Spring 2024 Budget summary

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Spring 2024 Budget Statement

Content accurate as of 6 March 2024

On 6 March 2024, Chancellor Jeremy Hunt presented his Spring Budget to Parliament. In the knowledge that the government must hold a general election before 28 January 2025, this was a Budget designed to restore confidence and win voters. But on the heels of Britain entering a recession and downgraded Office for Budget Responsibility (OBR) forecasts, the Chancellor had his work cut out.

Headlines included further cuts in National Insurance Contributions for workers and the self-employed, a slight increase in the VAT registration threshold and an increase in thresholds to reduce the number of people affected by the high-income child benefit charge. There has also been a cut in capital gains tax for higher earners disposing of residential property.

However, income tax rates and thresholds remained static and inheritance tax continues to apply to the largest estates.

Below, we talk more about the Budget and what it means for you.

Income Tax

Please note that ‘tax years’ run to 5 April each year and that, for example, 2024/25 signifies the year to 5 April 2025.

Your personal allowance

Your tax-free personal allowance will remain at £12,570 in 2024/25. The personal allowance is partially withdrawn if your income is over £100,000 and then fully withdrawn if your income is over £125,140.

Income tax rates and allowances

For 2024/25, income tax rates and thresholds remain frozen at their 2023/24 levels. After your tax-free ‘personal allowance’ has been deducted, your remaining income is taxed in bands in 2024/25 as follows.

  ‘Other income’Savings incomeDividend income
Basic rate£1 – £37,70020%20%8.75%
Higher rate£37,701 – £125,14040%40%33.75%
Additional rateOver £125,14045%45%39.35%

‘Other income’ means income other than from savings or dividends. This includes salaries, bonuses, profits made by a sole trader or partner in a business, rental income, pension income and anything else that is not exempt.

So what? Without inflationary increases to the income tax bands, the Chancellor is effectively imposing an income tax increase; as wages and earnings rise and a larger proportion falls into higher tax bands. This is known as ‘fiscal drag’.

Scottish taxpayers

If your main residence is in Scotland or you are otherwise classed as a ‘Scottish taxpayer’, the application of income tax rates and bands applies differently where ‘other income’ is concerned. After the ‘personal allowance’ has been deducted, your ‘other income’ is taxed in bands as follows:

 2024/252023/24
Starter rate£1 – £2,30619%£1 – £2,16219%
Basic rate£2,307 – £13,99120%£2,163 – £13,11820%
Intermediate rate£13,992 – £31,09221%£13,119 – £31,09221%
Higher rate£31,093 – £62,43042%£31,093 – £125,14042%
Advanced rate£62,431 – £125,14045%  
Top rateOver £125,14048%Over £125,14047%

The Scottish Budget was held on 19 December 2023 and made changes including the introduction of the new ‘advanced rate’ of income tax for 2024/25.

Tax on savings income

A savings allowance determines how much savings income you can receive at 0% taxation, instead of the usual tax rates for savings income as shown above. This continues to be set at £1,000 for basic rate taxpayers and £500 for higher rate taxpayers.

Further, interest income from an Individual Savings Account (ISA) continues to be exempt from tax.

Tax on dividend income

A dividend allowance determines how much dividend income you can receive at 0% taxation, instead of the usual tax rates for dividend income as shown above.

As expected, this allowance will drop to £500 in 2024/25, down from the £1,000 2023/24 allowance. However, dividend income from a ‘stocks and shares’ ISA continues to be exempt from tax.

Individual Savings Accounts (ISAs)

The limit on how much you can save into ISAs (including cash and stocks and shares ISAs) in 2024/25 remains at £20,000 overall.

The Chancellor did announce that the government will introduce a new ‘UK ISA’ with an additional allowance of £5,000 a year but this is subject to consultation, and we do not yet have a start date.

The high-income child benefit charge

In an effort to reduce unfairness, the thresholds for the high-income child benefit charge (HICBC) will be increased from 2024/25.

You may have to pay the HICBC if you are considered to have ‘high income’ and child benefit is being paid in relation to a child that lives with you, regardless of whether you are a parent of that child.

If you are living with another person in a marriage, civil-partnership or long-term relationship, you will only be liable to HICBC if you are the higher earner of the two of you.

 2024/252023/24
Child benefit ‘high-income’ threshold£60,000£50,000
Income level at which child benefit is fully clawed back£80,000£60,000

From 2024/25, the HICBC will be calculated at 1% of the child benefit received for every £200 of income above the threshold. This is a slower rate of claw back than in 2023/24 and now means that child benefit is only fully clawed back where income exceeds £80,000, rather than £60,000 in 2023/24.

The HICBC does not apply if the child benefit claimant opts out from receiving the payments. The Chancellor also announced plans to administer the HICBC on the basis of total household income, rather than the income of the highest earner in the household, by April 2026.

So what? Disregarding for this purpose the other changes announced in the Budget, if we take a couple claiming child benefit in respect of two children and the higher earner earns £70,000, the household will be £1,106 better off than if the threshold had not been increased.

If the higher earner instead earns £60,000, the household will be £2,212 better off in 2024/25 and the higher earner will not be required to submit a self-assessment tax return in respect of the HICBC.

Employment taxes

For employees

As announced in Autumn Statement 2023 and in effect since 6 January 2024, the main rate of Class 1 National Insurance Contributions (NICs) has already reduced from 12% to 10%. In the Budget, the Chancellor cut this by a further 2 percentage points to 8%, taking effect from 6 April 2024.

For 2024/25, this combined 4% reduction will apply to your annual earnings between £12,570 and £50,270. The NIC rate on your earnings above £50,270 a year remains at 2%.

So what? This combined NIC reduction means that someone with employment income of, say, £50,000 will pay £1,497 less NICs in 2024/25 than if the rate had remained at 12%. Or, to look at it another way, their monthly pay packet will increase by almost £125.

For employers

There have been no changes to the rate or thresholds for employer’s Class 1 NICs, which remains at 13.8% for wages paid in excess of £9,100 a year (£175 per week). For eligible employers, the employment allowance remains at £5,000 per year, reducing their total employer’s NIC liability by this sum.

