Register for The New Marriage Allowance
Announced in 2013, the Marriage Allowance is a much sought-after tax break for married couples (or couples in a civil partnership), with online registration to receive the allowance having opened last month.
From 6 April 2015, over four million married couples and 15,000 civil partners across the country will become eligible for the Marriage Allowance tax break, allowing a spouse or civil partner that doesn’t pay tax (receiving no income, or income below the £10,600 tax-free threshold) to transfer 10% (£1,060) of their tax-free allowance to their higher-earning spouse or partner, so long as they don’t earn above the basic tax band, currently set at £42,385.
How to Apply
The Government wishes for those interested in receiving the Marriage Allowance tax break to first register their interest online, so long as you meet the eligibility criteria detailed above. It should be noted that if you or your spouse/civil partner were born before 6 April 1935 you should instead apply for the Married Couples Allowance.
When you head to the Marriage Allowance online portal you’ll be asked for your name and email address, through which the Government promise to contact you when you can apply.
From 6 April 2015 HM Revenue and Customs (HMRC) will begin sending out invitations to those who have previously registered their interest in applying for the Marriage Allowance. HMRC advise that applicants will be invited to register in stages; so don’t worry if it takes a while for you to receive your invitation. There’s no disadvantage to registering late: so long as you apply during the 2015 to 2016 tax year, eligible applicants will receive the full tax break.
The Marriage Allowance Registration Announcement
Speaking on the opening of the Marriage Allowance’s registration phase last month, Chancellor of the Exchequer George Osborne commented that the new tax break will save most qualifying couples up to £212.00 on their annual tax bill. Speaking at the same event, Prime Minister David Cameron focused on both the economic and family-driven benefits of the allowance, saying:
I made a clear commitment to the British people that I would recognise marriage in the tax system - so I am delighted that we’re just a little over a month away from it coming into effect. We can afford to do it because of the growing strength of the British economy. And as a result, it means families up and down the country can get a little bit of extra support and more financial security.
Mr Cameron continued:
But this policy is about far more than pounds and pence. It’s about valuing commitment. Families are the bedrock of our society. It is families who raise our children, look after our old and keep our country going. And this tax change is about saying as a society, we recognise that.
Experienced Accountants
To speak with a professional to discuss your eligibility for the Marriage Allowance tax break, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no obligation meeting.
Capital Gains Tax for Non-UK Residents on Residential Property
From 6 April 2015 non-UK residents wishing to sell or dispose of a UK residential property will be required by law to contact HM Revenue and Customs (HMRC) to let them know, as Capital Gains Tax (CGT) may be due on any gains made.
This new capital gains tax for non-UK residents comes after an open consultation was held by the Government between 28 March and 21 June 2014 in a bid to discuss the best way to implement a CGT charge on non-UK residents.
Who’s Affected
According to the Government, the new CGT will affect non-UK residents (individuals or trustees), personal representatives of non-resident deceased persons, and certain non-resident companies. These companies are mainly micro businesses controlled by five or less persons — speak with your accountant if you’re unsure if this includes your company.
Certain UK residents who dispose of UK property when abroad will also be affected, as will any of the above persons, trustees, or companies who are partners in a partnership.
If you fall into the affected group you’ll be required to contact HMRC within thirty days of selling or disposing of a UK residential property to establish whether you have a gain. You can tell HMRC of your sale or disposal online, and they advise that further information on this matter is due to follow.
Calculating Your Gain
When calculating your gain keep in mind that only the overall amount of gain after 5 April 2015 is chargeable, therefore the Government recommend that you work out your gain in one of two ways:
- Rebasing: Establish the exact value of your property on 5 April 2015, after which you calculate your gain between then and the day your sale is completed.
- Apportioning: Apportion the whole gain on the length of time you owned the property after 5 April 2015, compared to the total time you’ve owned it.
If you know you’ll be selling within the next few months it’s a good idea to record the overall value of the property at the start of April, as this will make the job of valuing it once it sells that much easier. We recommend bringing in an independent valuer (or two), as this will ensure HMRC are less likely to query it.
