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On Balance...

By Balance team, Feb 13 2018 07:38AM

What has been going on?

As you will no doubt have seen, the investment markets have been back in the news over the last week. We’ve seen a familiar series of headlines of market wobbles, volatility and panic.

One of the most followed market indices in the world, the US Dow Jones, recorded its biggest fall since 2011, down roughly 4%, with markets across Asia and Europe following on with similar falls. As we have written about before on our blog posts, the globalised nature of economics means that when the US stock markets start to shake, the tremors are felt far and wide.

Global markets have rebounded somewhat in recent days, but some nervousness remains.

What has caused the moves?

The moves have been triggered, mainly, by fears of rising interest rates in the US. Interest rate rises are typically used by central banks as a way of controlling inflation. Data points released last week showed that average earnings in the US have crept higher which would typically lead to a continued rise in inflation. US unemployment is also at a 17 year low of 4.1%.

There are growing concerns that this stimulus provided by central banks, which have been in force since the 2008 financial crash, may be withdrawn. It’s important to highlight that raising interest rates to more normalised levels must be taken as a sign of health of not only the US economy but the global economy as well. Interest rates have been held low since the 2008 crash and so the prospect of them being raised is one that should be taken as a sense of things returning to some sort of normality.

Here in the UK on Thursday last week, whilst keeping the base rate at 0.5%, the Bank of England has indicated that the pace of interest rate rises will likely rise in the future. To many people, the notion of normal interest rates will look something nearer 5%, 10% or even 15%! This gives an indication of how ‘not normal’ things have been in recent years.

Should I be worried?

It’s important put into context just where this recent bout of volatility registers, from a historical perspective. The markets have been on a strong run since 2009 and anyone invested over this period will have enjoyed strong returns as a result.

Some will have fresh memories of the 2008 financial crisis, and with good reason. The major market indices are all a lot higher than they were before that crash, and the moves over this past week are nothing like the crash of 10 years ago, where on the worst day the US S&P 500 fell over 20% in one day.

The extended run of strong performance will not and cannot go on forever. Markets go up and down, and whilst some experts believe that valuations are high, market highs are normal in the same sense that corrections are.

Any removal of stimulus by central banks would be coordinated very slowly, and so the over-used term of ‘hiking’ interest rates should be taken with a pinch of salt.

During periods of volatility the more defensive asset classes like property, will fare better than others, which leads us to the same conclusion. An all-weather long-term approach to investing is always the most sensible. Diversity is the key.

Our advice to investors

The adage of time IN the market as opposed to TIMING the market is always a good one during times like this. Trying to be too clever by buying and selling at different points in time is rarely a successful strategy, even for the experts!

Our advice remains that investors should make sure investments are diversified and structured suitably for your long term financial plan. Investing as part of a sensible financial plan should not mean you having to check the stock market moves daily, if it does, then you’re probably not investing your money in a way that suits you.

If you would like to speak to us about any concerns you have over your own investments or overall financial plan, then please get in touch. We are always happy to discuss concerns people have in relation to their personal financial situation. We take a holistic approach, so don’t just focus on the market moves or your income, we look at your entire wealth and how planning can help achieve your lifetime goals.

By Balance team, Feb 6 2018 07:59AM

In today’s ever-changing economic climate, teaching your child to save for the future has never been so important. There are a range of savings options available – from government incentive schemes to helpful mobile apps. In this article, we take a look at some useful ways to help your child to save.

1. Pocket Money app - help your child manage their money

There are a few mobile apps available to help your child manage their pocket money. We really like the goHenry Pocket Money app. Suitable for children aged between the ages 6 – 18, the app helps parents teach their child ways to save and spend their money. As well as being able to set rules and limits, you can also create tasks to incentivise children to earn more pocket money. We think the goHenry app is an excellent tool to help children learn the true value of money and the consequences of debt, especially as parents can keep a watchful eye on any spending.

