Properties have always been a relatively safe and sound option for investment. As a landlord, renting out your property can offer an alternative source of income in the form of rent and potentially give a good return on the initial investment through capital appreciation. However, if you’re looking for huge returns over a few days then property investment is unlikely to be your preferred choice. Nonetheless properties have historically been a low risk investment and have provided modest returns over the long term. Here are a few things to consider if you wish to maximise your rental income:

Deducting Allowable Expenses

You can reduce the amount of rental income that is taxable by taking advantage deducting allowable expenses. There more common expenses you can deduct are:

• Utility Bills and Council Tax
• Maintenance and repairs to the property (excluding additions and improvements)
• Interest on the mortgage to buy the property
• Cost of labour/services (Wages for cleaners, gardeners etc.)
• Letting Agent’s Fees
• Accountancy Fees
• Service Charges
• Direct Costs (Advertisement cost, fuel costs incurred in the journey to the property, phone calls etc.)
• Contents Insurance

The costs should be wholly and exclusively incurred as a result of renting out the property. If a part of the expense meets this condition then that part can be deducted from income.

Cost comparisons

Saving costs can only have a positive effect as expenses are the only thing eating into your rental income. Try reviewing your costs on an occasional basis (once a quarter) and you may witness bargains that could help you save a lot of money. Service providers tend to offer sizeable discounts to new customers but only have stagnant prices for existing customers. Getting quotes from different companies that offer the same service can sometimes amaze you at how wide the price range can be. Just be sure you don’t jeopardise the quality of services just to save a few pennies.

Annual Investment Allowance

Expenses of a capital nature are not deductible. You cannot deduct from income the cost of the property you are renting out, expenditure that adds to or improves the property or the cost of renovating a property from a state that cannot be rented out.

However, capital spending can be deducted using the Annual Investment Allowance. From 1st January 2013 (until 1st January 2015), you can deduct up to £250,000 a year for many types of capital spending using the Annual Investment Allowance, such as commercial vehicles, business furniture, computers, machinery and tools. It would be beneficial to take advantage of the temporary rise in the Annual Investment Allowance as it is likely to revert back to around the limit of 2012/13 (£25,000) after January 2015.

Landlord’s Energy Savings Allowance (LESA)

Until April 2015, an allowance of up to £1,500 per let residential property can be claimed for the cost of loft, wall and floor insulation, draft proofing and hot water system insulation. The LESA was introduced to encourage landlords to improve the energy efficiency of let residential properties. These expenditures are usually not deductible from taxable income and are not eligible for capital allowances.

Wear and Tear Allowance or Renewals Allowance

For fully furnished properties, a wear and tear allowance can be claimed for furnishings such as beds, carpets and appliances. The allowance is 10% of the net rental income (gross rent minus utility bills, service charges and council tax) you receive from these properties.

With the renewals allowance, you can claim expenses of any furniture as you replace them. Any money you make from the disposal of the asset must be deducted and the cost of any improvements (e.g. an upgrade from a washing machine to a washer-dryer)

Note that you can only claim either the Wear and Tear Allowance or the Renewals Allowance but not both.

By Wilson Law at Tax Affinity.

Tax Affinity Accountants are considered in the market to be experts in Tax and Accountancy in the UK. Based in Kingston upon Thames they have clients right across the UK as well as Europe, Middle East and North America.

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.

Tips for Reducing Business Costs

If you own your own company, you will inevitably seek to bring in more business and increase revenues in order to boost your bottom line profit. However, equally crucial to final profit are your business costs. If you can cut down on unnecessary expenses and implement some simple cost-cutting strategies, you will make that all important difference and give yourself an edge over your competitors. Here are 10 basic ideas on potential cost-saving techniques:

1) Energy Costs- Investing in energy-saving office equipment has two key benefits. Firstly, you will pay less on future energy bills due to the more efficient nature of the appliances. And secondly, many energy efficient technologies are 100% tax deductible in the year of purchase according to the Enhanced Capital Allowance (ACA) scheme. You can write off the entire cost of energy saving appliances against profits, including: boilers; combined heat and power (CHP); lighting; pipe work insulation; and refrigeration.

2) Telephone and Internet Costs- Telephone and internet costs can be a significant overhead cost for some businesses. Landlines are expensive so make sure you don’t use them unnecessarily. Joint plans for internet and phone can help to save costs. Furthermore, consider automated phone attendants in order to save on staff costs, BUT make sure you don’t compromise your client service with long waits on hold.

3) Cash Flow- This is arguably the most important factor in the health of your business. In order to keep a healthy cash flow you should be wary of extending credit to your customers. You could perhaps offer small discounts for early payments and consider charging penalties for late payments (although this must be carefully outlined in contracts/invoices etc.).

4) Online Marketing- Rather than overspending on unnecessary advertising, make the most of the new trends towards online marketing through social media such as Facebook and Twitter. This is an extremely easy and inexpensive way to save money, whilst still increasing brand awareness.

5) Work From Home- Depending on the nature of your business it is certainly worth considering working from home. Aside from an obvious increase in flexibility, you will also be saving considerably on costs from commuting and maintaining an office. Furthermore, a proportion of your home expenses can be deducted from your taxable profits. Tax savings can be made on a range of household expenses, including: a proportion of utilities bills; repairs and maintenance directly related to your business space; mortgage interest; council tax; and rent.