The Government advise that the amount you’ll pay will depend on the value of your gain between 6 April 2015 and the day your sale is completed, whether or not you have unused losses to take advantage of, and the amount of private residence relief you may hold. Other factors that could affect the amount you pay include whether or not you have an annual exemption limit, the amount of indexation allowance (if you’re a company), and the current CGT rate.
Experienced Capital Gains Tax (CGT) Accountants
To speak with a professional to discuss this new Capital Gains Tax for non-UK residents, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no-obligation meeting.
Quarter of Government’s Procurement Budget Spent on SMEs
There’s never been a better time to start a small business, with new Government data showing that a quarter of the country’s procurement budget for tax year 2013-14 was spent on small and medium-sized enterprises (SMEs).
Announced in Parliament by Minister for the Cabinet Office Francis Maude, the £11.4 billion spending total, 26.1% of the Government’s procurement budget for that year, represents 10.3% of direct spending on SMEs, and 15.8% of indirect spending.
Contracts Finder
Touched upon in our earlier article on the Small Business, Enterprise and Employment (SBEE) Act, in a bid to remove the barriers to public procurement that small businesses so often face, the recently launched Contracts Finder website from the Government is designed to make it easier for small businesses to land public sector contracts.
Speaking on the new website, Lord Young, Enterprise Adviser to the Prime Minister commented:
"Contracts Finder is a world first in terms of scale and ambition. It opens up government business like never before and levels the playing field for SMEs who in the past, didn’t know how to find public sector contracts, let alone bid for them."
Lord Young’s enthusiasm for Contracts Finder was echoed and elaborated on by Piers Linney, a member of the Government’s SME panel and a former ‘Dragon’ on the popular Dragon’s Den television show:
"We know government business has been incredibly complicated and costly to bid for in the past, and that was reflected in the tiny proportion of spend going to SMEs. This new legislation and the new site create a huge opportunity for SME businesses with reduced cash flow risk. They need to educate themselves on their rights under the new legislation and really get under the skin of Contracts Finder to make sure they can seize that opportunity."
Free to use by all small and medium-sized business owners, Contracts Finder works to show current and prospective SME owners across the UK that not only has there never been a better time to start a small business, but that public sector contracts are both easy to find and easy to bid on; an effort designed to level the playing field between new business owners and large corporations that have been dominant in their sector for decades.
Including both current and future public sector contracts worth over £10,000 (in central Government) and £25,000 in the public sector, the message is clear; small business owners have an equal shot at winning contracts of which they’re qualified to bid on.
Contact an Accountant
Needless to say, if you’ve recently started up in business or you’re planning on doing so soon, you’re going to need to speak with a qualified, experienced accountant to discuss your plans going forward, both with regard to your opening finances and your financial plan.
To speak with such an accountant, and to gain our thoughts on the best use-cases of Contract Finder and other Government legislation that can be of benefit to small business owners, contact us today on 020 7129 1199 or get in touch with us via our contact page to arrange a complimentary, no-obligation meeting.
Understanding The Small Business, Enterprise and Employment Act
First announced on 4 June 2014, and billed as a way to help make the United Kingdom be seen as a trusted, attractive, and fair country in which to do business, the Small Business, Enterprise and Employment Act (SBEE) finally came into law last month. If you have questions about how this will affect your small business, read on for a brief summary of the key changes.
Defined by Business Minister Matthew Hancock as “the first set of laws specifically to help level the playing field for small business,” the act has been designed to open up new opportunities for small and medium-sized business (SME) owners.
Speaking on the Small Business, Enterprise and Employment Act, Business Secretary Vince Cable said:
Small businesses provide jobs for millions of people across the country and are driving the economic recovery. The Small Business Act will create the right environment for small businesses to continue to thrive by giving them greater access to finance to help them innovate and grow, and make it easier for them to export goods and services made in Britain.
