Contractors' 2015 financial calendar - Q1 & beyond
The New Year is in full swing and resolutions may have already slipped but it’s not too late to get your finances in order for 2015.
Here, exclusively for ContractorUK, Tony Harris of specialist IFAs ContractorMoney explores some of the key financial dates that every contractor should have asterisked in their diary, if they want to make the most of their contract income this year.
31st – Deadline for 2013/14 online self-assessment tax returns to be filed with HMRC
The 31st of this month is also the day contractor limited companies must pay any balance of outstanding self-assessment tax for 2013/14, with hefty penalties awaiting for those who don’t. And this coming Saturday is also when the first payment on account for 2014-15 is due to HM Revenue & Customs.
If your tax bill stings this year, then here’s just one thing you could do to lower your liability for next year. One of the last remaining non-contentious tax breaks for contractors is pension investment, which allows you to protect up to £40,000 from the taxman and benefit from tax relief at your highest marginal rate.
We have long been championing the use of pensions to minimise your company tax bill and your personal tax bill, but with new pension freedom rules kicking in this year they are set to become a key estate planning tool as well, allowing the scope to pass wealth down through the generations. If you haven’t looked into the impact of the rule changes, then make 2015 the year that you start cutting your tax bill while saving for flexible benefits for tomorrow.
1st - Due date for Corporation Tax payable for the year ended 30th April 2014
14th - Valentine’s Day: Consider life insurance to protect your loved ones
While roses and chocolates are the traditional focus at this time of year there is a far more practical use for the money you’ll spend on these perishable presents! A comprehensive life cover policy would be a lasting legacy for your loved ones if the worst were to happen. Life cover doesn’t have to be expensive but it will make an unquantifiable difference to your partner and any the ability of dependents to cope if you are no longer around to pay the bills.
If you contract through a limited company, you can pay for life insurance through your business and reduce your corporation tax bill, with no benefit-in-kind considerations thanks to a ‘Relevant Life’ policy. Unlike the Keyman policies of old, any pay out goes directly to your dependents so there won’t be any tax on the benefits.
Time to consider investments ahead of the end of the tax year
With the end of the tax year fast-approaching, it is important not to leave it too late to make use of your personal pension allowance of £40,000, or your ISA allowance of £15,000, as it can take time for you to consider your options and make sure any investment properly reflects your attitude to investment risk versus reward. If you have retained your current year profits in your limited company and your ‘year-end’ is coming up, then make sure you leave enough time to transfer the funds into your company pension to reduce your corporation tax bill.
It is also important to consider drip feeding your fund into the new tax year as leaving it to the last-minute and making one lump sum contribution could be a relatively risky approach to equity-based investment. Drip-feeding (known as pound cost averaging) spreads the risk of fluctuation in the value of an investment because you are only exposing yourself to a market correction with a relatively small deposit while the next contribution will buy cheaply, evening out the price you have paid overall.
19th - PAYE and NIC deductions due for month ended 5 February 2015 (but if you pay your tax electronically the due date is February 22nd)
18th – Chancellor George Osborne delivers Budget 2015 to the House of Commons
In this election year, the Budget could go one of two ways; either George Osborne will use it to set out the Conservative stall for the election and announce some more headline-grabbing sweeteners aimed at winning votes, or he will play it safe and leave any big announcements for the Autumn Statement if his party wins the election. Watch this space for our financial planning-based assessment of Mr Osborne’s last Budget for ContractorUK.
Get your Agreement in Principle (AIP) before an Easter holiday rush which falls early this year
The housing market always goes into overdrive around Easter, so make sure you are well prepared ahead of the holidays if you want to secure your perfect property over the long weekend.
Contractors can secure an Agreement In Principle (AIP) based on a generous multiple of their contract rate alone from specialist advisers. Having an AIP puts you in a strong position when negotiating an offer with an estate agent, as it acts as a green light from the lender that they are willing to lend to you. This is particularly important for contractors if you are going head to head with a ‘permie’ for a house, as estate agents can be biased towards what they assume is the less risky offer. An AIP shows you are a serious buyer and have the lender’s backing.
The month when one tax year ends and another begins is always an important financial milestone for every contractor, so there are more dates than usual to mark in your diary.
1st - Pension death benefits post-April 2015 will be tax-free for any contractor who is under the age of 75 at death. Charges at the dependent’s(s’) marginal income tax rate if aged over 75
5th - Deadline for using up your 2014/15 ISA allowance of £15,000 and your annual pension allowance of £40,000
6th - Personal tax-free allowance increases to £10,600 from £10,000. Higher rate taxpayers included. Also from the 6th:
You can apply to transfer £1,050 of your personal allowance to a spouse or civil partner
ISA allowance increases from £15,000 to £15,240 for 2015/16
Junior ISA allowance increases from £4,000 to £4,080 for 2015/16
ISA balances can be transferred to a partner on death without losing the tax efficient wrapper
Start using your 2015/16 pension allowance which remains at £40,000
7th - Election Day! Are your investments election-ready?
With the election comes a level of uncertainty which has been known to send the stock markets in to a state of panic. Contractors should consider -- do you need to potentially reposition your investments and revisit your risk appetite in light of the possibility of turbulence around a new government being elected? The key funds to watch will be UK Equity and Commercial Property, UK Corporate Bonds and Gilts.
Re-assess your attitude to risk and choose new or adjust existing investments to match. This needn’t take long but can make the world of difference to the success of your nest egg (or ISA), and should help your investment grow in line with your expectations without taking risks that are outside of your comfort zone.
Consider Buy-to-Let in time for the new university year
If you have been thinking about taking a step towards a ‘Plan B’ in the shape of a buy-to-let, where you’d be the landlord, then there is no better time than the start of the academic year! But bear in mind, the rush for student accommodation begins in the early summer. The key to being a successful student landlord is timing, so getting your buy-to-let mortgage sorted out early will ensure you have got the keys and given the property a lick of paint before prospective tenants start moving into their new student digs in September. Get the timing wrong and you could be looking for multiple tenants for the next 12 months.
The rent on your chosen property needs to cover 125% of the mortgage repayments so bear that in mind when you are searching for an investment property. Discussing your plans with a mortgage adviser before you start looking will also stand you in good stead and, remember, you shouldn’t have to pay a fee for this service. Checking the location for transport links, nightlife and other student housing while considering how much maintenance the property will require, are also steps we recommend you take.
The dates and accompanying details above could help contractors avoid the stampede of the ‘just-in-timers’ when it comes to fulfilling their financial obligations in 2015. But more than that, I actually hope the time-orientated guidance given in this piece may go some way towards helping turn a financial dream into a reality, at least for a few of you. Watch this space for the next six months of financial planning dates and tips, coming to a screen near you in June.