Benefits in kind

Employees are required to pay income tax on certain non-cash benefits. For example, the provision of a company car constitutes a taxable ‘benefit in kind’. Employers also pay Class 1A NIC at 13.8% on the value of benefits.

The set percentages used to calculate company car benefits are fixed until 5 April 2026 before slight increases apply to most car types, including electronic and ultra-low emission, from 6 April 2026.

The figures used to calculate benefits-in-kind on employer-provided vans, van fuel (for private journeys in company vans), and car fuel (for private journeys in company cars) remain fixed at their 2023/24 levels in 2024/25.

These are:

  • Van benefit £3,960
  • Van fuel benefit £757
  • Car fuel benefit multiplier £27,800

National minimum wage (NMW)

Employers must pay their employees at least the national living wage (for workers aged over 21) / national minimum wage. The minimum hourly rates change on 1 April each year and depend on the worker’s age and if they are an apprentice.

 1 April 2024 – 31 March 20251 April 2023 – 31 March 2024
Age 23 and over £10.42
Age 21 and over£11.44 
21-22 year old rate £10.18
18-20 year old rate£8.60£7.49
16-17 year old rate£6.40£5.28
Apprentice rate£6.40£5.28

These increases are not insubstantial, and the affordability of the rates will need to be carefully considered by employers when planning their headcount for the year ahead.

National Insurance for the self-employed

Self-employed individuals with profits of more than £12,570 a year pay two types of NIC: Class 2 and Class 4. Two key changes come into effect from 6 April 2024, as previously announced in

Autumn Statement 2023 and further extended in this Budget:

  • The main rate of Class 4 NICs will be cut from 9% to 6% in 2024/25. Class 4 NICs will continue to be calculated at 2% on profits over £50,270.
  • Class 2 NICs will effectively be abolished, saving £179.40 per annum.

So what? This NIC reduction means that a sole trader with, say, trade profits of £50,000 will pay £1,302 less NICs in 2024/25 than will be due for the 2023/24 tax year. Just be aware that this saving may not be felt until the 2024/25 self-assessment balancing payment is made on or before 31 January 2026.

Entitlement to state benefits, including the state pension

If you are self-employed, your Class 2 NIC payments have ensured you accrue entitlement to a range of state benefits, including the state pension.

If your profits exceed £6,725 in 2024/25 you will continue to accrue entitlement to state benefits despite not paying Class 2 NICs. If your profits are less than £6,725, or you make a loss, you may need to pay Class 2 NICs on a voluntary basis to maintain your state benefit entitlement.

VAT

From 1 April 2024, the VAT registration threshold and deregistration thresholds will each increase by £5,000 to £90,000 and £88,000 respectively.

The thresholds had previously been frozen at £85,000 and £83,000 since 1 April 2017. There have been no changes to the rates of VAT and the standard rate continues to be set at 20%.

Corporate Taxes

Rates from 1 April 2024

Corporation tax rates and thresholds remain at the levels used in the year to 31 March 2024 as follows:

Financial year to 31 March 2025
Main rate25%
Small profits rate19%
Lower threshold£50,000
Upper threshold£250,000
Marginal relief fraction3/200
Effective marginal relief rate26.5%

Companies with profits between the lower and upper thresholds will qualify for marginal relief, which means they pay tax at 19% up to the lower threshold and at 26.5% on the remainder of the profits.

The thresholds must be equally shared between companies in a group and those controlled by the same person or persons. It has been confirmed in the Budget that the same rates and thresholds will also apply in the year to 31 March 2026.

Research & Development (R&D) reliefs

For company accounting periods commencing on or after 1 April 2024, a new R&D scheme will come into effect, merging the current R&D Expenditure Credit (RDEC) scheme (for larger companies) with the Small and Medium Enterprise (SME) scheme.

There will also be a second new R&D scheme for ‘R&D intensive SMEs’ along with other amendments as part of a government campaign to tackle fraud and abuse of the scheme. These are significant changes and come on top of a raft of changes already seen in 2023.

Any company claiming (or considering claiming) R&D reliefs will need enhanced support to adopt the new rules and framework and make successful claims.

Please do get in touch if we can assist you with this.

Annual Tax on Enveloped Dwellings (ATED)

Companies and some other entities may need to file ATED returns or pay ATED if they hold residential property. The rates of ATED will increase from 1 April 2024 so please contact us if you require any support with this.

Business Tax

Tax relief for expenditure on plant and machinery

By way of a £1million Annual Investment Allowance (AIA) and, for companies only, unlimited ‘full expensing’, your business is likely to be able to claim 100% tax relief on qualifying equipment purchases.

Conditions may apply and, in some cases, the rate of tax relief in the year of purchase can be 50% or less. In particular, some connected or group businesses need to share their £1million AIA limit between them and this is something that HMRC are currently focusing on so please do talk to us if you have any concerns.

Motor vehicles

While vans and commercial vehicles will often qualify for 100% tax relief when purchased, the rate of tax relief for a car will be less, unless it is both brand-new and electric. The cost of buying other cars is tax relieved by way of an 18% or 6% annual writing down allowance, based on whether the car has carbon dioxide emissions of up to or more than 50g/km respectively.

HMRC had planned to update their guidance so that double-cab pick-ups with a payload of 1 tonne or more were reclassified from commercial goods vehicles to cars from 1 July 2024. This would have significantly hindered the tax reliefs available. However, in February they backtracked and committed to retaining the commercial vehicle tax treatment.

Although it was not part of the Budget speech, legislation will soon follow to cement the commercial vehicle approach. This applies for both capital allowances and benefit-in-kind purposes (above).

Making Tax Digital (MTD)

Under the government’s MTD initiative, businesses will keep digital records and send a quarterly summary of their business income and expenses to HMRC using MTD-compatible software.

These requirements will be phased in from April 2026, starting with income tax paying sole traders and property landlords with gross income over £50,000.

HMRC is re-launching its optional beta testing, with eligible businesses able to opt-in from April 2024.

Please talk to us if you’d like to know more.

Using the cash basis to compute business profits

As first announced at last year’s Autumn Statement, it should be remembered that most unincorporated businesses will default onto the ‘cash basis’ of calculating taxable profits for the 2024/25 tax year and onwards.