Mr Cable continued, highlighting the act’s hard stance on ‘exclusivity clauses’ which prevent zero-hour contract workers from taking on contracts with other employers:
The Bill’s measures also mean there is nowhere to hide for firms who do not play by the rules, whether by abusing zero-hours contracts or not paying the minimum wage.
Once again highlighting the Government’s desire to provide real, tangible encouragement to cultivate small business growth across the country, Business Minister Matthew Hancock stated:
The government has backed small businesses like never before to build a Britain where entrepreneurs can break the mould and take on the world. Coming from a small business background myself, I know first-hand how cumbersome bureaucracy can stifle your ambitions to grow.
Key Changes for Small Businesses and Enterprises
The Government have announced that all small and medium-sized businesses will be affected by at least some of the changes coming into effect over the next twelve months, as many encompass certain legal requirements; such as a business’s filing date with Companies House.
The main changes for small businesses and enterprises are as follows:
Improved Access to Finance
The Small Business, Enterprise and Employment Act provides small businesses with much improved access to finance by increasing the sources through which financing will become available, in order to allow small businesses to grow and create jobs well into the future.
This includes the following:
- Giving banks the power to pass on a business’s details to alternative lenders (with the business’s permission) should they be denied a loan.
- Providing open access to small business credit data, making it easier for small business owners to contact alternative lenders in the first place.
- Increase the speed in which cheques clear using ‘cheque imaging’ to allow small businesses to receive payments sooner.
Increasing Transparency and Reducing Red Tape
Seen as a way to provide small businesses with the key information they need in order to negotiate fairer deals — information which has traditionally been reserved for larger companies willing to pay for it — the SBEE act introduced a new reporting requirement for large companies to help balance the playing field for small businesses.
The act also focuses on reducing red tape for small businesses, allowing them to spend less time worrying about unnecessary, outdated regulations and more time serving their customers. This coincides with the appointment of an independent Small Business Appeals Champion to listen to and campaign on behalf of the needs of small businesses.
Providing Assistance for Overseas Expansion and Public Procurement
In order to make the UK an attractive and fair country in which to do business, the Government want to ease the pathway for small businesses by increasing the support from UK Export Finance to any small business looking to start exporting overseas and expanding into international markets.
In a similar vein, the SBEE act also looks to remove the barriers to public procurement for small businesses, making it easier for small business owners to have a greater chance of landing public sector contracts, as well as to make their thoughts on current procurement practices known.
Ending Abuse of Zero Hours Contracts
Needless to say, if you’ve been abusing zero-hours contracts by preventing contractors from taking on contracts with other employers while they have a contract in place with you, you must stop doing so immediately.
The SBEE act also states that employers who pay workers under the National Minimum Wage (for their age bracket) will now face increased maximum penalties that can be amended on a case-by-case basis, depending on the number of workers being underpaid.
Strengthened Rules for Corporate Directors
From October 2015 the SBEE act will introduce a prohibition on appointing corporate directors that will require companies with a director already in place to successfully explain why their director should be exempt, or have this individual step down from their role.
In a bid to ensure that incorrectly appointed company directors are removed from their register, Companies House will make an effort to write to all newly-appointed directors to inform them that their details have been filed on the public register. In addition, the time in which it takes Companies House to strike companies from the register will be reduced.
The SBEE act will also introduce a new process to help protect businesses and individuals that are having their address used as the registered office of a company without their authorisation.
The People with Significant Control (PSC) Register
In April 2016 companies will need to file a People with significant control (PSC) register at Companies House, therefore the Government recommend you and your accountant start preparing this information as early as January 2016.
During this month companies will also be required to notify Companies House of any changes to their company information that needs to take place, after which point you’ll be required to make them aware of any new changes on an annual basis. You’ll also be given the option to keep certain pieces of information on the public register only; making it unavailable on statutory registers.
Next April Companies House will also be updating the ’disqualified directors regime’ with regard to directors misconduct at home and abroad, in a bid to strengthen the database.
