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Self-employed professionals and business owners may be tempted to spend generously and take as many deductions as possible in any given year, yet there are circumstances where it makes more sense to be more careful or defer deductions, tax and financial experts say.
It is important for the self-employed to know the rules. Businesses must report all earned income and expenses. There are instances where businesses claim items that are not truly legitimately deductible.
The assumptions are that a personal mobile phone that is used for a few business calls, home internet, their only car which they claim 100 percent for business, and other personal expenses can be business deductions
Not only does that cause a problem if they are audited by the IRS, it could also hurt their cause when it comes to a sale, qualifying for a loan or making a retirement contribution based on taxable income.
There are times where it makes sense to defer making purchases and be a high-roller in any given year.
Consider the following
When you want to amp up retirement savings
Retirement plan contributions for the self-employed are based on the amount of profit or income in the business. The less taxable income you have, the less you can take advantage of the plans.
When you want to boost your income
You may choose to be frugal in your business or defer deductions if in the next three years you plan to either sell or obtain long-term financing.
When you sell your business, you will likely be asked to give the buyer at least three years of tax returns. Many buyers rely on these net income numbers more than your accounting books, because so many expenses can be claimed in a sole proprietor business when you are doing your end-of-year accounting.
Loan officers also will look to your tax returns to assess your ability to repay a loan. Less income may translate to a smaller loan. Lower taxable income could also hurt a business owner's personal goals.
Small-business owners should be wary of their personal finances. Deductions lower business income, but that also hurts a business owner's ability to qualify for family needs like a mortgage or loan for a new car.
If you are just starting out
Timing — and matching expenses with income — is perhaps the most important reason to defer deductions.
You may want to defer expenses to the next reporting period because you are anticipating a large income item which will come in. The important thing when it comes to tax decisions and opportunities is keeping good records. Many business owners claim they deduct everything. The problem with that line of thinking is that they will never survive an IRS audit.
For those who are smarter, they will learn that lesson early.
Globally, more than 7 out of 10 respondents said funding for cloud resources was proving to be a hiccup in their cloud strategy. And the problem persists across various industries. The finance sector is marginally ahead of the curve, yet, 63% of its IT decision makers worrying about budget pressures.
Loving what you do, finding your ideal customer and honesty.
If you want to make sure that your dream doesn't fall flat on its face before it gets much further down the line, you need to cross-examine your idea carefully and ask yourself some very honest questions.
Play to your strengths
What are you good at? What do you really enjoy doing? Do you have a passion, a skill or a hobby that you really enjoy? Do you have some great experience? Do you have a network? Do you have a real advantage in your industry? Ask your family and friends if they agree with your idea.
Find your secret
What makes you different? How will you sell your service to potential customers? Do you have a particular product or service angle or something that sets you apart from the competition? Could you provide better quality? Could you be more cost-effective? Could you provide better customer service? Are you the only, or one of a relatively small number of local businesses that do what you do?
How will you reach your target market?
Draw up a detailed plan
How much will it cost to make or provide your product or service, from production to staff to packaging?
How much profit can you make for each item or service?
How many can you sell?
How much you need to invest upfront? When will I get paid?
Identify your ideal customer
What would your customer buy? What would your customer pay for your product and service? What are they really looking for? Which competitor products do they buy at the moment?
Hone in on your ideal customer then research.
Be honest with yourself
Now back to looking in the mirror again. How committed are you? Is this a 9 - 5 job or a 5 - 9 job in the evenings (or both)?
Is this a lifestyle business that will allow you to earn a nice living?
What you are willing to spend and risk. Any business will take a fair amount of time and effort to get off the ground. You may need starting capital to cover set-up costs. What is your appetite for takings risks? Do you have any savings and are you prepared to use them?
If you are serious about starting-up, if you have the passion and desire to be your own boss – then you will find the answers.
Gross annual bridging lending in the UK increased to £4.2 billion in April as the market rebounded from the post-Brexit falls in the second half of 2016. The wider property market has shown signs of slowing in the first quarter of the year.
It is still unclear what effect Brexit will have. While the market recovered quickly from the shock referendum vote in June 2016, the long-term effect of negotiations and the final deal for the UK represents a great unknown, which could cause some investors to act more cautiously.
There's been a rise in bridging loan volumes as investors turn to alternative finance. The increase among smaller investors fits with the overall picture of residential market growth despite a jitter at the higher end of the market
We continue to predict that the bridging market will go from strength to strength. Market moves present an opportunity for investors and those looking to capitalise on this, will be seeking out the financing needed to enable them to do so.
Whatever happens next, the industry needs to be ready with diverse and flexible financing options for property purchasers. The bridging sector has seen a five-fold growth in lending since 2011 and is well placed to take advantage of economic fluctuations.
The size of the typical bridging loan has continued to grow significantly over recent years, as property professionals increasingly incorporated bridging into their project financing arrangements.
