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Why property investors like Micro Entity Accounts
A company meets the qualifying conditions for a micro-entity if it meets at least two out of three of the following thresholds:
- Turnover: Not more than £632,000
- Balance sheet total: Not more than £316,000
- Average number of employees: Not more than 10
There are approximately 1.56 million micro-entities in the UK, as compared with a total number of companies on the UK register of approximately 2.8 million.
Most property businesses will have less than 10 employees and less than £632,000 turnover.
If you are a property investor filing Abbreviated or Full Accounts you have to report property values at their fair value, which means you tell everyone what you think the property is worth. You may not want to do that, especially if you are planning to sell as it tells the potential buyer what you think its worth and that might be an issue in negotiations.
Under the Micro Entity regime you aren’t allowed to use fair value and have to use Historical Cost. Which most Property Investors will prefer.
No notes are required with Micro Entity Accounts and any advances or financial commitments are shown at the foot of the Balance Sheet, often this is simply the value of the Mortgage outstanding.
steve@bicknells.net
CIMA MiPs have secured an exclusive partnership with Angels Den
With over 6,000 investors, Angels Den has already been successfully matching entrepreneurs and investors for the past six years. They have a great track record of successfully funding growing businesses through their unique SpeedFunding and Angel Club events and now offer entrepreneurs and business owners the opportunity to pitch online via their crowdfunding platform.
Angels Den only want to bring their investors the best deals so they spend quality time with each entrepreneur, pre-screening and giving feedback on their business. Those businesses that aren’t quite ready for funding will now be sent to a centralised booking line at CIMA Accountant. Tel 023 8064 3763.
CIMA Members in Practice will provide consultancy in order to assist businesses to present their funding and investment opportunities to Angels Den through its regional offices.
When CIMA Accountant feel they have a business that may be ready for funding, they can now pass these deals onto Piers Lawford at Angels Den.
3 reasons why businesses are sold
When you think about it, there are really only 3 reasons why a business owner would want to sell their business:
Cashing In
Sometimes the the value of your business could be over inflated, remember the dot com bubble. Throughout history there have been times when the price that a buyer is prepared to pay is huge compared to normal business valuation models.
When: March 11, 2000 to October 9, 2002
Where: Silicon Valley (for the most part)
Percentage Lost From Peak to Bottom: The Nasdaq Composite lost 78% of its value as it fell from 5046.86 to 1114.11.
Imminent Threat
This can be caused by many things:
- New Legislation
- Loss of Resources
- Increased Competition
- Loss of Banking Facilities
Basically the seller will be aware that a problem is looming and they want to sell before the problem damages their business.
Life Changes
From a buyers perspective these are often the best businesses to buy, the key reason behind the sale being:
- Retirement
- Relocation
- Life Style
- Selling due to Illness
- New Business Opportunity
steve@bicknells.net
10 financial mistakes all new business should avoid
Starting a new business is always a challenge but there are some common financial mistakes that all start ups should avoid.
- Lack of Planning – Businesses normally start with a great idea but you need to have business model that works and to at least have a basic business plan and cash flow.
- Over Trading – this happens when a business expands too quickly for its working capital, when you start a new business its tempting to accept every order without considering whether you can have the resources and the cash to deliver.
- Wasted Marketing and Advertising – new businesses are an easy target for marketing companies but its important to stick to the essentials to start with, having a website, e mail and business cards are essential, magazine advertising and other things can be done as the business grows, in the early stages you are experimenting and finding your market so if you spend too much too soon you might promote the wrong things at the wrong price.
- Wrong Business Structure – Before you start your business get some advice from your accountant, its important to choose the right structure not just for tax reasons but also for investment and ownership.
- Wrong Staff – Choosing the right team is critical for business success, choose staff that have the right skills, the right attitude and are dedicated to the success of the business.
- Over Ambitious – All too often businesses plans are over ambitious with sales growing rapidly, often they prove to be unrealistic, when preparing a sales forecast start with your order book and be cautious in your assumptions.
- Overheads – Many businesses over spend on overheads for example renting premises too early, work from home, if you can, to minimise costs.
- Stock Problems – Buying the wrong stock, under or over stocking are also issues for start ups, try to adopt a ‘just in time’ stock policy.
