Month: September 2020

In December 2019, the Conservatives won an 80 seat majority in the General Election and three months later, new Chancellor Rishi Sunak presented his first Budget. But by then there was a large cloud on the horizon – the outbreak of Covid-19. 

The Chancellor used his Budget speech in March to present a raft of measures to support businesses and jobs, promising to do “whatever it takes.” A week later he was back with more emergency measures and on Monday 23rd March, the UK went into full lockdown. 

Six months on from lockdown, the Treasury announced that the Chancellor’s traditional Budget speech had been cancelled for this year and instead he would present a Winter Economic Plan on Thursday 24th September.  

What has happened in the last six months? 

The last six months for the UK economy can perhaps be summarised in two words: ‘recession’ and ‘redundancies’. Figures released for the second quarter of the year – April to June – showed that the UK economy had shrunk by 20.4%. Early hopes of a ‘V-shaped recovery’ from the downturn quickly vanished.

The pandemic has unquestionably accelerated trends that may otherwise have taken 20 or 30 years to arrive. We may well all have been working from home by 2050 but this week, the Prime Minister told office workers to do it for perhaps the next six months. That will surely have serious consequences for many town centres and the ‘commuter economy’. 

These changes have, inevitably, meant widespread redundancies. Figures recently released suggest that UK payrolls shrank by 695,000 in August as the Chancellor’s furlough scheme started to wind down. 

The Chancellor’s Speech 

The Chancellor, Rishi Sunak, was at pains to stress that he’d consulted both sides of industry on the measures he was going to introduce. He was photographed before the speech with Carolyn Fairbairn of the CBI, and Frances O’Grady of the TUC. 

He rose to his feet in a suitably socially-distanced House of Commons and stated that his aim was to protect jobs and the economy as winter approached, and to try and “strike a balance between the virus and the economy.” We were, he said, “in a fundamentally different position to March.” 

Rishi Sunak said that the UK had enjoyed “three months of growth” and that “millions of people” had come off the furlough scheme and returned to work. While ‘three months of growth’ is undoubtedly true, we must remember that the economy shrank by 20.4% in the second quarter. According to the Office for National Statistics, the economy grew by 6.6% in July – but it has only recovered just over half the activity lost because of the pandemic. 

The primary goal, the Chancellor stated, was “nurturing jobs through the winter” as we all faced up to the “new normal.” He conceded, though, that not all jobs could be protected and that people could not be kept in jobs that “only exist in furlough.” 

So what measures did the Chancellor propose? 

Emphasising that he could not protect “every business and every job” the Chancellor conceded that businesses faced uncertainty and reduced demand. In a bid to protect jobs through this period, the first measure he introduced was: 

The Job Support Scheme

• This is a six month scheme, starting on 1st November 2020
• To be eligible, employees must work a minimum of 33% of their normal hours 
• For remaining hours not worked, the Government and the employer will each pay one third of the employee’s wages 
• This means employees working at least 33% of their hours will receive at least 77% of their pay 
• The Chancellor also announced that he was extending the support scheme for the self-employed on “similar terms” to the Job Support Scheme 

Pay as you Grow 

After ‘eat out to help out’, we now have the Chancellor’s next catchy slogan: pay as you grow. 

• Businesses which took loans guaranteed by the Government during the crisis will now be able to extend those loans from six years to ten years, “nearly halving the average monthly repayment,” said the Chancellor. 
• There is also the option to move to interest only payments, or to suspend payments for six months if the business “is in real trouble,” with no impact on the business’s credit rating. 
• Coronavirus Business Interruption Loans (CBILS), taken out by a reported 60,000 SMEs, can now also be extended to 10 years.
• The Chancellor also promised a new government-backed loan scheme, to be introduced in January.

VAT Deferral 

• Businesses who deferred their VAT during the crisis will no longer have to pay a lump sum at the end of March next year. 
• They will have the option of splitting it into smaller, interest free payments during the 2021-2022 financial year. “This will benefit up to half a million businesses,” claimed the Chancellor. 

Income tax is deferred – but it still needs to be paid 

As we all know, death and taxes are inevitable. The Chancellor did at least delay one of them for many people…

• He announced extra support to allow people to delay their income tax bill, which should benefit millions of the self-employed. 
• Those with a debt of up to £30,000 will be able to go online and set up a repayment plan to January 2022.
• Those with a debt over £30,000 should contact HMRC and set up a plan over the phone. 

