determine whether now is the right time to invest in property.

There are several factors you’ll need to consider in 2024. A recent forecast from property website Rightmove suggests that average house prices in the UK will fall by 1% this year, which could be good news for property investors on a budget.

Meanwhile, changes in market interest rates mean that the cost of mortgages is coming down. Earlier this year, Bank of England governor Andrew Bailey told MPs that he hopes this trend will continue as UK inflation approaches the Government’s 2% target.

On the other hand, ongoing economic issues and higher property taxes in 2023 contributed to thinner profit margins for many UK property investors. As a result, more landlords have been streamlining their portfolios or exiting the buy-to-let market altogether.

The property investment landscape is likely to shift further in the coming year, so choosing the right time to invest is key. Working closely with property experts and financial advisers can help you make well-informed investment decisions that set you up for success.

Diversify your property portfolio
Diversification is a key component of investment risk management. Spreading your investments across property types and locations can mitigate the impact of market fluctuations on your overall portfolio.

Let’s say you own residential properties in several different locations across the UK. If the housing market worsens in one area, you’ll still have a steady income from your investment properties in the other locations.

Additionally, diversifying your property investments means you can benefit from different income sources. This not only boosts your overall returns but also gives you a stronger financial position, helping you navigate market changes and take advantage of opportunities in different parts of the real estate market.

Work with financial experts
You don’t need to embark on your property investment journey alone. As your financial advisers, we can provide support every step of the way, whether that means helping you decide whether property investment is right for you or offering expert tax planning advice.

Professional accountants can also take on many of your financial management and bookkeeping tasks, reducing your administrative burden and freeing up more time for you to focus on your other responsibilities.

Get in touch with us today to find out how we can help you with your property investment goals.

How to reward your team in a tax-efficient way.

As 2023 draws to a close, many employers will be looking for ways to reward their teams’ hard work. But how can you do that in a tax-efficient way that benefits both you and your employees?

Thankfully, showing your appreciation doesn’t need to cost the earth. In most cases, work Christmas parties and gifts for staff members are tax-deductible.

However, it’s essential to understand the tax rules surrounding annual events and gift-giving. Overspending on festivities won’t just eat into your bottom line; it can also have tax implications for your employees.

In this guide, we’ll help demystify the tax treatment of your end-of-year celebrations.

The tax treatment of work Christmas parties
Limited companies can often claim the cost of staff Christmas parties as an allowable expense. That means you can celebrate with your employees, boost morale and minimise your corporation tax bill all at once.

However, some functions may be treated as a taxable benefit for employees who attend. To understand the tax treatment of your staff Christmas party, you’ll need to consider the following:

How much did it cost?
Ideally, your Christmas party should not cost more than £150 per head, including VAT. Exceeding this threshold may impact any attending employees (including yourself), as the entire cost of the event will be treated as a benefit-in-kind (BIK) for tax purposes. In many cases, they’ll need to pay more income tax as a result. If this happens, you must report the cost to HMRC and pay employers’ Class 1A National Insurance contributions (NICs) on the total.

Suppose you spend £7,000 on a Christmas party for 40 people, meaning the cost per head is £175. As this exceeds the £150 allowance, the event will count as a taxable benefit, which means all attending staff members must pay income tax on the total £175, not just the £25 excess. You’ll need to report this on each employee’s P11D form at the end of the tax year.

Closely monitoring your spending is therefore essential if you want to keep your employees happy.

Who did you invite?
Be careful when planning events exclusively for directors or a specific department in your company. Unless the party is made available for all employees, attendees must pay tax on the cost.

Entertaining non-employees
The £150-per-head rule applies to all attendees – not just staff members. That means if you invite your employees’ spouses or partners to the function, they’ll get their own £150 limit.

However, the exemption only applies to entertainment for employees and their partners or family members. That means any events you hold for clients will not qualify for corporation tax relief.

You should also be cautious when inviting contractors or subcontractors to your work Christmas party, as this could affect their employment status.

Is it a recurring event?
Most costs associated with entertaining staff will qualify as a business expense – but don’t get caught out. Unless your party is a recurring annual event, it will typically attract a taxable benefit on any employees attending.

In many cases, that means that if you take an employee out for lunch, they should technically pay tax on the cost of that meal.

How many annual events do you hold?
Many businesses have more than one recurring event each year. For example, if you hold both a summer party and a Christmas party, you’ll need to split the £150-per-head limit between the two functions. If the combined cost of these events exceeds £150, only one function will be exempt for tax purposes. As a result, any members of staff who attend the non-exempt event could face a higher income tax bill.

