With the New Year now firmly underway it’s time to shrug off those January blues and plan for what’s sure to be another eventful year
If the last 4 very dramatic years on Planet Contractor have shown us anything it’s that, as a Freelancer, it is vital to plan ahead so that you’re ready to face any eventuality. For some, contract rates have gone into reverse as the cost of living has soared, volatile markets have given investors a white knuckle ride whilst with the state rolling back pension and other benefits as austerity budgets bite, old certainties have been blown away.
In this month’s Planet Contractor we aim to equip you with all the tools you need to make the most of 2012.
Here’s our 10 step path to financial security.
Step 1: Save tax on your life insurance
Rather than pay for your life insurance from taxed income, a ground breaking arrangement called a Relevant Life Policy, that our advisers at ContractorFinancials helped to launch, now allows you to enjoy corporation tax relief on premiums with no benefit in kind implications.
A carefully worded trust ensures that, in the event that the worst should happen, any payout is free from inheritance tax too.
Whereas you need to pay income tax on salary and dividends to then pay personally for life insurance from your private bank account, this Keyman scheme aims to tax efficiently replace the lost death in service benefits that you may have enjoyed whilst working as a permanent employee and is paid for out of your company bank account instead.
In most circumstances the policy is portable so should you close your limited company in the future and need to restart paying a policy personally, you needn’t worry about fresh medical underwriting.
Insuring the main breadwinner is only part of the job though and you can also protect any employees such as your spouse (who may be company secretary for instance). Our award winning protection team is on hand to help advise you a policy to fit your needs and budget.
The tax man is, in effect, helping to fund the protection for your loved ones, so our specialist adviser; Catherine Young, should be able to help you put in place the cover your family needs without breaking the bank.
Step 2: Get company money working hard this year
Too often over the past 3 years we have had clients come to us suffering poor rates of interest on corporate bank deposit accounts. Inertia or lack of alternatives has often meant that, until speaking to us, Freelancers just accept this as a sign of the times.
Our savings guru, Luke Somerset, has earned clients thousands of pounds in extra interest over this period, using our expertise as advisers and the fact that we can look beyond the high street, to help you make the most of your hard earned cash.
With inflation at 4.2% this month, earning less than this figure means that you’re losing money on cash at bank. At the same time however, you might not want to invest in anything with risks attached even though you know this may earn greater returns. This is cash that you’ve worked damn hard to earn in the first place but this soul destroying dilemma cause you lost sleep in the coming months.
At up to 4.1% interest, we now have access to better cash rates (with the likes of Cater Allen) than are available to you by speaking direct with the banks and by using our cash manager service via an offshore bond arrangement you can defer corporation on any interest earned (perhaps enabling you to engineer a loss at the time of encashment of your bond so receiving the growth tax free).
Our cash manager allow you to avoid tiresome money laundering requirements whilst switching from one account to another to exploit a better rate elsewhere and Luke can handle any the paperwork on your behalf.
Step 3: Protect against state benefit cuts
Your income is totally reliant on you being fit and healthy enough to work tomorrow. With state benefits offering a subsistence level of support and becoming increasingly hard to qualify for as austerity cuts bite it’s essential to protect yourself against illness or injury.
As the Freelancer specialist, ContractorFinancials has been chosen to pilot a new scheme in 2012 based solely on contract rate alone rather than traditional salary and dividend income measures that may have left you underinsured.
Income Protection will pay a tax free monthly income to protect your current lifestyle and can be funded from your own personal bank account or alternatively you can get your limited company to pay. Our award winning protection team even have the option of a policy that will pay out on the very first day of incapacity.
Even if you have income protection already in place, in light of the new contract based cover, we would urge you to review the existing cover in 2012 - to ensure that it is still fit for purpose.
Step 4: Avoid Coalition tax hikes with a Contractor pension
Pensions provide Contractors with one of the few legitimate tax breaks still left and you can benefit from up to 69% relief.
After IR35, MSC, Arctic Systems and EBT clamp downs, pensions are one of the last tax breaks still remaining and we have clients who are saving literally tens of thousands of pounds a year in tax deductions thanks to the far higher contribution limits and break in the link between low salary and pension contributions. Indeed if your old payment method is now deemed too risky, using a pension to soften the blow of being back onshore could save tax today but also be the best long term move you ever made as Government pension benefits are woefully low and are now kicking in at an ever increasing state retirement date.
Limited company Contractors can invest substantial sums over the course of each trading year whereas Umbrella company ‘employees can use salary exchange to save the equivalent of up to a 69% tax bill.
A £50k pa limit to contributions has posed difficulties to some but is open to a work around for many Contractors thanks to the expertise of our diploma qualified pensions advisers.
The trick is to make sure that any pensions investment effort in 2012 isn’t wasted so don’t put new money or hold historic funds in old style, inflexible and poor performing schemes from the past. Be it NEST, PPP, SIPP, EPP or SSAS pensions, Andrew Gains will find a tax saving retirement planning route from this lexicon that truly reflects your Contractor status and need for complete flexibility.