Experienced Accounting Professionals
With an estimated five million businesses operating across the United Kingdom, it’s hoped that the Small Business, Enterprise and Employment (SBEE) Act will help provide greater opportunity for small businesses to compete with larger companies, improve their speed of innovation, and ultimately grow.
To speak with an accountant to discuss how the Small Business, Enterprise and Employment Act will affect your business, contact us today on 020 7129 1199 or get in touch with us via our contact page to arrange a complimentary, no-obligation meeting.
The Tax-Free Childcare Scheme
Announced by the Prime Minister and Deputy Prime Minister back in March 2014, the Tax-Free Childcare Scheme finally launches this autumn, a scheme designed to help millions of working parents across the United Kingdom tackle rising childcare costs.
The Government consulted with parents, childcare providers, employers, and other interested parties before announcing the scheme. Speaking on its necessity, the Prime Minister said, “Tax free childcare is an important part of our long-term economic plan. It will help millions of hard-pressed families with their childcare costs and provide financial security for the future.”
The new scheme is available to nearly two million households up and down the country for all children up to aged twelve, and children with disabilities up to aged seventeen, provided parents are in work, earning over an average of £50.00 a week (and under £150,000 per year). This low threshold makes it possible for parents working part-time jobs to also benefit.
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Budget 2015: Key Takeaways for SMEs
Today, Wednesday 18 March 2014, Chancellor George Osborne delivered his fifth full Budget to the House of Commons since the Conservatives came into power; Mr Osborne’s last before May’s upcoming General Election.
Below we’ve summarised the key talking points from Budget 2015 for small and medium-sized businesses (SMEs):
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Time for Small Businesses to Start using RTI
Having been slowly phased in since April 2013, HM Revenue and Customs (HMRC) announced last month that employers with fewer than fifty employees (small and micro business owners) will be required to start using Real Time Information (RTI) for each member of staff on their payroll from today, 6 March 2015.
The RTI system, which we’ve reported on extensively since it was announced over two years ago, is a new way for business owners to report Pay As You Earn (PAYE), with the hope that the new, real-time method of reporting payments to employees will improve the accuracy of returns, ensuring that employers are paying the correct amount of tax.
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Tax Tips and News for March 2015
This issue … Salary, dividend or pension contribution; RTI penalties; Child benefit claw-back; Company cars; March Questions and Answers; March Key Tax Dates
Salary, dividend or pension contribution?
When you work for your own company you can decide how much salary to pay yourself, how much to pay into your pension fund, and what proportion of the remaining profits to take as a dividend. The split is important as it will affect the tax and national insurance payable by you and your company.
A salary just sufficient to be covered by your personal allowance (£10,600 for 2015/16), will be tax free, assuming you have no other income. However, if your company has more than one employee (including directors), a salary of over £10,000 (for 2015/16) will mean the recipient has to be automatically enrolled in the company's pension scheme, under the auto-enrolment rules.
You must pay national insurance contributions (NIC) at 12% on your salary above £8,060. So if the company pays you £10,600, you take home £10,295 after NIC deductions. The company will also pay employer's NIC of £343.34 on that salary. However, most companies are entitled to an employment allowance of £2,000 p.a. to set against NIC due for all the employees. This means the company doesn't pay over employer's NIC until the £2,000 allowance is used up.
You could pay yourself a salary just under the NI threshold of £8,060, so you receive an NI credit towards your state pension, but you don't actually pay any tax or NI. However, at that annual salary level you will be "wasting" £2,540 of your tax free personal allowance, unless you have other income to cover it. The 1/9th tax credit attached to a dividend can't be repaid even if the dividend is covered by your tax free personal allowance.
Finally, don't forget your company can make contributions into your pension scheme and get a tax deduction for the cost. From 6 April 2015, if you are aged 55 or more you will be able to draw all funds from that scheme, although 75% of the fund will be taxable in your hands.