As a simplification measure for some, it will mean that your annual profits are calculated based on when you receive payments from customers and make payments to suppliers. Adjustments for stock and amounts owing by or to you will not be possible.

Some small businesses are already using the cash basis voluntarily and won’t be affected by the change.

It is possible to ‘opt-out’ of the cash basis and instead use traditional ‘accruals’ accounts (with adjustments for stock etc.) for tax purposes. The decision will affect the timing of your tax liabilities and will ultimately be based on your personal circumstances.

Please talk to us for more information and to plan the approach for your business.

Tax relief for training costs

Alongside the Budget, HMRC has published updated guidance on tax deductions available to sole traders and self-employed individuals. Amid the AI revolution, the guidance clarifies that tax relief can be claimed on training costs relating to updating existing skills, maintaining pace with technological advancements, or changes in industry practices.

Capital Gains Tax

Annual exemption

The capital gains tax (CGT) annual exemption will drop to £3,000 in 2024/25, down from £6,000 in 2023/24. This change will mean that those selling capital assets such as property or shares will pay more tax.

Rates

The main rates of CGT remain at 10% for basic rate taxpayers (or those disposing of a business that qualifies for Business Asset Disposal Relief) and then 20% in most other cases.

However, increased rates apply when the asset being sold is a residential property that is not your private residence. From 6 April 2024, the residential property CGT rate will remain at 18% for basic rate taxpayers but will reduce from 28% to 24% for those with residential property gains falling outside of their basic rate band.

This measure is intended to generate more transactions in the property market, benefiting those looking to move home or get on the property ladder.

Remember, for property disposals that give rise to CGT, tax payment and reporting obligations can arise just 60 days after your completion date so make sure you take advice in good time.

Tax regime for furnished holiday lets

If you let out residential or commercial property, the profits are taxed as part of your ‘other income’. If you sell property that has been rented out, capital gains tax is likely to apply. Generally, rental business activity attracts fewer tax reliefs than trading ventures. However, if a residential property meets the strict definition of a ‘furnished holiday let’ (FHL), enhanced tax relief rules are currently available.

It has been announced in the Budget that, from 6 April 2025, the concept of FHLs and their beneficial tax treatment will be abolished. Going forward, profits from FHLs will be taxed in the same way as any other rental property profits. If you own FHLs this will be disappointing, especially the loss of your possible claim to ‘Business Asset Disposal Relief’ on any future sale.

While the abolition won’t happen until 6 April 2025, it should be noted that there will be measures in place from Budget Day (6 March 2024) to prevent tax planning steps that artificially accelerate the disposal date of an FHL to a date before 6 April 2025.

Inheritance tax

Rates and thresholds

The main rate of inheritance tax remains at 40%, reduced to 36% for estates where 10% or more is left to charity.

The inheritance tax nil rate band continues to be frozen at £325,000. The residence nil rate band will also remain at £175,000 and the residence nil rate band taper will continue to start at £2million.

Agricultural property and woodlands relief

From 6 April 2024 the scope of agricultural property and woodlands relief will be limited to property in the UK. Property located in the European Economic Area (EEA), the Channel Islands and the Isle of Man will be treated the same as other property located outside the UK.

Payment of inheritance tax before probate

From 1 April 2024, personal representatives of estates will no longer need to have sought commercial loans to pay inheritance tax before applying to obtain a ‘grant on credit’ from HMRC. This is a welcome relaxation.

UK residency and domicile

Significant tax changes have been announced for individuals resident in the UK but not permanently settled here (known as non-domiciled).

While individuals resident and domiciled in the UK must pay UK taxes on their worldwide income and capital gains, it is possible for UK resident but non-domiciled individuals to claim a ‘remittance basis’ of taxation for overseas income and capital gains. In return for paying a remittance basis charge of up to £60,000 a year, non-domiciled individuals are able to shelter their overseas income and capital gains from UK taxation, as long as they do not bring (remit) those monies to the UK.

The remittance basis of taxation will be abolished from 6 April 2025. It will be replaced with a simpler residence-based regime and new arrivals to the UK will not pay UK tax on their overseas income and gains for their first 4 years of UK residence.

In addition, inheritance tax rules apply to the worldwide assets of a UK-domiciled individual but, broadly, just to the UK assets of a non UK-domiciled individual. The non-domicile rules for inheritance tax are also likely to move to a residence-based regime from 6 April 2025 but the government plans to consult on options.

Stamp Duty

England and Northern Ireland – thresholds

The £250,000 0% threshold for Stamp Duty Land Tax (SDLT), applicable in England and Northern Ireland, remains unchanged until 31 March 2025. The same is true of the £425,000 0% threshold for first-time buyers.

These thresholds are set to revert to £125,000 and £300,000 respectively from 1 April 2025 and while there were rumours that the increased thresholds would be extended beyond 2025, no mention was made of this in the Budget.

England and Northern Ireland – Multiple Dwellings Relief

Multiple Dwellings Relief (MDR) is a relief currently available when buying two or more dwellings in a single transaction or series of linked transactions.

MDR is to be abolished for purchases of residential property in England and Northern Ireland with an effective date on or after 1 June 2024. Transitional rules apply to the abolition, so that MDR can still be claimed in some situations where contracts were exchanged on or before 6 March 2024, regardless of when completion takes place.

First-time Buyers’ Relief: leases and nominees

Following the Budget, the definition of a ‘First-time Buyer’ has been amended. Anyone who leases a residential property via a nominee or bare trust with an effective date (usually the completion date) on or after 6 March 2024 will potentially be eligible for First-time Buyers’ Relief, in the same way as any other qualifying first-time buyer. Transitional rules may apply where contracts were exchanged prior to 6 March but completed or substantially performed afterwards.

Scotland and Wales

Property purchasers in Scotland and Wales do not pay SDLT. Rather, if you buy a property in Scotland you pay Land and Buildings Transaction Tax, and in Wales you pay Land Transaction Tax. No amendments to these transaction taxes have been announced.

Alcohol and fuel rates

In Budget news, the government has confirmed that alcohol duty will remain frozen until 1 February 2025 and that the previous 5p per litre cut in fuel duty will remain in place until March 2025.