- Getting Paid – A sale is only a sale if you get paid, any one can give things away, make sure you manage your clients and get paid on time.
- Competition – Keep an eye on your competitors, they will be watching you and responding to maintain their market share.
steve@bicknells.net
Are you eligible for Connection Vouchers for Broadband? £100m up for grabs
This was first announced in December 2013 and £100m of funding has been allocated.
Broadband Connection Vouchers will be available in 22 SuperConnected Cities across the UK. Click here to see where they are. If your city isn’t offering vouchers yet, use our Register your Interest form to let us know that you are.
- Connection Vouchers help your business connect to a better broadband service.
- You can apply if you are a small business and you are located in an eligible area. See more in our Can I apply? section and try the postcode checker.
- The Connection Voucher will pay towards the fixed cost of getting you connected -between £250 and £3,000 – you pay the ongoing line rental charge.
- Not sure if you need to upgrade your broadband? See why other businesses have made the decision to upgrade.
- You can choose from a list of registered suppliers. Take a look a the link on the right to the suppliers in your city.
- You can find out how to apply from your local city pages – use the links on the right of the page.
- Want to be a supplier? Read more and find out how to register.
steve@bicknells.net
Garden bagging – profit from property development in your back yard
The rate of new housing required to meet demand in England is now estimated at between 240,000 and 245,000 units a year, an increase of 10,000 new homes annually on previously accepted figures.
Gazumping and other nasties that flourished in the last property boom are making a return, as competition for homes increases with the bringing forward of the second phase of Help to Buy.
So now could be the time to sell off your garden:
- Its a way of building homes without building on the Green Belt
- It can be a zero risk way to make money if you sell the plot
Garden Bagging works as follows:
- Home Owners with suitable land approach a local builder
- The builder buys the right to seek planning permission for a nominal fee
- If the application is successful the builder will pay up to 85% of the open market value of the consented plot less his costs
Alternatively you could develop the plot yourself for a typical self build its estimated that 35% would be the land cost, 40% build cost and 25% profit margin.
steve@bicknells.net
Why you should maximise borrowings on your Buy to Let
If you own a Buy to Let property as an individual rather than in a limited company it is worth maximising your borrowings against the Buy to Let because the interest will be a tax deductible expense.
It doesn’t matter how you borrow:
- Mortgage on the Buy to Let
- Personal Loan
- Overdraft
- Re-mortgage of your main residence to invest in your Buy to Let
The rules allowing this are covered in http://www.hmrc.gov.uk/manuals/bimmanual/bim45700.htm
So, for example, if you had a Buy to Let property with low borrowings against it and a mortgage on your main private residence, you could increase your borrowings on the Buy to Let and pay off your private residence mortgage.
But you need to be aware that the maximum you can borrow on the Buy to Let is the market value when it was first let.
Here is an example from Tax Cafe – How to save property tax
Property investors are often unsure whether their interest is deductible. This depends on how the money is used. Use it to buy investment property and the interest is tax deductible. Use it for personal reasons and the interest is not deductible.
There is an exception to this rule: you can generally remortgage an investment property up to its original purchase price and the interest will be tax deductible, whatever you use the money for. For example, let’s say you bought a buy-to-let for £100,000 and the current mortgage is £60,000. You can borrow up to another £40,000 (if the bank will let you!) and all the interest will be tax deductible, no matter how you use it.
You will need to keep detailed records of the borrowing and interest for your tax returns.
Alternatively you might focus on paying off your main residence mortgage first to leave the borrowings high on the Buy to Let.
steve@bicknells.net
How do you split capital and interest on finance agreements? Sum-of-digits
From a business perspective it makes sense to spread the cost of purchasing assets rather than using up working capital and putting pressure on your cash flow. The Matching of Revenue and Expenditure is a fundamental accounting concept.
Assets such as vehicles are often financed over 3 years, generally, the monthly payments are a fixed amount, but when the payments are posted to the Accounts, Capital needs to be posted against the Loan Balance on the Balance Sheet and Interest needs to be posted to the Profit & Loss.
