Each month we ask different Independent Financial Advisers (IFAs) to give us their solutions to issues facing those who take an interest in their money. Expert opinions, for free, each and every month.
It is easy to contact an independent financial adviser in your local area visit or call 0800 085 3250
Q. How much can I earn as a limited company before having to register for vat?
Jason Witcombe AFPS, CFPCM Director Evolve Financial Planning:You must register for VAT if you supplied taxable goods and services totalling more than £ï¿½61,000 in the last 12-month period, or if you anticipate supplying taxable goods and services amounting to more than £ï¿½61,000 in the next 30-day period alone.Businesses with a turnover below the registration threshold can register voluntarily. There are a number of advantages and disadvantages to this and I recommend that you speak to an accountant.
David S Brunning APFS: Managing Director, Brunning Newman Houghton Limited:
All goods and services supplied by a company are treated as 'taxable supplies', but not all of them are subject to the 17.5 percent VAT charge - some are wholly or mainly zero rated. In the current financial year (2006-07) the VAT registration level is £61,000 taxable supplies, i.e. turnover, not profit. However, you need to look at three other factors carefully;
- Firstly, is all of your company's income subject to VAT? For instance, if some of your goods or supplies are mainly or wholly zero rated for VAT, you could have a far higher company turnover without having to register for VAT, or you may need to register and apply for an exemption.
- Secondly, the £61,000 threshold is not based on calendar or financial years, but a rolling twelve month test. If your company's VAT'able turnover is more £61,000 over any twelve month period, or you anticipate your turnover reaching £61,000 in the next 30 days then you need to register and start charging VAT.
- Thirdly, if your turnover is below the registration threshold but you pay large amounts of VAT to your suppliers (input tax), is it in your interest to register voluntarily? You would have to maintain accounting records and submit VAT returns regularly, but you could claim back VAT paid to suppliers.
Ian Black, Chartered Financial Planner, In The Black Financial Planning:
If you are in business and your taxable turnover, not just your profit, goes over the registration threshold you must register for VAT.
This means that you must register for VAT if at the end of any month the total value of the taxable supplies you have made in the past twelve months or less is more than the current threshold - £61,000, or if at any time you have reasonable grounds to expect that the value of your taxable supplies will be more than the current registration threshold - £61,000 - in the next thirty days.
All goods and services which are liable to VAT at the standard, reduced or zero-rate are called 'taxable supplies', whether you are registered for VAT or not. The total value of these supplies is called your 'taxable turnover'.
Q. I have credit card debt. Would it be wiser to use all my home equity to pay it off, or should I go with a consolidated credit company?
And if I do go with a consolidated company how will it affect my buying power for a home in the near future?
Jason Witcombe AFPS, CFPCM Director Evolve Financial Planning:
The rule of thumb is to make sure you are paying as little interest as possible on your debt.
Debt through a mortgage is usually at a much lower interest rate than debt through credit cards or through a credit card consolidation company.
However, debt through a mortgage will invariably be secured on your property whereas debts through a credit card might be unsecured. When applying for a mortgage, the lender will always ask what debts you have, whether on an existing mortgage or through credit cards and the more you can pay off the better.
Ian Black, Chartered Financial Planner, In The Black Financial Planning:
The decision to clear credit card debt using your home equity is not one which should be taken lightly. You would be converting unsecured debt to secured debt and so putting your home at risk.
If you go with a consolidated credit company you may find that you will pay a higher rate of interest for unsecured borrowing and, you may find that you have to use secured borrowing depending on the amount to be borrowed and your credit rating.
Use of a consolidated credit company, using an unsecured loan which will remain in place following the sale of your current property, will affect the 'affordability' calculation when working out what size of mortgage you can afford and so the borrowing will be taken into account.
If the borrowing is secured then the loan will be repaid on the sale of your current property and the equity you have to put into the new property would be reduced. This may lead to you having to pay a Higher Lending Charge to your new mortgage lender.
I have £5000 to invest but I want to be able to gain immediate access to it if needed. What do you recommend?
Jason Witcombe AFPS, CFPCM Director Evolve Financial Planning:
If you need instant access you should use a cash-based account for this investment. If you haven't already invested in an ISA for the current tax year, you can invest £3000 into a cash ISA, with the remaining £2000 going into a savings account.
You could then move the remainder of the cash into an ISA in the next tax year, which starts on 6th April 2007. That way, or all of your interest would be tax-free.
National Savings & Investments are currently offering a very good interest rate on their Direct ISA. The Icesave account from Landsbanki, the Icelandic bank, is currently offering an attractive rate for a savings account.
David S Brunning APFS: Managing Director, Brunning Newman Houghton Limited:
The basic choice is between cash deposits and 'investments'. Both options can offer 'instant access' but there is a huge difference between risks, and therefore what you may get back when you want to take the money.
The first question is 'How long do you want to invest the money for?'