Charities and gift aid

In anticipation of enhanced protections for consumers who take out subscription contracts, the government will soon introduce rules to ensure that charities which operate subscription models can continue to claim Gift Aid on those subscriptions.

In conclusion

As we move into 2024/25, there are a lot of tax changes on the horizon, with more likely to come alongside the general election. Where the government gives with one hand (e.g. NIC cuts for workers) they make take with the other hand (e.g. frozen income tax thresholds) and it can be hard to keep up.

We are here to work alongside you and help you prosper so please do get in touch at any time.

Disclaimer: This newsletter covers the key news headlines from Budget 2024. The authors take great care in its production, but it is not exhaustive and should not be read as a full fiscal summary. The content displayed is correct as of 6 March 2024. We cannot take responsibility for any action taken or not taken from this document alone. Please contact us for personalised advice.

Dealing With A Potential Recession

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With the current cost of living crisis and increased expenses everywhere, we look, it’s no surprise we see the word recession thrown around a fair bit right now. The Bank Of England, in fact, has warned that the UK is looking at facing a prolonged recession, predicting England’s economy will be one of the worst hit in the G7 nations.

Things are rising in cost at the highest rate in over 40 years, cutting peoples’ and businesses’ budgets even further, causing a lack of spending and the economy to shrink. The latest figures have shown a decrease of 0.6% in September alone. 

In our latest blog, we will discuss how you can financially protect yourself in the upcoming times of uncertainty.

What is a recession?

Let’s start with the basics; before you can learn to protect yourself or your business from it, you need first to understand what a recession is. A recession is defined as “the economy shrinking over two consecutive quarters or six months.”

When the UK economy does show signs of worsening, it is usually a sign that consumers are spending less money, most likely because the average consumer now has less money. This has a knock-on effect on businesses that are now able to produce and sell a much smaller amount of products or services. 

We can see this and measure the strength of our economy using GDP. But what is GDP? GDP, or gross domestic product, measures the size of the economy and is a figure based upon information from thousands of businesses around the UK.

What could cause the UK to enter a recession?

The primary attributing factor to the talk of a recession in the UK is the increased cost of living. Bills are getting higher (especially gas and electric), things such as food and clothes are becoming more expensive, and borrowing costs are on the up and up; inflation is currently at a whopping 10.528%. Because of this, people simply are not spending what they were previously, and less money is flowing into businesses for goods or services.

Two-thirds of the UK’s GDP is accounted for by consumer spending, and when this slows down, the economy shrinks. 

The last recession we faced was during the tumultuous time of covid 19, the GDP shrank by over 10%, the UK’s worst economic performance in over 200 years, but this was a vast drop when compared to the one previously in 2008, which had a much longer-term effect. It took the UK’s economy five years to recover and get back to the place it once was following the recession in 2008.

How could a recession affect you?

A recession isn’t something that will only be felt by businesses; it can trickle down and affect the lives of everybody in every situation. Even after the recession, when things have started to recover, you may not be free of problems for quite some time. 

It could affect you by:

  • The shops you once visited and loved may close down 
  • You may find it difficult to find new work if you lose your job 
  • Or a promotion/pay rise in your current line of work
  • Jobs could be more easily lost as business look to cut costs 

A recession will not be felt across the board equally by all. A recession could actually create more of a gap in society and widen the space between rich and poor. If you have savings and some more diversified streams of income, you will be better off than those who do not. 

Take a look at my advice on the best ways you can deal with the impending recession.

Recession Proofing tips for businesses 

Never stop marketing your business

Whether the economy is good or bad, one thing you should never stop, is trying to draw more customers or clients, and the best way to do that is with a good marketing strategy. It may seem like a quick and easy option to cut expenses in the short term, but in the long run, you may be negatively impacting your profits. After all, you can’t do business with potential clients or customers if they don’t know you exist. 

Capitalise on existing customer relations

Following on from gaining new clientele, you should make the most of the existing customer relationships you have. Reach out to existing or old clientele to find out how you can help them and potentially upsell some of your other services or show them why you are better than your competition. Another benefit of this is its cheaper to reach out to people that are already aware of your business, you can offer a variety of bonuses like exclusive first access to new products or special discounts. 

Care for your cashflow

During times of uncertainty, it’s imperative that you monitor your cash flow. As simple as this may seem, many businesses will continue to make similar mistakes, be sure you’re not spending excess money on overstock or potentially useless software. Another way to monitor your cash flow is to send out your invoices and review your receivables promptly; this way, you can be sure you’re paid what you’re owed on time, and things don’t slip through the net or get forgotten about. 

Get an accountant

As mentioned previously, it can be tempting to cut expenses when facing financial difficulty; this could include getting rid of your accounting aid. Similarly to marketing, this may seem like a quick fix to save some money, but in the long run, you may be hurting your overall financial situation. When under stress, one of the best chances you have at staying in a strong financial position is with the help of a financial wiz in the form of your accountant. 

Accountants can also save you money by eliminating excess expenditures and mistakes in your bookkeeping or when filling out your tax returns. When doing your own accountancy, you run the risk of making mistakes like over or underpaying your tax, which could lead to further problems and cost you more in the future. When using an accountant, you can rest assured that everything financial will be taken care of, freeing you up to focus on other aspects of your business. 

Personal finance recession proofing

Fortunately, some of the best ways you can recession-proof your finances are simple and basic strategies.

Save an emergency fund

If the worst does happen and you lose your job, you should ensure that you have something to fall back on. While you are in a position to do so, you should save an emergency fund. This should be an amount that would be able to cover any outgoings you may have for the next 3-6 months. This should provide you with enough time to be able to get back on your feet and find another source of income.

You should ideally keep this in an easy-to-access savings account. One that you can take from without to much trouble. Storing this in some sort of investment account might sound like a good idea, but these often make it more difficult to retrieve your money in any fast amount of time.

Avoid making big purchases and impulsive decisions

When making any decisions about your finances, they should always be thought out. Large, impulsive financial decisions could land you in trouble at the best of times, but that is especially true during a recession. 

While it may seem great in the moment to buy that fancy new car or extra large TV, you may end up regretting that decision in future. With the potential impending recession, you should think more carefully about your finances and perhaps think twice before spending large amounts of money until the economy is more stable. Try to focus on bettering your current position and ensuring you will be financially safe should anything go wrong. 