There are basically two methods to calculate the split:
Simple Interest
Interest is calculated on the balance outstanding as follows Balance x Interest Rate/12 months
Here is a link to a Microsoft Template for Simple Interest
http://office.microsoft.com/en-us/templates/loan-calculator-TC006206287.aspx
Investopedia says:
The standard loan is called “simple interest”. You borrow some money and at the end of the period you pay it back plus interest. For longer term loans, you make periodic payments. With some consumer loans, especially with auto loans, you may encounter a different type of loan which mentions the “Rule of 78”. It is a different way of deciding how much of each monthly payment is interest and how much is principal.
Read more: http://www.investopedia.com/terms/r/ruleof78.asp#ixzz2ILaSYgS0
Sum of Digits (Rule of 78’s)
The sum of digits method uses the formula:
(n x (n+1))/2
Sum-of-the-digits method, also know as the Rule of 78s is a term used in lending that refers to a method of yearly interest calculation. The name comes from the total number of months’ interest that is being calculated in a year (the first month is 1 month’s interest, whereas the second month contains 2 months’ interest, etc.). This is an accurate interest model only based on the assumption that the borrower pays only the amount due each month. If the borrower pays off the loan early, this method maximizes the amount paid by applying funds to interest before principal.
A simple fraction (as with 12/78) consists of a numerator (the top number, 12 in the example) and a denominator (the bottom number, 78 in the example). The denominator of a Rule of 78 loan is the sum of the digits, the sum of the number of monthly payments in the loan. For a 12 month loan, the sum of numbers from 1 to 12 is 78 (1 + 2 + 3 + . . . +12 = 78). For a 24 month loan, the denominator is 300. The sum of the numbers from 1 to n is given by the equation n * (n+1) / 2. If n were 24, the sum of the numbers from 1 to 24 is 24 * (24+1) / 2 = 12 x 25 = 300, which is the loan’s denominator, D.
http://en.wikipedia.org/wiki/Rule_of_78s
I have created a template for the Sum-of-digits method and you can download it using this link
https://docs.google.com/spreadsheet/pub?key=0AiOJESd6TK4ddFd1cHkweDZwSVk1b1M2OHJXdDlRNXc&output=xls
Comparison
If you take the following example:
Asset cost £18,000
Deposit £1,800
Loan £16,200
Repayments 36 x £500
Interest Rate 6.9718%
The total interest charged over 3 years is the same £1,800 but the monthly interest is different, simple interest for month 1 = £94.12 but using sum-of-digits its £97.30. This means that with the sum of digits method the balance due for early repayment will be higher.
steve@bicknells.net
Tax Advantages of a Classic Car
A classic car is one where:
- the age of the car at the end of the year of assessment is 15 years or more and
- the market value of the car for the year is £15,000
I found a 1968 Jaguar MkII for sale for £15,000 on
http://www.classiccarsforsale.co.uk/classic-car-page/165880/1968-jaguar-mkii/
The Mark 2 gained a reputation as a capable car among criminals and law enforcement alike; the 3.8 Litre model being particularly fast with its 220 bhp (164 kW) engine driving the car from 0-60 mph (97 km/h) in 8.5 seconds and to a top speed of 125 mph (201 km/h) with enough room for five adults. Popular as getaway cars, they were also employed by the Police to patrol British motorways.
The Mark 2 is also well known as the car driven by fictional TV detective Inspector Morse played by John Thaw
http://en.wikipedia.org/wiki/Jaguar_Mark_2
Assuming the list price was £2,000 (I can’t find the actual list price), the taxable benefit in kind would be £2,000 x 35% (maximum)x 40% (higher rate tax) = £280
As long as the Market Value is below £15,000 these rules apply above £15,000 the market value is used for the calculation, you can pay for your private fuel to avoid the tax on that.
steve@bicknells.net
Buy to Let is Back!