The implications of drawing funds out of a pension scheme can be complex and irreversible, so you should take advice from a financial adviser registered with the financial conduct authority (FCA) before making any decisions concerning pensions.
RTI penalties
Last month we warned you about the penalties coming into effect for late filed RTI reports. The good news is that HMRC are cutting employers just a little slack, and will now allow three extra days in which to submit the full payment submission (FPS) report.
Normally the FPS must be submitted on or before the day the employees are paid, but there are some circumstances in which the FPS can be submitted up to 7 or 14 days later. For example, the FPS can be submitted within 7 days of the pay day if the employees' pay can't be calculated until the end of their shift, such as for harvest workers.
If you have already received a late filing penalty notice for a period since 6 October 2014, you can ask for the penalty to be removed. Do this by logging an appeal via the online appeals system. Complete the "other" reason box with the statement "return filed within 3 days", and the penalty should be cancelled. We can do this for you if you send us a copy of the penalty notice.
Penalties for late paid PAYE were also due to be applied automatically from 6 April 2015. However, HMRC is now going to assess the reason for the apparent late payment of PAYE before sending out a penalty notice.
We hope this means HMRC will only issue a late payment penalty when it is clear that PAYE was deliberately paid late. This should avoid penalties being issued for disputed amounts that appear on your business tax dashboard (online accounts) with HMRC. If your online account shows you owe an odd amount of PAYE please let us know without delay.
Child benefit claw-back
If you or your spouse/partner claim child benefit, and at least one of you has adjusted net income of £50,000 or more for the year, the highest earner must declare the benefit on their tax return in order to pay back part or all of the child benefit as a tax charge.
HMRC is writing to taxpayers who it thinks should have paid the child benefit tax charge for 2013/14, but didn't. Unfortunately some people who have received such letters are childless, or haven't claimed child benefit for decades.
If you have received one of those letters by mistake, don't ignore it. HMRC can alter your tax return to collect the tax it thinks is due. You need to reject any such incorrect alteration to your tax assessment within 30 days, but we can help you do this.
If you do earn over £50,000 and want to keep your child benefit for 2014/15 there are a number of things you can do.
First, work-out your adjusted net income. This is your gross salary before tax, less expenses that have not been reimbursed by your employer, but which are tax deductible, such as the cost of travelling to a temporary workplace and professional subscriptions. The self-employed should start with taxable profits and deduct trading losses. Any profits from let property, gross amounts of interest and dividends must also be included.
Next, deduct the grossed-up amount of donations made under Gift Aid, and grossed-up pension contributions made to personal pension schemes. Paying more pension contributions or making additional Gift Aid donations before 6 April 2015 can reduce your adjusted net income, and hence preserve your child benefit.
Remember only 1% of the child benefit is clawed-back for every £100 of adjusted net income above £50,000, so you might lose only a small amount of the child benefit as a tax charge.
Company cars
Does your company still own or lease the car you use for private journeys? You may need to rethink that arrangement in light of the tax charges due to apply in the years ahead.
From 6 April 2015 all company cars will generate a tax charge for the driver and the employer, even electric cars will be taxed on 5% of their list price. The taxable benefit for other low emission vehicles (51-75g/kg) will leap up from 5% to 9% of the vehicle's list price. The taxable benefit for all other cars will also increase by two percentage points. The taxable benefit for high emission cars (over 210g/km), will increase from 35% to 37% of the list price.
In 2016/17 all company car drivers will suffer another 2% hike in taxable benefit, except for those which are already taxed at the maximum of 37% of the car's list price. From 2017/18 the tax shoots up again, as for each extra 5g of CO2 emissions the taxable benefit increases by two percentage points of the list price. "Classic" cars with no recorded CO2 emissions will also be hit with increased taxable benefit charges.