Strong competition in the sector has created excellent value for consumers as rates have remained below 2% for more than 18 months. Borrowers will continue to look at alternative financing options in the future.
This could prove a crucial advantage to well-funded players in the market, who are able to satisfy customers with special circumstances who often need loans in quick turnaround timeframe.
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According to new data from UK Finance, businesses are building up deposits and shying away from taking out loans.
UK Finance found business borrowing from high street banks has slowed in 2017 with the biggest easing in wholesale and retail businesses. Borrowing by non-financial businesses rose by just 2% in September, which is below recent averages, and the capital given out, £12.7bn, was down on the same period in 2016.
Manufacturers are feeling less optimistic, with lower than expected order books leading them to put off investment in new workspace.
UK mortgage approvals also fell, reaching a six-month high of 41,762 in August, 41,584 in September, 7% higher than in September 2016, and above the six-month average of 41,006. The banking association claimed that modest momentum has been building in the UK housing market over the past 12 months.
Expectations for a November interest rate hike by the Bank of England, combined with political uncertainty around Brexit, resulted in subdued house buyer demand.
Proper funding is vital for any business to grow and develop.
Most new business startups start on credit and once a business is up and running it needs appropriate finance in order for it to grow.
Smaller businesses still find it challenging to find out what the best finance options are and how to access them.
Planning is fundamental
Preparing helps potential lenders or investors understand the vision and goals of your business. Create a sound business plan, assess where your business is, what the opportunities are, how achievable they are and what new challenges lie ahead. Analise how much capital needs to be put into the business to finance your development plans.
Know your options
Gain quality advice
Good independent advice is priceless. Specialist advisors will provide you with knowledge and information to make the right financial choices. Corporate advice can be gained through a number of ways including accountants, lawyers, government sources and business mentoring to national or local accelerators or incubators.
For more detailed advice, CSG Capital has developed a Finance Guide, setting out the range of options.
There is confidence London's businesses can flourish when the country leaves the EU.
London is a commercial and cultural powerhouse. It has dominated rankings of global business competitiveness, attracted investment and talent globally, and enjoyed economic growth which far outstrips the rest of Britain.
While nobody can foretell London’s future in a post-Brexit world, there remain opportunities in the transition period over the next two years.
Currently UK businesses are able to provide a range of financial services anywhere in the EU, and in the wider European Economic Area (EEA), while being based in the UK and regulated by UK authorities. This is because businesses offering financial services have ‘passporting’ rights which allow them to offer financial services to the rest of the EEA (28 EU members plus Norway, Iceland and Lichtenstein) while only having to follow one set of regulations.
Where change seems most likely is in London’s financial services sector. Around 5,500 UK firms rely on passporting, and they turn over about £9 billion in revenue, a lucrative source of tax revenue for the Exchequer. Exiting the single market could strip London of its coveted role in clearing Euro-denominated financial transactions. London is the world’s principal location for trading the Euro — a $2 trillion-a-day market — accounting for about 43 per cent of foreign transactions involving the currency.
If the City loses those rights, finance employers may be required to set up new European entities to maintain business in the bloc, and have warned on moving jobs from London.
The capital’s role as a financial hub goes hand-in-hand with its reputation for having strong legal, regulatory and political frameworks. Some of the immediate challenges will come from any potential changes to the free movement of goods, services and workers across borders. Many firms rely on Britain’s EU membership to sell their goods and services freely to customers across 27 member states. UK companies can also import supplies without tariffs.
Britain will have to strike new trade deals with the EU and failure to do so raises the prospect of trade tariffs and quotas and raised costs for exporters.
Trade is just the tip of the iceberg. Businesses will have to consider how Brexit impacts contracts, supply chains, data protection, intellectual property and the tax environment.
Access to skilled labour is essential to London’s economic dominance.
London has prospered from being a completely open city. Any block to the internationality is bound to affect business negatively. London remains an extraordinary city in which companies celebrate their employees’ many different nationalities.
The real issue with Brexit is the cultural and social damage potentially wrought to the capital. Londoners see themselves as part of Europe.
However, the prevailing view is that London’s status as Europe’s commercial and cultural capital will be preserved, whatever the outcome of Brexit.
London is a hotbed of innovation, such as our thriving fintech sector, with a depth of talent and diverse industries that few cities can match.
According to new research, half of the UK’s most influential, high-growth SMEs say their growth ambitions and development plans have been hindered by a lack of suitable funding over the past three years.
High-growth SMEs are defined as businesses that have seen annual revenues grow by more than 20 % on average over the past three years.
The top three priorities for the UK’s high-growth businesses over the next 12 months are
Experts have warned British businesses could face an extra £1bn tax bill next year.
Figures from the Office for National Statistics showed that Retail Price Inflation (RPI) was 3.9pc in September. This figure will be used to set new business rates values in April, on top of changes to the system that came in earlier this year.