Look for ways to earn some extra income

If you have concerns that your job may not be secure or you think you will begin to struggle financially, should things worsen, you should look for ways to increase your income through different methods. Having multiple streams on income could help to protect you should one of those avenues dry up. 

There are many ways in which you could look to earn some extra income. Try thinking about some of the other skills you have; for example, if you speak a second language, you could perhaps become a tutor online. Alternatively, if you live in a good area and have a driveway your not using, there are now sites where you can rent out the parking spot on your drive. There are many ways to earn a little extra money; you just have to be a little creative. 

Live within your means and be careful of borrowing money

Sometimes having debt is inevitable, but it isn’t always a bad thing, so long as you can afford to pay it off in the required time scale. But when a recession is looming, you should be more careful about borrowing money. Recessions increase the risk of redundancies and can make it harder to find another job. If you have debts to pay off already, this could quickly lead to a downward spiral. 

When the future is a little uncertain, you should look to pay off any debts you may have, such as loans and credit cards or even pay monthly clothes on apps such as klarna, as quickly as possible to reduce your outgoings. Once your debt has been paid off, you should try to avoid amassing any more. There is a famous saying I often remember that is “if you can’t afford to buy it twice, you can’t really afford it.”

Reduce your outgoings

The current cost of living crisis that is sweeping the UK is causing many people to look at their finances differently. If you haven’t sat down and evaluated your outgoings, now is definitely the time to do so. You may not realise how much of a toll your daily Pumpkin Spice Latte could be having on your bank account until you sit down and see it all written out. Even if you bought 4 of those a week over a month, that’s £68. 

Evaluating your finances could easily show you places in your spending habits where you could save money. I’m not saying you should deprive yourself of luxuries; everyone deserves a pumpkin-spiced latte every now and again, but now is an excellent time to find out where your money is really going. 

Succession Planning For Business Owners: What You Need To Know

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As a business owner, it’s not uncommon to feel like you’re just getting by from day to day. With so much to worry about, it can be tough to think about anything beyond the present moment and immediate future. Planning for retirement or for what would happen to your business if something went wrong can seem like a luxury you can’t afford.

As we all know, life can be unpredictable. That’s why it’s essential to have a plan in place for your business, in case something happens to you. By thinking about the future of your business years in advance, you can save yourself a lot of time and stress down the road.

As businesses come and go, it’s important to have a succession plan. This can be especially difficult for smaller companies. However, with a bit of planning and foresight, any business can create a succession plan.

What is succession planning?

Succession planning is vital for any business. It ensures that there is always someone ready and qualified to take over should the need arise. This could be due to retirement, resignation, or other circumstances. Having a plan in place helps ensure that the business can continue running smoothly, even in the event of key personnel changes.

Does my business need a succession plan?

When it comes to succession planning, many small business owners mistakenly believe that it is only relevant for large organisations with hundreds of employees. However, succession planning is actually critical for all businesses, regardless of size.

Succession planning offers numerous benefits for small businesses, including adding structure and direction. By planning ahead, you can safeguard the future of your business and its workforce.

How does succession planning work?

Succession planning helps assess the impact of each key role within the company and identify potential successors. This can be a very revealing process, and you may find yourself thinking about ways to nurture and develop future leaders. Succession planning will help ensure that the business can still function as time passes and its organisational chart evolves.

Why efficient succession planning is so important

It’s never too early to start thinking about succession planning, especially if you’re a business owner who wants to ensure their business is in good hands when they eventually move on. There are a number of reasons why you might want to do this, including retirement, starting a new business, or passing the business down within the family. No matter what your reasons are, succession planning is a crucial part of creating an entrepreneurial legacy.

Making succession seamless

Preparation is key when transitioning a business to a new owner, whether that be due to retirement or succession planning. Having a solid plan in place helps to ensure a smooth transition with minimal disruption. This is especially important if the business is family-run, as an emotional investment can complicate matters. By being proactive and planning ahead, you can help make the process as seamless as possible.

A plan is only useful if everyone knows about it.

It’s important to emphasise communication because it is key to success in any business. Everyone needs to be on the same page with the plan and how it should be executed. This is especially important in a family business where harmony is essential.

  • Keeping knowledge within the business

When people leave a business, it can be difficult to keep all of their experience, skills and knowledge within the company. A well-designed succession plan will help make sure that as much information as possible is retained so that it can be passed on to those who stay with the company.

Beyond succession planning, it is also helpful to have systems in place which enable knowledge transfer between employees. This avoids making the business too reliant on one person and provides a way to educate new employees.

  • A clear direction and better decision making

Organisation and focus are key to making the best decisions for your business. If you take each day as it comes and only improvise, you’ll miss opportunities and make mistakes.

  • Setting up a clear succession plan is key to running a successful business. By being proactive and having a plan in place, you can avoid relying on reactive action all the time.

When you have a clear vision for the future, it’s easier to identify potential problems and take steps to prevent them. For example, if you can see that your workforce is lacking in specific skills, you can address this by recruiting or training new employees before it becomes a real issue. By being proactive, you can keep your business on track and moving forward.

  • Managing multiple businesses successfully

As an entrepreneur, you may find yourself with your fingers in many pies over time. However, it is important not to spread yourself too thinly and reduce your ability to perform. Taking it to the extreme could result in burnout. It’s more common than you might think. If you’re finding yourself at a standstill, it may be time to take a step back or ease up on your involvement. Alternatively, it could be that you’re simply ready to move on to other entrepreneurial endeavours. Having a solid succession plan in place will enable you to shift your focus to your next project without letting your current businesses fall behind.

How can I make my succession plan more effective?

As the baby boomer generation starts to retire, many businesses are facing the challenge of succession planning. Succession planning is essential to ensuring that your business can continue to thrive into the future. Here are some tips to help you create a successful succession strategy.

  • Ongoing leadership training and professional development

Investing in employee development is critical for the success of any business. This can include anything from external courses or cross-team training to mentoring and shadowing. By investing in the professional development of your employees, you are demonstrating that you value their contribution to the business and are committed to their career growth. This is important for workforces of all sizes, as it ensures a pipeline of talent for the future. Not only will investing in employee development benefit your business in the long run, it also boosts morale among your staff.