6) Bulk Buying- As a business owner you are entitled to an account with wholesalers such as Costco or Booker, amongst others. You should certainly take advantage of bulk buying discounts. However, in order to maximise cost savings, you must consider whether buying in bulk is cost effective in each case for your business. For example, just because the cost per unit of pens, for example, is lower than an individual pen, this doesn’t necessarily mean you should purchase 1000 pens. Small businesses should only buy what they need in order to save costs and avoid waste.

7) Group Buying- Joining buying groups of multiple small businesses can greatly expand the buying power of smaller companies. The Forum of Private Business recently teamed up with Buying Support Agency (BSA) to offer group buying discounts in order to vastly reduce costs on routine items for small businesses. Equally, SME Discounts is a group-buying site offering substantial (up to 90%) discounts on business products such as marketing, operations, IT and B2B products and services.

8) Buy Second-hand- Office equipment can easily be bought second-hand as other businesses and organisations look to sell. Assuming you are careful, there are some great deals to be had for equipment that is as good as new and this can really help to reduce the costs of setting up an office.

9) Inventory- Try not to hold an excessive amount of inventory if you are unlikely to shift it in the short term. Inventory that is being sold is essentially just company money sitting on the shelf and this greatly impacts on your bottom line. Be nimble with your stock levels to react to consumer demand but don’t overstock your business as this cash could be spent more effectively elsewhere.

10)  Staff Costs- Employee wages are often the most significant cost to a small business. Employees are in most cases crucial to the success of your business so you don’t want to alienate them by cutting wages. However, you may consider reducing hours slightly in unproductive areas of the business. In addition, look for interns or inexperienced hires that can perform certain tasks for a lower fee, or nothing at all. Finally, consider outsourcing certain areas of your business in order to save on time and cost. Payroll, for example, is an area that doesn’t add much value to your business and can be time consuming, so it may be wise to subcontract such an activity.

By Tom Hoadley at Tax Affinity.

Tax Affinity Accountants are experts in Tax and Accountancy in the UK. Based in Kingston upon Thames they have clients right across the UK as well as Europe, Middle East and North America.

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.

Driving Sales in the Current Economic Climate

The frenzy of the bullish market looked unstoppable to many people; even the so called professionals of the financial market were caught up in the typhoon of prosperity. The share market was booming, business profits were skyrocketing, property prices were ever increasing and consumer spending was at an all time high. However, the path to everlasting wealth was halted by the global financial crisis of 2007-08. The crisis threatened the collapse of major financial institutions, the bailout of banks by national governments and the largest slump in the stock markets to date. The effects resulted in a global recession that lasted till 2012. Things have started to look better in 2013. There has been high confidence in stock markets, the housing market has been growing at a healthy rate and people are beginning to spend again. It is probably safe to say that we are currently in a boom. But how can you as a small business benefit from this? Here are a few points you can consider to boost your sales in the current economic climate.

Tapping into New Markets

You may begin noticing changes in your customer base.  Customers that your service or product may not usually target for may start to appear due to changes in their economic circumstances. Goods which are income elastic (sensitive to changes in income) will usually see a rise in demand when people have more disposable income. Consumers may switch to more premium versions of a product when they can afford to do so. Therefore it is important for businesses to react to such changes in their customer base and expand their marketing to cover new markets.  Make sure your product is of good quality as consumers may switch to alternatives if they consider your product to be inferior.

Providing the Best Customer Service

With new faces showing up to your business at a daily basis you may start to think that giving good customer service will not matter much. Unfortunately, history shows that although economic booms can last a while; they do not last forever. It is crucial that the standard of customer service remains high as it is the returning customers that will keep your business above the water when times become tough again. And when the times are good, it can only have a positive effect on sales.

Bringing in Talented People

Some businesses may struggle to cope with the surge in demand and begin to crumble under pressure. Costs will rise significantly in order to meet with unexpected demand, short-term liabilities may be unmet because of poor cash flow management and staff may feel overburdened due to a lack of training or experience in handling the new unforeseen problems. It is important to know the limitations of your workforce and accept the fact that the business may be growing at a rate that you can’t keep up. There are several ways to tackle these issues. You can hire staffs that are more experienced at working in a fast-paced environment. Another way is to have your personal accountants offer you advice on how to manage your business more efficiently and keep your costs down. Having access to professional guidance provides you the necessary knowledge for success.

Cheap Borrowing

Take advantage of cheap money from banks. Interest rates are generally lower and the terms to borrowing are more flexible during times of economic growth. This means that it is usually the most optimal time to borrow money and expand your business. Whether that may be to fund a new project, replace old equipment or train your staff; being ready for increases in demand can help reduce unexpected costs and accelerate business growth if planned correctly. Just be sure that you can meet the regular interest payments to avoid soiling the credit worthiness of your business.

Work Harder

Businesses that operate in accordance to changes in the season will know how difficult it is to keep afloat during periods of closure. For example, a sea side restaurant may get around 75% of its annual revenue during the summer time alone and will probably not be open for business during the winter season. Similarly, businesses may decide to open their business for fewer days of the week or cut their opening times if they face a slump in sales. In order to truly maximise the benefit of a booming economy, a business must be in business to attain such benefits. It will be difficult to see a significant rise in profits if your business is open for only four hours a day while your competitors get quadruple your profits rewards for working an extra four hours.  Remember that once fixed costs are covered, any revenue in excess of its variable cost is pure profit.

By Wilson Law at Tax Affinity.

Tax Affinity Accountants are considered in the market to be experts in Tax and Accountancy in the UK. Based in Kingston upon Thames they have clients right across the UK as well as Europe, Middle East and North America.

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.