2. Have you considered a Junior ISA?

A Junior ISA is a government-backed, tax-free savings scheme for children. Similar to standard ISAs, you can choose between cash or stocks and shares – or, you can split your allowance between the two. In the Autumn Budget, it was announced that the annual Junior ISA allowance will rise to £4,260 from April 2018 (the allowance is currently £4,128 for this tax year, 2017-18). The main benefit of a Junior ISA is the fact that your child can only access their money when they reach the age of 18. Therefore, this savings scheme is a useful and secure way to grow funds for university fees or their first house deposit. If you have children’s bonds or Child Trust Funds - please see our previous blog, Children’s savings: Investing for their future, as new applications for these schemes have now ceased.

Whether it’s best for you to choose a Junior Cash ISA or a Junior Stocks & Shares ISA will depend partly on how much risk you feel comfortable in taking, but also when the money might eventually be needed.

3. Premium bonds – yes, they still exist!

Some people consider premium bonds from National Savings & Investments (NS&I) to be an outdated way of saving. However, we think there’s still very much a place for them, including as a useful way to save safely for their children. You can buy bonds in your child’s name if they are aged under 16. Although the bonds don’t pay interest, every bond number is entered into a monthly draw, so there is a (small) chance of winning between £25 and £1m (tax-free), which is thought to be around 30,000 to one! With average winnings at that level, the returns are similar to what you’d expect in a savings account, but of course there’s the chance that you might one day get the ‘big win’ and it’s a bit of fun as a result.

4. Children's savings accounts

There are a range of different children's savings accounts available. Some accounts allow you to add funds and withdraw money whenever you choose. If you are looking for an account with a higher rate of interest, the usual rule is that you would be expected to make monthly contributions and there may be limits on the number of withdrawals too. More restricted savings accounts require regular payments, so if you miss one (or ignore the withdrawal limit), this could cost you interest.

5. Income tax rules for children

Remember, tax rules do apply to children! The reason being is to avoid parents using their children’s savings as a way to off-set their own tax liabilities. However, as most children do not receive an income, they are able to save up to £17,500 without paying tax. If you go over this amount, then tax rules will apply. This includes the £5,000 starting savings allowance at 0% and the £1,000 personal savings allowance. There is a '£100 rule for parents' whereby if savings given to a child by a parent or step-parent generates more than £100 a year in interest (not including grandparents, other family members or family friends), this will be taxed at the parent's tax rate (basic, higher or additional). The tax-free personal allowance also applies to children (£11,500 during this tax year, 2017-18 and this increases to £11,800 for the next tax year, 2018-2019). For more information on children’s tax rules, please speak to one of our financial planning team.

6. Did you know that you can set up a pension for your child?

Yes, that’s right - you could consider taking out a pension on behalf of your child, and when they reach the age of 18, the pension will be under their control, so they can start making their own contributions too, when the time is right. This can be a useful long-term approach to children’s savings. At present, you are allowed to contribute up to £2,880 each tax year (boosted to £3,600 including tax relief). If you would like to find out more, please get in touch, as our financial planners will be able to provide you with suitable pensions advice.

For more information on children’s savings, please read our previous blog, Children’s Savings: Investing for their future.

If you would like to create a suitable savings strategy for your child, please get in touch and speak to one of our financial planners. We will explore a range of different options to suit every situation.

By Balance team, Feb 5 2018 09:09AM

There are times when relationships within the workplace can go wrong and may not break down completely; however, they do begin to have damaging consequences within the workplace especially on with other colleagues and their performance.

There are also times when individuals, especially senior managers and directors, are forced out of the business they have been totally loyal and committed to, without any warning at all. This could be via a settlement agreement, an unfair disciplinary process or just being performance managed out.

Trying to resolve such matters amicably can be difficult, especially when the individual has to come to grips with the fact that they are going to have to start looking for another job and the whole process is stressful with emotions on all sides often running high.

In these circumstances a settlement agreement can often be the best way to avoid acrimonious fallout or a costly and drawn out legal battle at an employment tribunal. Settlement agreements are legally binding and can be used by an employer, of any size, to reach an amenable end to the working relationship when there is an irretrievable dispute or just to terminate someone’s employment.