The planned VAT increase is postponed 

• The Chancellor’s final move was to give direct, targeted help to the tourism and hospitality sectors. 
• These two sectors had benefitted from a lower VAT rate of 5%. This lower rate was due to end in January, but will now remain in force until 31st March 2021. 

What was the reaction to the speech? 

As with all Budget speeches, the reaction was mixed. Carolyn Fairbairn of the CBI praised the Chancellor for “bold steps which will save hundreds of thousands of viable jobs this winter.” 

Manufacturing group Make UK said the Chancellor ‘deserved credit’ for looking at action taken in other countries such as Germany and France and copying their successful ideas. 

The Adam Smith Institute was more cautious: the Chancellor’s plans were “sensible – but not costless.” Matthew Lesh, head of research at the free-market think tank said, “The Government must resist becoming addicted to spending. Temporary spending is sensible to keep struggling businesses afloat, but in the longer run we are going to have to get the national accounts in order.” 

There was, though, plenty of criticism, especially from the retail sector. Lord Wolfson, boss of Next, warned that ‘hundreds of thousands’ of retail jobs may now become ‘unviable’ in the wake of the crisis. “I wouldn’t want to underestimate the difficulty,” he said, “I think it is going to be very uncomfortable.” 

Where do we go from here? 

As we have commented above, six months, roughly to the end of March, now seems to be the accepted next phase of the fight against the pandemic. As people worry about whether they’ll be able to see their families over Christmas, many will also be worrying about their jobs.

In his speech, the Chancellor more than once stressed that he could not save ‘every job and every business’ and a sharp rise in unemployment through the winter seems inevitable, which will lead to more Government spending on benefits and lower tax receipts. 

The Treasury is already facing a significant shortfall and the Winter Economic Plan, although the level of Government support has been sharply scaled back, will only add to that. At some point, all the support will need to be paid for, either by increased taxes or more optimistically, a resurgent economy. 

What does this mean for my savings and investments? 

Many world stock markets have proved remarkably resilient to the pandemic and are showing gains this year. Unfortunately, the UK’s FTSE-100 index is not one of them: it ended 2019 at 7,542 and closed March as the country went into lockdown at 5,672. As we write this commentary (Friday morning), it is standing at 5,823, up 2.66% on the end of March. 

As we have stressed many times, saving and investing is a long-term commitment and, while there will undoubtedly be plenty of bumps in the road ahead, Governments and central banks around the world remain committed to an eventual economic recovery. Yes, the pandemic has accelerated trends and certain sectors of both the UK and world economies have suffered serious damage; but as we never tire of saying, new companies will find new ways to bring new products to new markets. 

We can, in the long term, still face the future with confidence but we appreciate that some clients may have understandable short term concerns. 

If you have any questions on this report, or on any aspect of the current situation, please do not hesitate to get in touch with us. 

The Chancellor has, we think, taken sensible and prudent action. As he said, “life can no longer be put on hold” and let us hope that economic activity in the UK – and the wider world – quickly reflects that. 

Thank you for reading the report.

If you’re reading this as one of our clients, we’re obviously pleased with the decision you’ve made (and hopefully you are too!) but we thought it would be helpful to outline some of the considerations.

So, if you’ve set up a limited company, must you have an accountant? By law, no, you don’t require one. It’s not a statutory obligation. But you must prepare an annual set of accounts which need to be filed with Companies House and you must have a full set of corporate tax accounts to show HMRC. 

For financial years beginning on or after 1 January 2016, companies are also exempt from being audited, if they have at least two of the following:

• an annual turnover of no more than £10.2 million
• assets worth no more than £5.1 million
• 50 or fewer employees on average

The only exception is if one of the shareholders who owns at least 10% of the shares demands an audit. 

What will an accountant do for you?  

It’s often thought that accountants just compile your accounts at year-end and submit your VAT  returns. A good accountant, however, will help with a wide range of other duties, such as:

• Registering the company with the relevant tax departments – VAT, Corporation Tax, PAYE 
• Setting up and running the company payroll, in line with the Real Time Information (RTI)  rules    
• Monthly bookkeeping (with online accounting – you may prefer to do this yourself and save extra fees)
• Dealing with the authorities on an ongoing basis (HMRC, Companies House)
• Providing tax planning advice
• Offering dividend advice
• Providing professional references for mortgages, lettings, other services

Services will differ from accountant to accountant so make sure you know what is included. 

An accountant’s role is to provide you with advice. You may have a query about what expenses you can offset against Corporation Tax or be unsure as to whether you have enough retained profit to declare a dividend legally. Whatever the issue, it’s good to have an experienced professional on hand.  