VAT
As mentioned above, you’ll need to include VAT when working out the cost-per-attendee. However, VAT-registered businesses may also be able to claim a VAT refund on goods and services purchased for the event.

Be aware that claiming a VAT refund may be more complicated if partners and family members of your employees also attend the event.

Giving gifts to your employees
It’s not just annual events that are tax deductible; small gifts to employees are usually exempt. That means you can deduct the cost from your taxable profits, and employees won’t usually incur an income tax charge – so long as the gifts meet certain conditions:

• The cost of the gift does not exceed £50. Small gifts to employees costing £50 or less are treated as a ‘trivial’ benefit. Spend any more than this, and the entire value of the gift will count as a taxable benefit – not just the excess over £50.
• The benefit is not cash or a cash voucher. While non-cash vouchers and store gift cards under £50 can be classed as trivial, employers should avoid giving cash or non-cash vouchers as gifts.
• Entitlement to the gift is not in the employee’s contract. This includes any salary sacrifice arrangements.
• The benefit is not rewarding a specific service. Certain gifts may not be tax-free if you provide them to an employee in recognition of a particular service. Different tax rules apply for long-service awards.

The rules will also vary for limited companies privately owned by five or fewer individuals (also known as ‘close’ companies). Any qualifying trivial benefits provided to directors of close companies, other office holders, and their families are subject to an annual £300 cap.

What happens if I overspend?
Don’t panic if you overspend on Christmas festivities or inadvertently provide a taxable benefit to your employees; you may be able to set up a PAYE settlement agreement (PSA) with HMRC.

A PSA allows employers to pay tax on certain benefits on an employee’s behalf, so they don’t need to foot the bill themselves. These arrangements can also significantly reduce your administrative burden.

If you don’t already have a PSA in place for the 2023/24 tax year, you must apply for an arrangement by 5 July 2024.

Helping you navigate the rules
As an employer, you’ll understand the importance of keeping your team’s spirits high. Rewarding the people who help move your business forward can contribute to a positive working environment, boosting morale and increasing productivity levels as a result. Employees who feel appreciated are also more likely to stay in your business longer.

If you’re planning to throw a staff Christmas party or surprise your team with gifts, a financial adviser can help you easily navigate the potential tax implications. With our support, you’ll be able to keep your celebrations as tax-efficient as possible.

Get in touch with us today to discuss your end-of-year festivities.

What to watch out for when navigating this important financial obligation.

The UK self-assessment system has its quirks and nuances, and understanding how to stay compliant is crucial to a smooth and stress-free income tax process.

From early paper deadlines to penalties for late-filers, self-assessment holds a few surprises. As always, a professional accountant can help you navigate the process successfully, make the most of available tax reliefs, and avoid potential pitfalls along the way.

Self-assessment: What is it?
Self-assessment is the system the UK Government uses to collect income tax. This requires many individuals and businesses to declare their untaxed income, capital gains and other relevant financial information to HMRC.

Over 11 million taxpayers filed a self-assessment return for the 2021/22 tax year, and this number is likely to rise for 2022/23. As such, it is essential to understand your reporting obligations. Here are some of the main aspects to be aware of this self-assessment season.

Who needs to send a tax return?
You will be required to send a tax return if, in the last tax year (6 April 2022 to 5 April 2023), any of the following applied:

• you were self-employed as a sole trader and earned more than £1,000 (before taking off anything you can claim tax relief on)
• you were a partner in a business partnership
• you had a total taxable income of more than £100,000
• you had to pay the high income child benefit charge.

You may also need to send a tax return if you have any untaxed income, such as:

• money from renting out a property
• tips and commission
• income from savings, investments, and dividends
• foreign income.

You can confirm whether you need to send a self-assessment tax return on the Government website or by getting in touch with your accountant.

Deadlines matter
One of the first aspects to watch out for is the importance of deadlines. Filing your self-assessment on time is crucial to avoid penalties.

The deadline for paper returns is 31 October following the end of the relevant tax year, while the deadline for online submissions is 31 January of the following year. That means that you must file your online self-assessment tax return for the 2022/23 tax year return by midnight, 31 January 2024. You’ll also need to pay the balance by this date.

Missing these deadlines can result in financial penalties, so you should mark these dates in your calendar. These late-filing; penalties can vary depending on the degree of lateness and the amount of tax owed. HMRC will also charge interest on late payments.