It is not unusual for an employee to propose a settlement, although it will normally be done by the employer and can be used to resolve serious employee grievances such as claims of unfair and constructive dismissal or discrimination claims.

In most cases the employee feels that they have no options available to them and they feel they are in the weaker and more vulnerable position. Also the employer often wants to conclude such matters quickly, by rushing and putting additional pressure on the individual to sign the agreement without delay.

So what can employees do when faced with such a situation and what tactics could be used?

1. Understand your legal position

Most senior managers and directors tend not to be a member of a trade union, which will mean that they are on their own and in situations like these understand the legal position will often involve them undertaking some legal research or sourcing advice from an employment law expert.

Determining your legal position as an employee is key to the whole process and will certainly help with the settlement agreement negotiations and may put everyone in a better position overall.

This is really about understanding and knowing whether there could be possibly other legal claims, such as discrimination, victimisation, and whistleblowing. In addition, if an individual has been employed for less than 2 years and as such will not have an ordinary unfair dismissal claim, knowing whether there are any automatic unfair dismissal claims that they could log at an employment tribunal is vital.

The individual will need to assess whether the offer being made by their employer is reasonable in the circumstances: for example, if they are being made redundant then they will need to check (among other things) whether their entitled to bring an ordinary unfair dismissal claim, whether their entitled to a statutory redundancy payment (and , if so, how much), whether they’re entitled to a contractual redundancy payment (and, if so, how much), what period of notice they are entitled to, and what other benefits they will receive or are entitled to.

Also the normal practice for most employers is to contribute towards the employee’s costs for legal advice in relation to the settlement agreement, which will be needed to ensure that the agreement is legally binding. Typically, the amount of the costs contribution is anything between £250 and £500 and in most cases this will cover the cost of the solicitor, unless they undertake additional work.

This will mean that the employee will have to instruct a solicitor and the timing of that will depend on whether they want the solicitor to undertake the negotiations, employment law advice at the start of the process or just to advise them at the point the settlement agreement is ready to be signed.

Another vital point to consider during these situations, is having trade union representation as they will be able to accompany the individual to meetings with management and provide that vital and essential support and they are on your side.

2. Consider raising a grievance

This may not be appropriate in all circumstances and will depend on the situation but, in certain circumstances, collating and sending your employer a grievance will put some additional pressure on the employer and could provide a powerful bargaining tools.

The nature of the grievance will rest upon the possible legal claims and the more claims the individual may have the more difficult it will be for the employer and a better negotiating tool in regards to the settlement agreement.

As part of the grievance it is important to collect and collate evidence in preparation for any meetings this could include emails, appraisals, one to one notes, policies and any information that would support your position and grievance. It is also a good idea to put together a timeline of any event or actions by the employer including names of any witnesses that could be used as part of the grievance process.

The law allows individuals to be accompanied during the grievance process and this is also set out in the ACAS code of practice. This is where having trade union representation is so important and they can make a real difference to the outcome, not only during the grievance process but more importantly with the settlement agreement discussions.

3. Short period of sickness

In our experience, most employees will find this type of situation very stressful and will often need to seek some support and advice from their doctor and a short period of time off work with work related stress will allow the individual some time to consider their future as well as allowing them to build their case.

It is important to understand whether they will receive company sick pay or just Statutory sick pay because the lack of income could add additional stress and pressure. The individual will be able to discover this via their employment contract and/or company policy.

Being forced out of a job and company in which the individual has worked hard is a difficult situation that can have significant effects on that person and when they are put in this position there is no going back. The important issue, however, is to ensure that they are treated fairly during the settlement agreement negotiations and that they receive the right compensation to allow time and breathing space to get another job.

Guest blog from Mark Ferron at Castle Associates

By Balance team, Jan 30 2018 11:56AM

With the Self Assessment tax deadline looming, and the end of the financial year on the horizon, it’s time to consider your tax liabilities. If you’re running a successful business, you should already be prepared for your tax bill. However, tax can be a very complex matter, especially if you own a portfolio of businesses or properties. In this article, we flag up some key areas to consider, as well as some potential tax breaks to help you plan for the future.

