BUDGET 2014 HIGHLIGHTS

PERSONAL ALLOWANCE
The personal allowance is the amount of income you can receive each year without having to pay tax on it. This amount is to increase to £10,000 for 2014/15  and to £10,500 for 2015/16. The basic rate taxpayer will see a saving of about £112 in 2014-15 and a further £100 in 2015-16 on their annual income tax bill.

HIGHER RATE TAX PAYERS
The threshold for which individuals pay tax at the higher rate of 40% will increase by 1% for both tax years.

ANNUAL INVESTMENT ALLOWANCE
For businesses, the annual investment allowance will increase from £250,000 to £500,000 until 31 December 2015.

HIGHER ANNUAL SUBSCRIPTION LIMIT FOR INDIVIDUAL SAVINGS ACCOUNTS FROM 1 JULY 2014
The chancellor has announced big changes to the Individual Savings Accounts (ISA). The new policy means that, from July onwards, it will be possible to save up to £15,000 in total. Furthermore, the whole sum could be in cash unlike before where only half of the limit could be saved in cash and the rest in shares. Also, the 10p tax rate for savers will be abolished.

CLASS 2 NIC
From April 2016, Class 2 National Insurance Contributions (NIC) will be collected through self-assessment.

CHILD-CARE HELP
Parents paying 80% of childcare costs of up to £10,000 per child, aged up to 12, to a registered provider will get the remaining 20% tax-free from September 2015.

NEW TRANSFERABLE TAX ALLOWANCE
From April 2015, there will be an introduction to a new transferable tax allowance for married couples and civil partners.

PENSION CHANGES
All tax restrictions on pensioners' access to their pension pots to be removed, ending the requirement to buy an annuity. The taxable part of pension pot taken as cash on retirement to be charged at normal income tax rate, down from 55%. There is an increase in total pension savings people can take as a lump sum to £30,000

By Wilson Law at Tax Affinity Accountants

Tax Affinity Accountants are experts in Tax and Accountancy. Based in Kingston upon Thames they are considered to be small business experts helping and supporting business in the UK. They regularly help new business start up and provide valuable support for new businesses.

For more information visit www.taxaffinity.com. To read more interesting articles like this visit www.taxaffinity.com/blog. Please feel free to comment and share this with your friends.

The bridge between having a good business idea and implementing such idea into a business model can be wide and daunting. Getting the necessary funding to kick start your business can be a difficult process and different sources of finance may not be appropriate for everyone due to varying circumstances.

Whether you require investment for start-up capital or are looking to expand your business, the cost can be astronomically different depending on a few variables. Here is a list of things to consider when looking for a source of funding for your business:

The “Right” Amount

There are a few questions that should instantly appear on the forefront of your mind when you are seeking finance. 

1. How much money do I need?
2. What time scale am I looking at to pay it off?

Doing your homework from the start will help you avoid many future problems. A shortfall in funding may jeopardise your business in its entirety, you may miss out on that explosive launch you was hoping for or realise that a particular project didn’t produce the desired results because you ran out of cash.

There’s a subtle understanding in business that goes like this; “you need to spend money to make money”. Making big changes in your business requires money and not everyone has that money in their bank accounts. However, funding must not only be sufficient but efficient as well.

There’s no point asking for more than you need, it will just result in more interest and a larger repayment towards the end. Plan out your budget by listing a breakdown of the different components the funding is used for. You may spot areas in which you can forgo and others that you may have missed out. And once you get the funding, you’ll know exactly what to do with it.

Timing is Key

Timing is essential in many aspects of life and its no different in regards to funding. Having a realistic time horizon to pay off your borrowings can make repayments easier and more manageable.

Pacing your repayments can avoid interest payments from siphoning your cash flow.

Tip: If your business is performing better than expected, think about repaying back the debt earlier to decrease the amount of interest accumulating.

The Correct Choice

Here comes the most difficult part when seeking for funds. How do I choose between so many options?

Well unluckily for most, they don’t have as much choice as they think they do when it comes to the selection of finance. The most common for small businesses to get funding is through their own savings. This is, by far, the cheapest source of funding and the only opportunity cost associated is that you lose out on the interest on your savings which quite frankly is nothing compared to the potential interest payments you make for other sources of finance.

However, a lot of the time, the money is not enough to fuel the business which leads to people opting for the next best choice; a bank loan. This may be the most appropriate option for many individuals seeking funding as terms can be flexible and mutually agreed upon by both parties.

Tip: Try browsing through the different types of loans you can apply for, you may believe that there is some standard rate banks tend to charge for certain loans but be very surprised that the conditions of such loans can be as different as night and day.

Take every percentage point at face value; there may not be much difference between 7% and 8% but over the long term you’ll end paying back significantly more in aggregate.

Borrowing money through a loan or equity share from family and friends can be a good source of financial investment. Loans offered in this fashion tend to have a low interest rate compared to traditional loans and possess more lenient terms. Offering a piece of your business via equity distribution can motivate your family and friends to help grow your business.

Be warned though that any business problems don’t end up trickling down to family matters. Also, make sure any loan agreement is in writing just to avoid any legal problems that may arise in the future.

Another alternative of funding is through an outside investor. This is usually not a loan but an equity investment. This means that the investor becomes a shareholder in the business and is entitled to a percentage of the business profits (depending on his/her equity share percentage).

Furthermore, the investor may have some degree of control in your business. Depending on the investor, this could be advantageous or disadvantageous. The outside investor could bring new ideas and contacts into the business which would help accelerate the growth of the business. On the contrast, the investor could be in disagreement with any business decisions made and hinder the progress of the business.

It is up to the business owner to make sure the interests of both parties are aligned. One thing to note is that debts can be paid off but equity is fixed for the lifetime of the business which could result in equity being much more expensive if the business grows rapidly.

At Tax Affinity Accountants we provide free tailored advice to help grow our clients business.

By Wilson Law at Tax Affinity Accountants.

Tax Affinity Accountants are experts in Tax and Accountancy. Based in Kingston upon Thames they are considered to be small business experts helping and supporting business in the UK. They regularly help new business start up and provide valuable support for new businesses.

For more information visit www.taxaffinity.com. To read more interesting articles like this visit www.taxaffinity.com/blog. Please feel free to comment and share this with your friends.