  • Overlap roles at relevant opportunities

Organisations need to be proactive in facilitating knowledge transfer and retention, especially when key personnel is absent. One way to do this is by overlapping roles when it makes sense to do so. For example, if someone in a critical role goes on maternity leave, consider moving someone else in the organisation into that role temporarily rather than recruiting externally. Of course, this may not always be possible, but where it is, overlapping roles can help develop a workforce of well-rounded and highly skilled employees.

  • Align your strategy with business objectives

As you develop your succession plan, be sure to keep your business objectives in mind. This will help ensure that your plan is aligned with your goals and timelines and that all parts of your business are working together (and growing) harmoniously.

  • Don’t just think linearly

There is no one right way to develop talent within your organisation. Sometimes the best candidates for a role are not the ones who have been working their way up the ladder. If someone from a different department shows potential and interest in another area, it might be worth training them up! 

  • Succession planning is a long-term process

As our businesses continue into the future, it is crucial that we have a plan for succession. This plan should consider all aspects of the business, from recruitment and training to professional development. Having a long-term view is essential when devising your succession strategy, as it can take time to implement changes. By taking the time to plan now, we can ensure that our businesses are set up for success in the future.

Check-in with your accountant

As certified accountants, we always recommend you check in with your own accountant before making any decisions that could affect the future of your business. But our skills go beyond tax returns; we’re also experienced in planning successful growth!

Spring Statement Update 2022

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Spring Statement Update March 2022

On Wednesday 23 March 2022, The Chancellor of the Exchequer, Rishi Sunak, delivered his Spring Statement.

The update as to how these announcements will impact you and your business in a simple non-jargon summary is below.

National insurance contribution (NICs) increases

National insurance contributions paid by employees, employers and the self-employed are increasing by 1.25% from April 2022.

This is to provide additional funds for health and social care.

National insurance threshold increases 

It’s not all bad news though…some new measures have been announced in an attempt to reduce the effect of the increase, at least partially and that’s the increase in the starting NIC threshold for individuals.

The annual level at which employees and the self-employed start to pay NICs was due to increase from £9,568 to £9,880 from 6 April 2022. This increase will go ahead but be further uplifted to £12,570 from 6 July 2022, effectively aligning the point at which an individual starts to pay NICs with the £12,570 income tax personal allowance.

In the tax year to 5 April 2023, this is a NIC cut worth £267 for most employees and £207 for most self-employed individuals.

The starting NIC threshold for the self-employed and company directors is computed on an annual basis and so will be set at a pro-rata sum of £11,908 for sole directors [£992.33 per month] for the whole of the tax year to 5 April 2023, before increasing to £12,570 in the tax year to 5 April 2024. 

Class 2 NIC liabilities of the self-employed

For the self-employed, some individuals will find that they no longer need to pay Class 2 NICs from April 2022. The small profits threshold will be set at £6,725 as planned, but the requirement to pay Class 2 NIC will only apply to those with self-employed profits over £11,908.

This will benefit approximately 500,000 self-employed individuals by saving them £165 a year.

What about employers?

  • Employers’ NIC – No changes have been made to the annual level at which employers’ NIC start to apply; namely £9,100 for most employees in the tax year to 5 April 2023.
  • However, the Employment Allowance, which allows eligible businesses to reduce their employer NIC cost, will increase from £4,000 to £5,000 for the tax year to 5 April 2023. It is expected that 495,000 businesses will benefit from this increase, with most saving £150 in the tax year to 5 April 2023.
  • Capital Gains Tax – no changes to rates, no major changes to allowances/exemptions.  Annual exemption frozen.
  • Inheritance Tax – no changes to rates, no major changes to allowances/exemptions.  Nil Rate Bands frozen.
  • Value Added Tax – no changes to rate or registration/de-registration

Dividend tax rates are changing

From April 2021 the dividend tax rates are increasing by 1.25% in line with the increase to national insurance contributions.

Your first £2,000 of dividends remain tax-free.

Dividends under the basic rate threshold of £50,270 will be taxed at 8.75%.

Dividends within the higher rate threshold of between £50,271 and £150,000 will be taxed at 33.75%.

Dividends over the additional rate threshold of £150,001 will be taxed at 39.35%.

Income Tax

The Chancellor has committed to reduce the basic rate of income tax from 20% to 19%, but not until 6 April 2024.

It is estimated that this will save 30 million individuals an average of £175 per year.

Corporation Tax

The main rate rises to 25% from 19% from April 2023 – so a 6% increase.  Businesses with profits below £50k will still pay 19% and there will be a taper for businesses with profits between £50k and £250k.

VAT registration threshold

No changes to the VAT registration threshold. You must register for VAT if your sales go over the current registration threshold in a rolling 12-month period. This is not a fixed period like the tax year or the calendar year – it could be any period, for example, the start of June to the end of May.

National Minimum/Living Wage increases

The NLW and NMW rates from 1 April 2022 are:

Rate from April 2022 Current rate (April 2021 to March 2022) Increase
National Living Wage £9.50 £8.91 6.6%
21-22 Year Old Rate £9.18 £8.36 9.8%
18-20 Year Old Rate £6.83 £6.56 4.1%
16-17 Year Old Rate £4.81 £4.62 4.1%
Apprentice Rate £4.81 £4.30 11.9%
Accommodation Offset £8.70 £8.36 4.1%

Business Tax Relief for Capital Investment

In preparation for the 130% ‘super-deduction’ for companies coming to an end on 31 March 2023, other alternatives are being considered in an attempt to continue encouraging investment from April 2023.

In the meantime, the reliefs potentially available (to companies and non-corporates) for expenditure on plant and machinery includes:

  • A £1million annual investment allowance;
  • 130% and 50% super-deductions;
  • 100% first-year allowances (including on electric cars); and
  • 18% and 6% writing down allowances.

The date of acquisition of capital assets can make a difference to the tax relief you can claim so do speak to us before your next sizeable investment but remember we will automatically review any reliefs for capital investments as part of the work we do on your accounts.

Fuel Duty

Fuel duty has been cut by 5p per litre for 12 months from 6pm on 23 March 2022.