What’s new in tax this year?

Firstly, the Autumn statement announced a few changes, which will begin from 6 April 2018:

Income Tax

The Income Tax rates will change as follows:

• Tax-free Personal Allowance - has increased from £11,500 to £11,850, so no Income Tax is liable on income up to this amount.

• Basic rate - 20% tax band has increased to £46,350 (previously £45,000).

• Higher rate - 40% tax band is now set at £46,350 - £150,000.

• Additional rate - 45% tax band; no change, this is still set at £150,001.

Did you know that your Personal Allowance will reduce by £1 for every £2 you earn over £100,000? For example, if you reach £123,700 in earnings, you won’t receive the personal tax-free allowance at all and you will have to pay income tax on every pound you earn.

Remember that Individual Savings Accounts (ISAs) are a good way of saving without paying tax on the income or gains, whether that’s in a Cash ISA or a Stocks & Shares ISA. The maximum allowance for 2017/18 is £20,000, and you need to either save or invest into your ISA no later than 5 April 2018 – otherwise, your allowance will be lost. The allowance is the same for the next tax year too (although there is a small increase for Junior ISAs from £4,128 to £4,260). If you’re interested in finding out how you could benefit from an ISA, please get in touch.

What about any tax breaks?

Many people are unaware of the Married Couple’s Allowance, which you can claim if your partner earns less than the personal allowance. If that doesn’t apply to you, perhaps you have a son or daughter who could benefit from this? The Married Couple’s Allowance is a way to help couples (including civil partnerships), where one person is a low earner and the unused tax-free allowance can be passed onto their spouse. Check to find out whether you are eligible or visit the Which? guide to Married Couple’s Allowance for more information.

Capital Gains Tax

In simple terms, Capital Gains Tax is taxed on any profit you make when you sell (or give away as a gift) as asset that’s increased in value. Therefore, the ‘gain’ is taxed, not the actual amount of money received. The annual exemption for Capital Gains Tax 2017/18 is £11,300 – the general rule here is use it or lose it! If you’re a higher-rate or additional-rate tax payer, then you would be liable to pay 28% on gains from residential property and 20% from gains on other assets or investments. If you’re a basic rate tax payer that comes down to 18% on residential property gains and 10% on gains from other investments.

There are many ways you can invest to gain tax-efficient savings. Always seek professional advice before you make any big changes to your savings and investment strategy.

Let’s talk business…

If you’re a business owner, do you know whether you are eligible for Entrepreneurs’ Relief? If you’re looking to sell or dispose of all or any part of your business, you could pay less Capital Gains Tax at a reduced rate of 10%. But there is qualifying criteria and you need to plan to take advantage of it. For guidance, please see the guide to Entrepreneurs’ Relief.

Changes to company dividends

From 6 April 2018, there will be some big changes to company dividends. If you’re a company owner and, in addition to a salary, you pay yourself in the form of dividends, you will see your tax-free allowance reduce from £5,000 to £2,000. Dividends over that rate are taxed. If you’re an investor, please be aware this also applies to portfolios of shares held outside of ISAs or pensions. The reason for this change is because the government is looking to reduce the incentive for people to use businesses purely for tax reasons.

Some investors are trying to off-set the changes to dividends by ensuring they have saved up to the full ISA allowance during 2017/8 and then transferring a further £20,000 into their ISA on 6 April 2018. However, we strongly advise speaking to one of our financial planners for advice on suitable savings strategies.

Corporation Tax

The Corporation Tax rate will remain at 19% in the next tax year, but the government has planned to reduce this to 17% from April 2020. This is mainly due to the uncertainty over Brexit, and the need to support businesses with a stable corporation tax rate to encourage inward investment. However, due to the government’s increased focus on research and development (R&D) to stimulate productivity (see our previous blog, Productivity and Investments), there is tax relief available in the form of the R&D expenditure credit, which will increase from 11% to 12%. It’s worth talking to your accountant to see whether your business qualifies for this type of tax relief.