House prices are rising as confirmed by the Land Registry in their report 29 April 2013, the annual change is 0.9%, rent is increasing again after a drop in 2009 according to the English Housing Survey, in 2011 it went up 3% to a mean rent after housing benefit of £132 per week. So let’s see who the tenants are (English Housing Survey 2011):
| social and private renting households receiving Housing Benefit | ||||
| all social renters |
all private renters |
all renters |
||
| percentages | ||||
| age of household reference person | ||||
| 16 to 24 | 6.3 | 11.9 | 7.8 | |
| 25 to 34 | 12.6 | 26.9 | 16.5 | |
| 35 to 44 | 18.1 | 24.0 | 19.7 | |
| 45 to 54 | 16.3 | 15.8 | 16.2 | |
| 55 to 64 | 14.1 | 9.0 | 12.7 | |
| 65 to 74 | 15.8 | 7.8 | 13.6 | |
| 75 and over | 16.7 | 4.4 | 13.4 | |
| marital status of household reference person | ||||
| married1 | 16.9 | 18.4 | 17.3 | |
| cohabiting2 | 5.5 | 9.7 | 6.7 | |
| single | 33.2 | 37.6 | 34.4 | |
| widowed3 | 17.1 | 7.5 | 14.5 | |
| divorced4 | 20.9 | 17.0 | 19.8 | |
| separated5 | 6.4 | 9.9 | 7.3 | |
| household size | ||||
| one | 50.5 | 31.7 | 45.4 | |
| two | 23.2 | 28.7 | 24.7 | |
| three | 11.5 | 18.0 | 13.3 | |
| four | 8.2 | 12.3 | 9.3 | |
| five | 3.6 | 5.8 | 4.2 | |
| six or more | 3.0 | 3.4 | 3.1 | |
| household type | ||||
| couple, no dependent child(ren) | 11.5 | 8.0 | 10.5 | |
| couple with dependent child(ren) | 10.1 | 19.2 | 12.5 | |
| lone parent with dependent child(ren) | 20.9 | 35.1 | 24.7 | |
| other multi-person household | 7.1 | 6.0 | 6.8 | |
| one person | 50.5 | 31.7 | 45.4 | |
| length of residence | ||||
| less than 1 year | 8.4 | 27.7 | 13.6 | |
| 1 year, under 3 years | 15.4 | 32.5 | 20.0 | |
| 3 years, under 5 years | 13.2 | 15.5 | 13.8 | |
| 5 years, under 10 years | 20.7 | 12.3 | 18.4 | |
| 10 years, under 20 years | 22.2 | 8.0 | 18.4 | |
| 20 years or more | 20.1 | * | 15.7 | |
| economic activity of | ||||
| household reference person | ||||
| full time work | 2.7 | 13.1 | 5.5 | |
| part time work | 9.5 | 18.1 | 11.9 | |
| retired | 36.4 | 16.0 | 30.8 | |
| unemployed | 13.8 | 17.4 | 14.8 | |
| full time education | * | * | 1.5 | |
| other | 36.4 | 32.9 | 35.5 | |
| total | 2,395 | 890 | 3,285 | |
| £ per week | ||||
| mean gross weekly income | ||||
| of household reference person | 206 | 237 | 215 | |
| (and partner) | ||||
| sample | 1,945 | 690 | 2,635 | |
Yields are looking good, its possible to achieve 8% to 10%, take a look at the examples on http://investors.assetz.co.uk/property-listing.htm
Lending rates are low with Bank of England base rate stuck at 0.5%.
So we should see Buy to Let coming back into fashion with investors, with that in mind here are my top tips to minimise your tax:
1. Claim allowable expenses
- Mortgage or Loan Interest (but not capital)
- Repairs and maintenance (but not improvements)
- Decorating
- Gardening
- Cleaning
- Travel costs to and from your properties for lettings or meetings
- Advertising costs
- Agents fees
- Buildings and contents insurance
- Ground Rent
- Accountants Fees
- Rent insurance (if you claim the income will need to be declared)
- Legal fees relating to eviction
2. If the property is furnished claim for Wear & Tear, you can claim 10% of the rent each year
3. Claim for repair and advertising expenses incurred in getting the property ready for renting
4. Consider how the property is owned for example your partner may pay less tax or if you own it 50/50 you could use their capital gains tax exemption on sale of the property
5. Consider whether owning the property within a limited company might be better, Corporation Tax is 20% for small companies in the UK which can make dividends more tax efficient than personal income.
6. Make sure any borrowings you have are on the Buy to Let so that you can claim tax relief on the interest
7. Claim the Energy Saving allowance for energy saving work and save £1,500
steve@bicknells.net
Business Accountant 