Step 5: Save, tax efficiently, to help towards time between contracts
A cash or equity Individual Savings Account can grow tax efficiently over time but in the event of an unforeseen need can be accessed, normally without penalty. You can invest monthly or as a lump sum but may be better off drip-feeding your investment to help avoid the risks associated with current volatility in the markets.
In addition to providing a useful safety net and long term savings vehicle, ISAs can now be used as a nest egg for your kids thanks to the advent late last year of the Junior ISA. For the first time children can now shelter money in the same long term and tax efficient environment as their parents.
Step 6: Keep your monthly borrowing costs down and save £500
With uncertainty in the Euro-zone continuing to push up borrowing costs for UK Banks and Building Societies, historically low base rates are not protecting mortgage holders from a potential spike in monthly borrowing costs. In the past few months thousands of borrowers have found their standard variable rate increase as financial institutions play a colossal game of snap with tranches of borrowing passing around the market.
Your mortgage is almost certainly your largest monthly outgoing and it’s therefore vitally important that Contractors make sure you are paying as little as possible in interest on this debt. For 8 weeks now our Contractor Mortgage desk has been inundated s with clients wanting to remortgage to a fixed deal or lower discounted rate now to avoid any hike in borrowing costs.
The good news is that, unlike other brokers, we still make no charge for our advice which can save you £500 on a typical remortgage. If your accounts are sufficient we will use our uniquely close relationships with the mortgage lenders to base affordability on a multiple of your gross contract income alone so we can avoid the difficulties that Freelancers often face if they approach a lender direct
We will compare your current scheme with rates available elsewhere and wherever possible will get the new lender to pay towards any legal or valuation fees to remortgage you to any lower rate.
If at the same time you wish to release money from your home, our remortgage expert Miranda Francis will show you how. This money could fund debt consolidation, a deposit on a buy to let investment or home improvements etc.
Step 7: Avoid NHS queues with discounted health insurance
Thanks to our close relationship with award winning health insurer WPA, we are pleased to be able to offer private hospital cover at greatly reduced rates as 2012 gets underway.
In addition to our standard 20% discount for Freelancers, we can secure a further 20% saving in the first year, 12% in the second and a lifetime reduction thereafter of 10% via our dedicated contact this last lifetime discount is not available by going direct to help Freelancers put in place this cover at the start of this New Year.
Feedback we have from clients and staff at ContractorFinancials who have needed treatment has been glowing about the ease of claim.
In the case of a Contractor, time avoided waiting in an NHS queue that, enables you yo get back to work with a minimum of delay, could literally make any monthly premiums self financing.
To find out more about this valuable benefit and the discounts we have access to, contact Ray Lamb via our contact forms on the site website or by calling 0845 062 8888 and we will be in touch.
Step 8: Make a will
Too often in our discussions with clients it becomes clear that, with a Freelancers busy lifestyle, there’s no will in place. Unfortunately few appreciate the potentially disastrous implications this can have for your family.
Without an up to date will you may not only be leaving an administrative mess for loved ones to sort out when they are least able to cope but you may also inadvertently saddle them with unforeseen debts. You could also even end up gifting your hard earned estate to the taxman.
Even more serious is the situation of the unmarried or those with kids because in certain circumstances a partner may end up penniless and the future of any children could be decided by the courts rather than the family.
Not only can we help make sense of your affairs and meet any protection needs but we have access to very reasonably costed legal work, accessed by you either remotely or via face to face meetings and would be happy to help you start 2012 with this worrying issue firmly put to bed. Jocelyn Morgan can help put you in touch with one of our qualified will writers.
Step 9: Avoid investment volatility with Active Management
The credit crunch and recent Euro zone crisis has brought into sharp relief the need for investment management to focus as much on volatility and mitigating downside risk as on growth.
Too often in the past it was considered enough to simply set up a pension or ISA for instance, have your adviser pick a range of investments and then leave these funds to do their work. However we live in very different times and this approach is no longer sufficient to always meet long term goals.
We are proud to launch a new service in 2012 that we’ve been designing over the past year based around this need for constant monitoring and management of you funds. You’ll hear a lot more about this exciting new service in the months to come but for anyone who would like to discuss the details immediately please feel free to contact Tony Harris via the site or on 0845 062 8888.
A quarterly ContractorFinancials investment committee will meet, calling on outside expertise where necessary, to closely monitor funds and decide on the allocation of client monies across the various asset classes to ensure that each investor remains on track. Client will have their investments regularly rebalanced to mitigate risk. Back testing of this approach has shown significant reduction in volatility and we look forward to rolling this out over the coming year.
Step 10: Start 2012 with two months free home insurance
With household expenses set to rise again in the coming months it’s never been more important to shop around for services and one area that we can really add value is in a review of your buildings and home contents insurance.
Endless adverts for comparison websites only tell part of the story because some savings can turn out be a false economy at time of claim but in many instances inertia means Freelancers are paying over the odds or may even be dangerously underinsured.
Again Luke Somerset is on hand to help guide you through the maze of options and crucially we will also stand by to help you in the event of a claim.
To discuss our 10 steps please call 0845 062 8888 to speak to our specialists or fill out a contact form and a member of our team will be in touch shortly.
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