Without intervention to freeze business rates, retailers and other firms would face a rates rise twice as large as last year.
The total increase in business rates across all sectors could be as much as £1bn in April if the 3.9pc increase goes ahead, based on the £25.7bn paid in rates in the current financial year.
The rise could add another £273m to retailers’ bills alone.
The consequences of the RPI figures could be severe for many shops in an uncertain position and fighting to survive. Consumers will face further distress as the pound in their pocket buys them less at the checkout.
For many shops, the rise could be “the last straw.
The cost of failing to take action will likely result in yet more empty shops and gap-toothed high streets.
Many businesses had already been affected by a revaluation of properties that came into force in April.
Companies, especially those in central London, have been hit by huge increases in their rates bill because the properties they rent are now worth far more than when the system was last assessed in 2010.
The Government should move to link the rates to the lower Consumer Price Index immediately, rather than in 2020 as is currently planned.
The Treasury has claimed the change to CPI indexing would save companies £1bn in the first three years, including a £250m saving for the retail sector.
Nearly 44 % of Small Business Enterprises have never checked their company’s credit score, according to new research.
Lenders use credit scored to determine whether businesses have a good track record of repaying debt, and are therefore one of the fundamental factors affecting a businesses' ability to get a loan.
Credit reference agencies compile reports and include details of all the loans and other forms of credit that a business has had in the past and whether a business has kept within the agreement. Issues, such as County Court Judgments, are also flagged.
A simple mistake in your credit history such as an incorrect address can affect lenders’ opinion of your business, meaning that you’re unable to obtain a loan or get good terms on credit agreements.
Research found that 44 % of SMEs had never checked their credit score, 6 % had not checked their score within the last 12 months, 18 % had checked within the last six months.
Here are seven tips to assist businesses to ensure that their credit history is as good as it can be:
Asset finance has become a fast-growing alternative finance option to traditional banks loans - which have been more difficult to secure for many small business owners since the 2007/08 financial crash.
There are different types of asset finance products available
90% of the nation’s 5.5 million small business owners still get their business loans from their main bank.
Conventional bank loans are helpful in certain circumstances – but for company owners targeting funding for specific areas of their business, relying on straight loans to cover a variety of sins often won’t be the most effective way of growing. Today, business owners are increasingly turning towards asset finance.
Here's how it works
Asset finance is a loan that is used to obtain equipment – from schools buying classroom equipment to caterers purchasing ovens.
There are two kinds of asset finance – lending against assets that you already own, and loans for buying additional assets.
The benefits of asset finance are numerous; it’s risky for small business owners to tie up their cash in equipment, which could, in turn, see them facing cashflow issues further down the line.
Hire Purchase allows you to spread the cost of an asset over a period of time – you pay in instalments and at the end of the term you have the option to take ownership of the equipment.
A lease might be more useful for SME owners concerned with flexibility. Instead of defaulting to owning the asset after you’ve paid the last instalment and option to purchase fee, you have the option to upgrade to a new piece of equipment or just return it.
It’s worth weighing up all the options. If you’re confused about what solution might work best for you, consider speaking to a broker – they are often experts in different sectors and will be able to help secure favourable term lengths for the benefit of flexibility.
Stamp duty in England may be changed to encourage people to make their homes more energy efficient.
Energy minister Claire Perry said householders would face "carrots and sticks" to prompt them into saving on heating bills and carbon emissions.
The government will fail to meet its climate change laws unless it can cut emissions from household heating.
The proposals are part of the government's Clean Growth Plan which defines how it aims to reduce carbon emissions across the whole economy.
Ms Perry said she was "interested" in the idea of lowering stamp duty on properties that have been made energy efficient, and described the idea as potentially "one of the incentives" to encourage homeowners into implementing energy-saving measures on their houses.
The application of stamp duty is devolved around the UK, so this would only apply to energy efficient homes in England.
Ed Matthew, from the climate change think tank E3G, has welcomed the plan but says there needs to be a clear strategy.
Ms Perry said the plan would cover all parts of the economy, including cars and industrial emissions.
But energy campaigners fear the plan will not contain the measures necessary to meet the government's own laws on cutting carbon.
British bank Aldermore Group Plc (ALD.L) is in preliminary talks over a possible 1 billion pound takeover offer from South Africa’s biggest lender by value, FirstRand (FSRJ.J).
Aldermore said on Friday it had received an “indicative proposal” of 313 pence per share in cash.
The Board of Aldermore has indicated to FirstRand that it is likely to recommend a firm offer at this (313 pence) level.
FirstRand could not immediately be reached for comment.
FirstRand already has a fast-growing London-based car finance business, Motonovo Finance.
Britain’s so-called challenger banks, such as Aldermore, emerged after the financial crisis to fill a gap in small-business lending.