The Treasury report that this will save the average car driver £100 a year and the average van driver £200 a year.

Gift Aid Your Donations to Help Ukraine

For individuals and businesses wanting to donate money to help to support those suffering in Ukraine, there are a number of charities providing humanitarian relief. Ideally, this should be done via the Disasters Emergency Committee (DEC) Appeal at www.dec.org.uk/.

Individual UK taxpayers should make sure to tick the Gift Aid box as that will increase their donation by 25%. It should also be remembered that, like pension contributions, higher and additional rate taxpayers are able to obtain even more tax relief. For example, a £40 donation only costs £30 after higher rate tax relief.

Household Support Fund

The Household Support Fund will be doubled to £1billion from April 2022. The Fund will help households with the cost of essentials such as food, clothing and utilities.

Green Technology

Green technology, including solar panels and heat pumps, will be exempt from business rates in England from April 2022, a year earlier than originally planned.

VAT on Energy Saving Materials (ESMs) installed in residential accommodation will be reduced from 5% to 0% from this April in Great Britain. The 0% rate will apply until 31 March 2027.

A 100% relief for eligible low-carbon heat networks which have their own rates bill will also be available.

VAT Rates in the Leisure and Hospitality Sector

No extension has been granted to the leisure and hospitality sector for use of the reduced 12.5% VAT rate on eligible supplies including food, non-alcoholic beverages and hotel and holiday accommodation. The VAT rate applied to these supplies will revert to 20% from 1 April 2022 as planned.

Research and Development (R&D)

The R&D tax relief schemes for companies will be enhanced from April 2023 but we have to wait until this summer for more details.

We do know the reform is set to boost sectors where the UK is a world-leader, including artificial intelligence, robotics, manufacturing, and design.

Capital Gains Tax

No changes to rates, no major changes to allowances/exemptions. Annual exemption frozen.

Inheritance Tax

No changes to rates, no major changes to allowances/exemptions. Nil Rate Bands frozen.

Allowances you can claim

Here are a few of the allowances you can claim to help reduce your tax:

  • The first £2,000 of dividends are tax free
  • The first £1,000 of interest is tax free (if you are a low-rate tax payer)
  • The first £12,300 of capital gains you make are tax free
  • You may be able to claim a trading allowance of £1,000 if you are self employed
  • You may be able to claim a rental allowance of £1,000 if you rent property
  • Your income tax allowance is £12,570
  • You can claim rent a room allowance of £7,500
  • Marriage allowance  £1,260.

A Beginner’s Guide To Personal Tax Return’s

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Self-assessment tax returns occur once a year and are known to cause a lot of aggravation amongst business owners, entrepreneurs and the self-employed. Below will tell you all about self-assessment tax returns and whether or not you need to file one. 

Self-assessment tax returns exist to make sure that individuals report their annual earnings and their sources to HMRC. In turn, this allows HMRC to be able to calculate how much tax you are liable to pay in the applicable tax year. It is the individual’s responsibility so you must understand if, how and when to file the paperwork.

Who must complete a tax return?

In the UK, a tax deduction system known as PAYE is used if you are an employee of a company. This type of system allows your employer to deduct a percentage of your wage depending on your tax code. If this method is used, it is not required of you to fill in a self-assessment unless you have a second income, such as running a personal business on the side.  

Self-assessment tax returns are frequently used by self-employed people, freelance contractors, small business owners and entrepreneurs being the main culprits. Furthermore, if you live in the UK but are developing money from abroad, additionally if you live abroad but are generating money from the UK tax must be paid. If you want to be entirely sure this applies to you, you can check online on the government website. 

You should provide the following information to the best of your ability: 

  • National insurance and employee reference number
  • P60 forms
  • P11D forms
  • A review of any personal profit or investments
  • Capital gain summaries
  • A list of taxable benefits received via your employer or the government

You must remember to meet the deadlines as you could face paying severe penalties. These are:

Day 1- £100

Upto 3 months- £10 a day, with a maximum of £900

Upto 6 months- £300 or 5% of the tax due, whichever is the higher amount.

If you are a UK resident submitting a self-employed self-assessment, it can be deferred by either post or online. However, if you are a non-resident, you cannot submit online it has to be by post, or you can get an accountant to do this on your behalf.

Will There Be A Fourth Self-employment Support Scheme Grant?

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Covid-19 has wreaked havoc throughout the world. With the third lockdown now upon us, many self-employed workers are suffering from enormous losses to their income. The good news is help is available. The government’s new scheme, known as the Self-employment Income Support Scheme, was designed to help workers through the coronavirus crisis. 

The SEISS arrangement was first brought in last year in 2020, to provide grants to those whose income has been negatively impacted by the pandemic. From May 2020 self-employed workers were able to apply for the grant. However, applications for the first grant closed in July 2020. The second grant shortly followed, lasting between August-October and was worth up to £6,570. And finally, a third grant was brought into play to assist through the winter months. 

But is there going to be a fourth grant? 

The simple answer is yes, an economic update from the house of commons confirmed the scheme will be extended through February to March. 

A whopping three million people have already applied since the first grant release and over 20 billion pounds already handed out. 

So far the government has not given any indications to how much support you can get under the fourth grant but rest assured more information is due to be published shortly. 

Who can claim?

As the fourth grant covers February to April, it is time to get your applications in. Unfortunately, eligibility conditions have not changed. So if you were not eligible for the first three grants, you wouldn’t qualify for this grant either.

Here is what you need to know to apply:

  • You must show you are currently trading but have been impacted by reduced demand. 
  • You must declare you have been trading but are currently unable to do so due to the pandemic. 
  • You must show the impact put on your business at the time of the current grant.
  • If you filed a tax return for 2018/19 on or before April 2020, and provide proof, you were trading through that tax year. 
  • You must declare you intend to continue trading. 
  • Finally, you must declare you reasonably believe there will be a significant reduction to your trading profits at the time of your grant. 

Be wary, as there a few things that can affect your application, these being:

  • If your tax return was late, amended or under enquiry. 
  • You are a member of a partnership.
  • You have had a new child. 
  • You claim averaging relief. 
  • You have state aid. 
  • You are a military reservist. 
  • You have loans covered by the loan charge.
  • You are a non-resident or chose the remittance basis. 