If you are filing a self-assessment for the first time, you’ll need to first register with HMRC. Often, people assume that the deadline for registering is the same as the deadline for submitting, and thus end up registering late. In fact, you will need to register by 5 October; for instance, if you need to file for the 2023/24 tax year, you should register by 5 October 2024.

What should self-assessment taxpayers look out for?

Accurate recordkeeping
One critical element of self-assessment is the need to maintain accurate financial records. Keeping well-organised records of your income, expenses and other financial transactions will significantly ease the self-assessment process.

Effective record-keeping ensures you are not overpaying or underpaying your taxes and provides an accurate snapshot of your financial health. Recording all your business transactions can also make it easier to maximise expense claims and reduce your tax bill.

Providing accurate information is crucial when filling out your self-assessment form. Collaborate closely with your accountant and be thorough in providing all necessary financial information.

HMRC enquiries
You should be aware that HMRC can conduct an enquiry into your self-assessment. In such cases, your accountant plays a crucial role by providing the necessary records and explanations to HMRC. Again, accurate record-keeping is essential for these situations.

Mistakes can lead to penalties
HMRC has the authority to impose penalties for inaccuracies in your self-assessment, whether they are intentional or not. Failing to take reasonable care when completing your return or providing inaccurate information can lead to more severe fines. Your accountant’s role is vital in ensuring the accuracy of your submission.

If you do spot an historic mistake in your self-assessment, it is worth amending this yourself, rather than waiting for HMRC to raise the issue. This will typically result in significantly lower penalties (if any).

Tax planning opportunities
Self-assessment season also presents opportunities for tax planning. Working with your accountant, you can identify legitimate deductions, reliefs and allowances that can reduce your overall tax liability.

As a result, it’s vital to start your self-assessment return earlier rather than later. This can give you more time to explore different tax reliefs and maximise your expense claims, making it easier to save money and helping you stay compliant with the law.

Allowable expenses
When filing your self-assessment, allowable expenses play a crucial role in determining your taxable income. These include costs directly related to business operations or those incurred while earning income.

Common allowable expenses span office rent, utilities, and office supplies for the self-employed. Travel expenses, both local and business-related, are eligible, as are costs associated with professional development. Additionally, allowable expenses cover financial and professional fees, such as accountant charges. However, it’s essential to meticulously document and justify each expense, ensuring compliance with HMRC guidelines.

Marriage allowance
Marriage allowance can be a valuable tax-saving opportunity for married couples and civil partners. In certain circumstances, this tax break allows you to transfer a portion of your personal allowance to your spouse or civil partner.

Take advantage of tax-saving opportunities
Always be on the lookout for tax-saving opportunities. The UK tax system is complex, and tax regulations are constantly changing. As income tax experts, we can keep you informed about new opportunities and help you adapt your financial strategies accordingly.

Paying your income tax bill
Understanding how to make your income tax payments is another aspect to watch out for.

Repeat self-assessment customers often need to pay their bills in two instalments. This process is known as payments on account.

The first payment is due by 31 July following the end of the relevant tax year, with your final ‘balancing’ payment due by 31 January. If you cannot pay your tax bill in full, you may be able to set up ‘a payment plan to pay it in monthly instalments — generally over a 12-month period. This is called a ‘Time to Pay’ arrangement.

Depending on your circumstances, some arrangements can be made over longer periods.

Navigate the self-assessment

Process with confidence
Self-assessment is a significant financial obligation that should not be taken lightly. Working closely with a professional accountant who is well-versed in the latest tax regulations can help ensure that the process is as efficient, accurate and stress-free as possible.

As income tax experts and professional bookkeepers, we can help you understand the intricacies of self-assessment. With our support, you’ll be able to keep accurate records, meet deadlines and make the most of available tax-saving opportunities.

By watching out for the aspects mentioned here, you can navigate the self-assessment process with confidence, ensuring you comply with tax regulations and make the most of your financial resources.

Need assistance with your self-assessment? Get in touch today.

A recent survey from the Association of Chartered Certified Accountants (ACCA) has shed light on the challenges UK accountants face when dealing with HMRC services.

Over 90% of respondents expressed the urgent need for HMRC to improve its service across several key areas.

The survey, which involved 207 ACCA members, uncovered significant concerns within the accounting profession. More than half of respondents (52%) reported that HMRC’s service levels were negatively affecting productivity and efficiency, impacting both accountants and their clients.