If you want to invest the money for less than five years, or there is a significant likelihood that you will need to take some or all of the money within five years, then 'investments' are out.
Any investment held in stock and shares, or assets that are linked to stocks and shares, will fall and rise in value. If you hold them for a short period, less than five years, then there is certainly a risk that you could lose money over the period.
While by no means guaranteed, holding investments for five or more years increases the likelihood of making a profit on the investment.
Cash deposits have no such risks. Looking at the savings and deposit markets currently, using the MoneyFacts website, and ignoring age related and notice period accounts, the most competitive rate on offer is Alliance & Leicester's Direct Saver.
This 'phone and web based account' is currently paying a variable interest rate of 5.8 percent gross (5.65 percent AER) on balances of £5,000 or more. Interest is paid monthly and can be taken out or left in the account.
If you have not used your annual Individual Savings Account (ISA) allowances this year, then you could put up to £3,000 into a cash mini-ISA. Using the same source of information, and again ignoring accounts with restricted access or withdrawals, the mort competitive is currently offered by National Savings & Investments. Their Direct ISA, a 'phone and web based account', is offering 5.8 percent annual interest paid annually, but of course as an ISA this is paid tax-free. You could of course put £3,000 in now, and the balance in on 6th April, when you have your new annual ISA allowance.
One warning though - if you want instant access and so hold the money on deposit, but end up leaving the money in cash for years, you run the serious risk of inflation eroding or even destroying the value of your savings. Over five and ten years periods investments have historically out-performed cash and offer the best defence against inflation.
Ian Black, Chartered Financial Planner, In The Black Financial Planning:
I would recommend that you place £3000 into a Mini Cash ISA for the current tax year and then a further £2000 into the Mini Cash ISA on 6th April. This would give you a good rate of interest tax free with immediate access to the money should you need it.
The best rate at the moment is from National Savings & Investments offering 5.55%.
Now that the Prudential has sold off egg - how safe is my money that I have invested in their saving account for the past ten years?
Jason Witcombe AFPS, CFPCM Director Evolve Financial Planning:
Bank account holders are well protected under the Financial Services Compensation Scheme.
Citigroup is one of the world's largest banking organisations and I can't see that the new ownership is going to have an adverse affect on the security of your money.
Ian Black, Chartered Financial Planner, In The Black Financial Planning:
Egg is now to be owned by Citigroup which has some 200 million customer accounts in more than 100 countries which would suggest that if anything your money is more secure.
In any case your money is still protected by the Financial Services Compensation Scheme in the event of Egg being declared in default. This protects 100% of the first £2,000 and 90% of the next £33,000 with a maximum of £31,700 per person (not per account).
I need to invest my child's £250 from his Child's Trust Fund and want to invest in shares, can you tell me how I go about this, what are the best performing CTF and also one that charges the least percentage costs.
Jason Witcombe AFPS, CFPCM Director Evolve Financial Planning:
If you want to pick and choose individual stocks and shares, you should use a child trust fund that is operated by a stockbroking company.
However, if as is more likely, you want to invest in 'the markets' but would prefer to use a fund for this, then I would recommend a stakeholder child trust fund. You might like to consider Foreign & Colonial's stakeholder child trust fund as the charges on this are particularly attractive.
David S Brunning APFS: Managing Director, Brunning Newman Houghton Limited:
There are fourteen companies offering Child Trust Funds that invest in shares, as opposed to cash, and which meet the Government's 'Stakeholder' criteria on charges, access and flexibility.
The have no initial charges or fees, and most charge 1.5% as an annual fund management charge, although two are lower - F&C at 0.7% and Liverpool Victoria at 1.45%. Most have a minimum additional investment once the account has been set up of £ï¿½10, although Abbey and Nationwide will accept as little as £ï¿½1.
Most of the usual suspects are included amongst the providers - the high street banks, ex-building societies, etc. - as well as some specialist fund managers and mutual insurance companies.
Comparative information on the performance of the funds is not easily accessible, and only eight provide sufficiently detailed information to allow a proper comparison. With the exception of Lloyds TSB's Scottish Widows Balanced Growth fund, all invest in a UK All Companies fund, many using passive managed 'tracker' funds to keep the costs down (and the profits up).
The Financial Times rates all of the funds as being 'medium risk', but there is a considerable range in performance, with only F&C's FTSE All Share Tracking Trust and The Children's Mutual / Norwich Union UK Index Tracking Fund achieving the FT's 'very high' performance rating, although statistically Liverpool Victoria's Growth Fund has offered the best returns of those assessed over one, three and five years.
Looking at a balance between annual charges and historic, but obviously not guaranteed, investment returns, The F&C Child Trust Fund Stakeholder Account, investing in their FTSE All Share Tracking Trust would seem to be the most appropriate for you and your child.