Say you were provided with a new Lexus NX 300 H Sport on 5 April 2014. Its list price is £40,000, and it has a CO2 emissions rating of 121g/kg. If you keep the car for four years you will be taxed 86% of its initial value:
| Tax year: | Taxable benefit: |
| 2014/15 | £6,800 |
| 2015/16 | £7,600 |
| 2016/17 | £8,400 |
| 2017/18 | £11,600 |
| Total | £34,400 |
March Questions and Answers
Q. In the February newsletter you said holiday pay was not a contractual right. I don't understand how that can be the case. Please explain.
A. New regulations came into force from 8 January 2015 which indicates that employees can't take a claim to a civil court for breach of contract if their employer fails to pay amounts of holiday pay on the basis of an entitlement under the Working Time regulations. The new regulations indicate that the right to holiday pay is a separate statutory right not contractual right. However, if the amount of holiday pay is stipulated in the employee's employment contract, and that amount is not paid, the employee may be able to claim breach of contract.
Q. My company uses the flat rate VAT scheme, so we don't reclaim VAT on the things we buy. When I set up the company it bought some office furniture for £1,500. I am now moving to new offices and selling the old furniture. Must the company charge VAT on the sale of the furniture even though it didn't reclaim VAT when it purchased the items?
A. Any sales the company makes, including selling on surplus assets, must carry VAT as the company is VAT-registered. There are different rules when selling land or buildings. The fact that the company didn't reclaim VAT when it purchased the assets is irrelevant.
Q. I run a pub which has a cash machine (ATM) inside. I've just received an extra business rates bill from the local authority in respect of the cash machine for £3,600! They haven't charged a separate bill for the ATM before now. Is there anything I can do?
A. You can appeal against the business property valuation, including the treatment of the ATM as a separate property. Do this by contacting the national Valuation Office Agency (VOA). If you can't agree a reduction in the property's rateable value you can take your case to a Valuation Tribunal. But don't delay, as if you succeed in getting a reduction in the rates due, you will only get a refund for periods from 2010 to 2015, if your appeal was made by 31 March 2015.
March Key Tax Dates
19/22 - PAYE/NIC, student loan and CIS deductions due for the month to 5/3/2015
31 - Last minute tax planning for the 2014/15 tax year. Ensure you use up all exemptions to which you are entitled.
We are committed to ensuring none of our clients pay a penny more in tax than is necessary and they receive useful tax and business advice and support throughout the year.
If you need further assistance just let us know – we're here to help!
Contact us today on 020 8780 2349 to discuss how any of the above affects your personal or business finances or get in touch with us via our contact page to arrange a complimentary, no obligation meeting.
This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.
Self-Employed Business Expenses Explained
Understanding what does and doesn’t constitute an appropriate self-employed business expense is one of the toughest challenges recently self-employed business owners have to face.
Knowing the difference between an allowable business expense vs. a non-allowable expense can help you avoid not claiming for something you legally have a right to claim for, and having to have an awkward conversation with HMRC should you make an incorrect claim.
Though you should always keep in mind the fact that any expense you claim for must be the result of something that is ‘wholly and exclusively’ for business purposes, the below summary should give you a much better idea of what expenses you can confidently apply for.
It should be noted that you cannot claim expenses on items you purchase to keep and continually use in your business, such as laptops, desks, or vehicles. In the majority of circumstances these can be claimed as capital allowances instead.
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Types of Business Financing
Business financing comes in many forms. The types of business financing you need at any one moment depend on a variety of factors, including the amount of money you’re looking to borrow, whether you’re prepared to provide personal assets (such as your home) as security, and whether you’re comfortable with the prospect of selling shares in your company.
Below we’ve detailed seven of the most common types of business financing currently available in the UK. To speak with a professional regarding what financing method is most suitable for your business in your current situation, our contact details are below.
Investment Finance
Sometimes referred to as equity finance, you receive investment finance whenever you sell shares in your company to an investor.
The advantages of this method are that you don’t have to pay interest on their investment, and your investor will be useful in bringing new skills, ideas, and opportunities to your business, as they have a financial interest in your success. Disadvantages of this method, however, are that only limited companies can sell shares (not sole traders or partnerships), and you’ll end up owning a smaller percentage of your company.