The areas identified for drastic improvement included:
• Reduced call waiting times: Accountants called for shorter waiting times when seeking assistance from HMRC.
• Enhanced call handling systems: They urged HMRC to provide better call handling systems, including queue information and call-back options.
• Improved communications: Respondents emphasised the need for more efficient communication methods, with a preference for greater use of email.

The challenges accountants face in their interactions with HMRC have increased in recent months, leading to growing frustration. Some professionals have resorted to raising formal complaints to prompt a response from HMRC.

Glenn Collins, head of technical and strategic engagement at ACCA, said:

“Many of our members have raised with us, over a number of years, their struggles and difficulties in working effectively with HMRC services.”

Talk to us about your accounting.

Small business confidence in the UK improved slightly in Q3 2023, although challenges persist, according to the latest Small Business Index from the Federation of Small Businesses (FSB).

The headline confidence reading in Q3 stood at -8.0 points, an improvement from the -14.2 points recorded in the previous quarter but still below the -2.8 points measured in Q1.

The decline in confidence over the past six quarters can be attributed to factors such as rising inflation and the energy crisis.

The hospitality sector exhibited the lowest confidence level, recording -31.1 points for accommodation and food services. Retail and wholesale followed closely with -22.8 points, while the construction, manufacturing, and information and communication sectors also reported negative confidence.

The only sector with a positive confidence reading was professional, scientific and technical services, at 6.9 points.

According to the FSB, the low business confidence in the hospitality and retail sectors underscores the need for additional support.

Martin McTague, FSB’s national chair, said:

“After the economic turmoil wrought by the cost of doing business crisis over the past year and a half, our latest Small Business Index shows signs of stabilisation in small firms’ performance.

“The improvement in the overall confidence measure since Q2 is a good start, but we really want to see it firmly back in positive territory, rather than eight points below zero, as it is currently.”

Talk to us about your small business.

The Bank of England (BoE) announced it would maintain its interest rate at 5.25% for the second consecutive time, following a series of 14 rate hikes.

The Monetary Policy Committee (MPC) voted by a majority of 6–3 to maintain the bank rate on 2 November, with three members preferring to increase the Bank Rate by 0.25 percentage points to 5.5%.

The BoE’s decision to keep interest rates unchanged is driven by inflationary pressures affecting UK businesses. It also aligns with recent moves by other central banks worldwide, including the US Federal Reserve and the European Central Bank, which have also opted to maintain their interest rates.

While the BoE has relied on interest rates as its primary tool to combat inflation, the central bank still faces challenges in reaching its 2% target by the end of 2025.

The MPC anticipates that inflation will eventually fall below the target as reduced domestic inflationary pressures follow a period of economic slack.

The decision highlights the ongoing struggle to manage inflationary pressures and their impact on the UK economy. This is evident in Q3 insolvency figures, which contributed to the highest corporate insolvency levels in over two decades.

BoE governor, Andrew Bailey, said:

“Inflation is falling, and we expect it to keep falling this year and next. Our increases in interest rates are working to bring inflation back to the 2% target.”

Get in touch about your finances.

Corporate insolvencies in England and Wales are at their highest level since 2009, according to new data from the Insolvency Service.

In Q3 2023, 6,208 companies registered as insolvent in England and Wales, down 2% from the previous quarter but up by 10% compared to Q3 2022.

This rise in insolvencies can be partially attributed to firms struggling with rising borrowing costs, high inflation and post-pandemic debt.

The number of creditors’ voluntary liquidations (CVLs) hit 4,965 between July and September 2023. According to the Insolvency Service, the last two quarters saw CVLs rise to their highest levels since the series began in 1960.

During the same period, there were 735 compulsory liquidations, 466 administrations and 41 company voluntary arrangements (CVAs).

Notably, over the 12 months to Q3 2023, the construction sector had the highest number of new underlying company insolvencies (4,272), with the wholesale and retail trade (3,777) and accommodation and food services (3,477) sectors following closely.

Meanwhile, individual insolvencies hit 24,418 in Q3 2023 – down by 6% from the previous quarter and 15% lower compared to the same period last year.

Commenting on the insolvency statistics, past president of R3, Christina Fitzgerald, said:

“A perfect storm of economic issues has led to the highest Q3 corporate insolvency figures in more than two decades. A combination of rising costs, director fatigue and increased creditor pressure mean more firms are turning to a corporate insolvency process to resolve their financial issues.

“Our message to anyone who is worried about their personal or business finances is to seek advice as soon possible – as soon as you become concerned.”

Contact us for expert financial advice.