If you would like help with tax planning or a financial review, please get in touch to speak to one of our team. Our financial planners will carry out a full review of your finances, assets, and any business interests to help you create a sound financial plan.

By Balance team, Jan 22 2018 09:27AM

Last week’s news that construction giant, Carillion, has gone into compulsory liquidation has sent shockwaves across the country. Many sub-contractors have now been left in a very precarious position with the risk of not being paid. Although it was announced on Wednesday that The Insolvency Service has pledged to keep paying 90% of Carillion’s UK staff employed on private sector contracts – around 8,500 people – work has paused on construction sites until formal decisions have been made. The TUC has also stepped in to try and protect smaller firms who are suffering losses. It is thought that 30,000 small companies will be affected by Carillion’s collapse. They also maintained 50 prisons and 50,000 homes for military personnel.

Why did the Carillion collapse happen?

One of the most controversial findings is the fact that Carillion were in talks with the government late last year. Major financial problems were highlighted including debt and problematic contracts, and a formal request was made for government support.

Despite being the second largest construction company in the country, Carillion had three profit warnings last year, and share prices fell from 192p to just 14p. Carillion had spiralling debts of £900m and a pension deficit of £580m, and reported only having £29m in cash before its recent collapse. The Federation of Small Businesses complained that many of their suppliers had to wait 120 days to be paid instead of the usual 60-day payment period.

Carillion also had increasingly complex finance arrangements, seeking less traditional sources outside of mainstream banks and lenders, which is a clear sign that the company was struggling.

Short-selling was another major factor – because hedge fund managers spotted potential problems, they were shorting Carillion shares. This is where shares are borrowed from other investors in return for a fee, and are then sold in the belief they will be able to buy the shares back cheaper in the future. When short-selling works, a profit is made, and the shares go back to the original investor. However, when a company collapses such as Carillion, the shares become almost worthless and unattractive to investors.

What can I do to protect my own business?

If you are one of the many sub-contractors affected by the Carillion collapse, and you are worried about your company finances, speak to your accountant or seek professional financial advice. There may be options available to secure the financial integrity of your company without having to resort to laying people off or liquidation.

If you are a Business Owner or a Director-Shareholder, we strongly advise you to carry out a full review of your business – both financially and operationally – and create a robust financial plan to minimise future risk. With major players like Carillion going bankrupt, you don’t want to find yourself in a similar predicament.

Ask yourself the following questions:

• Are you reliant on one or two major contracts?

If so, how confident are you in terms of your client’s financial buoyancy and their ability to be able to pay you?

• How reliant are you on your suppliers?

If you have one main supplier who is integral to your business operations, how confident are you in terms of their financial integrity?

• Do you have any protection in place for your Directors and employees?

It might be worthwhile investigating income protection insurance, and this could even form part of your employee benefits package. Don’t wait until a major restructure signals redundancy measures, as it will be too late by that stage and insurers are unlikely to pay out. Speak to one of our team about Protection, whether it’s for yourself or for your business. We can help put in place Life, Critical Illness, Shareholder and Key Person insurance as part of our holistic financial planning service.

• How much debt do you owe?

If you owe a considerable amount of money, discuss repayment options with your accountant. You could consider other sources of finance, but always fully research funding sources, as complex financing can be risky - this was a key issue for Carillion.

• How much cash do you have in your business?

Having a healthy cash flow is vital for any size of business. If you are having cash flow problems, talk to your accountant before making any major decisions. If you are not happy with your accountant, we can signpost you to the trusted accountancy firms we work with – please contact us for more details.

If you are worried by the Carillion crisis, and you’re interested in creating a robust personal financial plan, please get in touch to speak to one of our team. Our financial planners will carry out a full review of your personal situation, including your business, and will provide expert advice to protect your interests.

Regular news and views from the Balance team. You'll find our thoughts about pensions, investments, ways to save tax, facts about finances and plenty more.


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