If you are starting a new venture or have a small business in the UK, you may qualify for funding via the Enterprise Investment Scheme (“EIS”) and/or the Seed Enterprise Investment Scheme (“SEIS”). There are a number of requirements that need to be met. For a quick overview and more information on the schemes, read our pages on EIS and SEIS.
Loans
Loans are a form of immediate credit, paid into your bank account, that you must then repay over an agreed period of time with interest. Loans are ideal for achieving startup capital or paying for necessary assets, but they should not be used to pay for ongoing, monthly expenses.
Advantages of loans are that they’re not repayable on demand (see ‘overdrafts’ below) and you don’t have to give up a portion of your company. Disadvantages include the fact that most loans are incredibly inflexible, and the ability to meet your loan payments may sometimes be out of your control; such as when customers don’t pay you on time.
Overdrafts
Overdrafts are a short-term means of achieving credit from the bank you hold your business current account with; they are not a source of long-term financing.
The advantages of borrowing via an overdraft are that you can do so any time and, unlike most loans, you’re not usually charged for paying off your overdraft early. Disadvantages, however, are the fact that you’re charged when you exceed your overdraft limit, and your bank can terminate your overdraft at any moment.
Grants
Grants are a specific sum of money that’s awarded to you (as a business or individual) to undertake a chosen project.
Advantages of receiving a grant, whether from the Government, your local council, or elsewhere, are the fact that grants don’t need to be repaid and you won’t have to hand out shares in your company. The main disadvantage of grants is the fact that there’s consistently fierce competition for them, therefore to have any chance of receiving one you must focus in on a specific area of expertise and apply for a grant based on a project that’s related to your business, that you haven’t yet started.
Crowdfunding
The popularity of crowdfunding for business financing has grown in recent years due to a number of sites such as Kickstarter and Indiegogo coming onto the scene as a way of letting businesses and individuals receive crowdfunding finance from around the world.
The advantages of crowdfunding are it allows you to raise finance relatively quickly; rather than having to persuade one investor to hand you a large sum of money, you have to convince a large number of people to hand you a tiny sum of money each. One major disadvantage of crowdfunding, however, is the fact that if you don’t reach your fundraising target within a set time period, all money raised up to that point will be returned to investors.
Invoice Financing (Factoring and Invoice Discounting)
Invoice financing is a method of business financing whereby another company (an invoice financier) buys your unpaid invoices from you for a fee. There are two methods of invoice financing:
Factoring
Your sales ledger is handed over to an invoice financier, with them paying you a percentage of each invoice (approx. 85%) upfront. They’ll then collect all money owed from your customers for you, handing you the remainder of the balance, with you paying them interest on the original sum they paid you, along with their fees.
The main advantage of this method is the fact that you no longer have to worry about chasing invoices, but conversely your customers may prefer dealing with you directly.
Invoice Discounting
Your invoice financier will lend you funds against your unpaid invoices, with you paying them a fee for doing so. When your customers eventually pay their invoices this money will go directly to your invoice financier.
Advantages of invoice discounting are that you can maintain your close relationships with your customers, as they’ll have no idea you’re borrowing money against their invoices. Disadvantages of this method, however, are that you lose a certain percentage of each invoice, and you still have to collect the debts yourself.
Leasing and Asset Finance
Rather than seeking out financing to pay for a necessary business asset you may wish to lease or rent assets (such as vehicles or machinery) so you don’t have to deal with the cost of purchasing them until you have more capital under your belt.
Advantages of this method are that you’ll be able to lease higher-quality assets than you can currently afford to buy, and the leasing company are the ones at risk if your assets break. Disadvantages, however, include the fact that long contracts are often difficult to cancel prematurely, and in most cases you’ll have to provide the leasing company with a number of upfront payments and a deposit.
Experienced Advice on Types of Business Financing
To speak with a professional to discuss which method of business financing is most suitable for you in your current situation, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no obligation meeting.
This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.