Ian Black, Chartered Financial Planner, In The Black Financial Planning:
The Child Trust Fund (CTF) is a savings and investment account for children. Children born on or after 1 September 2002 will receive a £250 voucher to start their account. The account belongs to the child and can't be touched until they turn 18, so that children have some money behind them to start their adult life.
Investing in a Child Trust Fund is straightforward. Once you've received your Child Trust Fund (CTF) voucher you may need to complete an application form when you open a CTF account (or answer the questions on the form over the phone if you open an account that way). To choose the best provider you should seek Independent Financial Advice. Look at www.unbiased.co.uk to find an adviser near you.
My ex. husband took all paperwork on our endowment policy. How can I trace it? Do I have any legal recourse?
Jason Witcombe AFPS, CFPCM Director Evolve Financial Planning:
If you are a policyholder on this endowment, you have as much right to it is your husband. If you can remember the name of the insurance company, give them a call, explain who you are and ask them to give you details about it.
If you can't remember which insurance company this was with, you could always check through old bank statements as you and your husband may well have been paying into it on a monthly basis. You should also explain the situation to your lawyer as it should have been taken into account in the divorce settlement.
David S Brunning APFS: Managing Director, Brunning Newman Houghton Limited:
If the endowment policy was a 'joint life' policy, where you are both an owner and a life assured, then you have a legal right to the policy proceeds on maturity or surrender, or to the life assurance proceeds should your ex-husband die before the policy matures.
However, if the policy has been assigned to a mortgage lender as security to repay a loan or mortgage, then the lender would have first rights to the policy proceeds. Endowments can be very valuable assets, and must be taken into account when considering a financial settlement as part of a divorce or separation.
If you know which insurance company the endowment was issued by, then you can contact them, explain the situation and give them your name, address, date of birth. From these details the insurer should be able to trace the policy and issue replacement documents.
The insurer should require both your and your ex-husband's signatures to make any changes to the policy or to surrender it, so you have some security because he should not be able to remove you as a policy owner without your consent.
If you do not know the insurance company's name, then you should contact the mortgage company. The majority of interest only mortgage lenders keep a the details of any endowment policy being used to repay a mortgage on file, and should be able to provide you with the information you are looking for.
Ian Black, Chartered Financial Planner, In The Black Financial Planning:
You can trace your endowment policy through The Unclaimed Assets Register. The Unclaimed Assets Register is a unique search service that helps you find your lost assets and re-establish contact with financial institutions. You can contact the service by telephoning 0870 241 1713.
If the policy is not covered by your divorce settlement then you are entitled to 50% of the proceeds. You should consult your solicitor in regards to your rights to the policy as your rights will depend on the terms of your divorce settlement.
Q. I want to get a loan of about £1500. But I do not wish spend the money until March 07. Should I put it in some sort of high interest account or wait until March to take the loan out?
Jason Witcombe AFPS, CFPCM Director Evolve Financial Planning:
It depends what interest rate you can get on the loan and the bank account. Remember that any interest received from a bank account would be taxable so you really need to look at the net interest from the bank account when comparing this with the interest that you would be paying on the loan.
The interest rate on loans is usually higher than the interest rate on savings, but not always. March 2007 is now not very far away so you may be able to agree the loan in advance but ask for it to start only when you actually need it.
David S Brunning APFS: Managing Director, Brunning Newman Houghton Limited:
In principle, as long your personal circumstances are unlikely to change and you anticipate being able to obtain a loan in March, you should not take out a loan until you need it. However, you may have a perfectly valid reason for considering a loan now so let's look at the numbers.
Checking the deposit account and savings market, the best open market rate (ignoring those with age restrictions or access penalties) for £ï¿½1,500 is offered by HSBC's Online Saver Account. This is paying a variable rate of 5.75% gross (AER 5.6%). However, unless you are able to register tax exemption and receive gross interest, basic rate income tax would be deducted from the interest at 22% - you would only receive 4.48%.
The personal loan market is complex and highly competitive. I have assumed that the loan would not be secured, (i.e. a personal loan), would be repayable over five years, and that you have no CCJs or adverse credit history. Using the same source, one of the most competitive loan rates is offered by Northern Rock Personal Loan at 6.5%.
If you were to take the loan, you would be paying 6.5% annual interest (at least that was one of the best rates) and yet would only be receiving 4.48% net interest - you would be losing money. It makes no sense to take the loan before you actually need the money.
Ian Black, Chartered Financial Planner, In The Black Financial Planning:
Wait. You will always pay more to borrow money than you will get from deposit accounts.
This month's Independent Financial Advisors were:
Jason Witcombe AFPS, CFPCM Director Evolve Financial Planning. www.evolvefp.com Tel: 020 7965 4700
David S Brunning APFS, Brunning Newman Houghton Ltd,
Telephone: 01892-861002
Ian Black, Chartered Financial Planner, In The Black Financial Planning.