One major advantage is that a professional accountant will be experienced in dealing with the tax authorities should an enquiry arise. They will know the correct format to submit any information and will understand the various subtleties of different regulations.   

If someone does decide to look after their own affairs, they need to be aware that they must maintain their accounts in line with the Generally Accepted Accounting Practice in the UK. It’s their responsibility to submit their information in a timely and accurate manner so as to meet statutory legislation.

On balance, most people decide that once they’ve calculated how long it takes to prepare the accounts, do the bookkeeping and liaise with HMRC, a small business accountant would save them both time and money, while enabling them to get on with running their business.  

Pension savers across the country could be due a rebate after new HMRC figures show that some have been wrongly taxed after drawing from their pension pots. Hundreds of thousands of people have been overcharged in tax since new pension rules were introduced back in 2015.

As you may already know, pension freedoms gave savers more control and allowed pensioners over 55 to withdraw money from their pots whenever they like. 

Under the rules, the first 25% of withdrawals are tax free, while the remaining 75% is added to taxable income for the year. 

Since changes were introduced, more than £37 billion has been taken out of pensions savings.

The Sun claims that the overpaid tax comes primarily from cases where savers were still working. HMRC wrongly applied emergency tax on the first 25% of withdrawals that it has incorrectly categorised as additional earnings.

Pension savers who make larger, inconsistent withdrawals are at a much higher risk of being emergency taxed. While pension freedoms allow over 55s to access their retirement savings more flexibly, they certainly increase your chances of falling foul of the taxman.

Of the £627 million, the taxman has paid back £27 million in overpaid tax during lockdown according to Which?. The average amount that each person received was £3,560. This was an £845 increase on payouts during the previous quarter. 

Think you might have overpaid? Here’s how you can claim

There are three ways you can claim back overpaid tax on the government’s refund website. 

If you haven’t withdrawn your entire pension and aren’t taking regular payments, you can claim using a P55 form.

If you have withdrawn your entire pension and receive other taxable income, you should fill out the P53Z. And if you have withdrawn your entire pension and have no other taxable income, you should fill out the P50Z. 

HMRC are yet to clarify what form savers who haven’t withdrawn their full pension but do take regular payments should fill out. Hopefully, they will do so in the near future. If you would like any more information about your pension savings, please get in touch.

Do you find yourself counting down to Friday each week – even when it’s only Monday morning? Do you wish you could ditch the daily commute and long hours at the office? Have you got a secret desire to drive across America or buy a second home in the South France?      

If one of your main aims is to realise your dream of retiring early, take a look at these five steps. It may not be as unattainable as you first thought. 

1. Take control 

Retiring early won’t just happen. As life expectancy increases and governments raise the age at which you can take the State Pension, you could find yourself working for much longer than you’d anticipated. So if that‘s not in your game plan, you need to take positive steps to build up a pot of your own money. The State Pension should just be seen as an added extra.              

2. Set realistic goals

Once you’ve decided you’re serious about retiring early, you need to draw up a plan with attainable goals. A yacht and a penthouse suite might sound idyllic but if such a lifestyle is not  achievable then it’s no good setting yourself up for failure.

Instead think about the net figure that will give you enough to live on each year, with a lifestyle that suits you. Everyone is different. Some people may want to eat out frequently, some may be keen to travel the world, others may prefer more time at home with the family.      

3. Crunch the numbers 

Now’s the time to get down to the nitty gritty. It obviously depends on how early you are going to retire but if you are planning on retiring in your forties, a good rule of thumb is that you need to accumulate a pot of money worth 25 times’ your annual living expenses before you give up work. As well as thinking about what level of luxury you’re going to allow yourself, don’t forget to also factor things in such as insurance and care costs.  

4. Start early 

Save as much as you can while you’re working and start investing early. Compound interest  can have a significant impact on your original investment over time. In fact, when you start saving can be even more influential than how much you save. For example, if you started saving when you were 25 you could accumulate 35% more over the length of your career than somebody who started saving the same amount at 35. It’s also important to make sure you’re investing with the right level of risk depending on what stage of life you’re at.                 

5. Don’t be led by FOMO  

The ‘fear of missing out’ or FOMO can make us do things because everyone else is doing them. But making large purchases or taking on a large mortgage could steer you off course if your real goal is to retire early and travel the world. So keep focused on your goals. Remember, it’s your retirement plan, unique to you, not a colleague, neighbour or relative.  

If you’d like to talk over your goal to retire early in more detail, do get in touch with us.