To apply for the grant schemes, you must visit the Gov website before the end of April. Remember to make sure you have with you your unique taxpayer reference, national insurance number, government gateway user ID and password and your UK bank details. You will need these to begin your application process. 

5 Tips For Finding The Perfect Accountant For Your Small Business

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There are numerous reasons why your small business may need to hire an accountant; from spending far too much time on bookkeeping to merely desiring to organise your business finances a little better. If this is the case, it would probably be beneficial to hire a business accountant-but where to begin? 

These five simple tips will set you on the right path to finding the perfect accountant suitable for your small business.

Understanding

You must understand every single piece of information your accountant feeds you; therefore, ensure that they speak plain English. You must remember it is still your business and you are still liable to the taxman and the rest of the authorities. If they talk too much jargon and struggle to explain things to you, do not hire them. 

Does your chosen accountant fit in?

You should choose an accountant who has experience in the size and sector you are operating. 

Above and beyond number-crunching

Provide yourself with the assurance that your accountant will be proactive and reactive. For instance, an accountant who will give advice on saving tax in legal and ethical ways and will be able to provide excellent software and lessons on how to use it! 

Check your accountant is qualified

Hiring a qualified accountant gives you access to their professional body were they to make a mistake. Look into accountants who mastered their profession through the institute of chartered accountants or association of chartered certified accountants. 

Choose an accountant who will act on your behalf

An accountant who will act as your agent can save you a lot of difficult conversations. An accountant acting on behalf of your business can negotiate discussions for you with HMRC and the taxman.

In conclusion, no matter your business’s size, there is an accountant out there ready and waiting to assist with your every need. As long as you follow the five tips above, you will be well on your way to finding someone to fit your business. If you’d like to contact Herridge Accountants about your business accounting, you can contact us here. And if you’re still undecided as to whether you actually need an accountant, take a look at our blog giving five reasons we think it’s a good idea to have an accountant.

Don’t Miss The January 2021 Tax Return Deadline

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The time has come for millions needing to file a self-assessment tax return and pay the tax owed. All self-employed people are subject to have a deadline of 11:59pm on January 31st 2021, and there are still 5.4 million people left to file!

There are three separate issues to deal with:

  • First of all, qualified taxpayers must file an online self-assessment tax return to HMRC for the 2019/2020 tax year, ending on 5 April 2020. The deadline for this has not changed.
  • Next, if you were supposed to make an advance payment by the 31st July 2020, the government would have given you extra time to pay, which finishes on the above date. 
  • Finally, you will have to pay your balancing payment. This is any money owed from the 2019/2020 tax year unless a payment plan has been agreed. 

If your tax return is three months late, you can be fined up to £100; it will be more if any later or if you pay your tax bill late. As well as this, you will be charged interest on any late payments, below is what you need to know. 

Who needs to file a self-assessment tax return?

Most of the UK’s taxpayers have their taxes deducted straight from their pay, pension or savings. Therefore, they are not required to file a tax return. 

If any of the following applied to you in the 2019/2020 tax year, you would need to submit a tax return. 

  • You earned more than £100,000 in taxable income. 
  • Your income was more than £50,000, and you or your partner were claiming child benefit. 
  • You were earning income abroad, or lived abroad and had a UK income. 
  • You received income from a trust. 
  • You filed a self-assessment tax return last year, even though no tax was owed. 

If it is your first time filing, you can register online, and HMRC will send you a letter with an exclusive taxpayer reference after setting up your online account. If it is your first time, but you have already a unique code you may be able to skip this step. You must register as soon as possible as it can take up to 10 working days for your letter to arrive. You can find out more by visiting the HMRC website or by contacting us.

You can make payments on your account via bank transfer, debit card or cheque. If you have a paying-in slip, it is also possible to pay by bank or building society. HMRC will accept money under faster payment, this allows for cash to go through within a couple of hours; however, there may be a limit on how much you can send. 

Furthermore, those who owe tax of less than £30,000 may have been able to use HMRC’s repayment plan. To be eligible for this plan you need to have filed your tax return by 31st January, have no outstanding tax returns, tax debts or payment plans in place. It is possible to pay this back through direct debit over 12 months, through your online tax account or by calling HMRC. Keep in mind that the repayment plan system will pay interest of 2.6% a year. 

What if you cannot afford to pay?

If your bill is correct, but you cannot afford to pay you must contact HMRC as soon as possible, as you may be able to come to an arrangement in which you do not have to pay late penalties. You will need an exceptional explanation for not paying; it is usually something outside of your control that stops you from meeting your tax agreement. Such as: 

  • A death within your family
  • Unexpected hospital stay
  • A life-threatening illness
  • Computer or software failures
  • Difficulties with HMRC’s online portal 
  • A fire, flood or theft of property

The government can advise by providing help sheets and videos. You can also contact HMRC helpline for support in filing your tax return this January but note there are often long waiting times for assistance via phone. Your best option is to contact a local accountant such as ourselves for advice and help with your submission.

Is An Accountant Required To Submit Your Tax Return?

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Most often, it is fair to say that most business owners are not confident when it comes to deciding which aspects of their tax duties they can deal with themselves and when they can be at an advantage from calling in a professional. Some would argue that giving the job to an accountant is a much easier option. However, there is now clever technology that can boost your confidence when organising your taxes on your own. 

How does self tax assessment work?

Self-assessment tax returns declare how much taxable income you have earned in that financial year and determines any expenses you may be qualified to claim. 

The digital tax initiative, which is slowly being introduced, means that annual returns will be replaced with quarterly reports. 

Tax returns depend upon close attention to detail, making sure to provide exact dates, figures and details of any marital and special relief privileges you might be eligible for. Business owners should always be willing to support their claims with sufficient evidence such as invoices or receipts if requested to do so. If you submit false information you may be charged with a hefty penalty, this would be the same if you were to miss a filing deadline. The longer you take to amend the complication, the more your fine is likely to grow. 

Other tax filing options

Sadly, some small businesses simply do not have the money to spare to hire an accountant; however, it’s essential to keep your returns free from errors. Human error is a genuine but leading issue in incorrect returns, and if they were to make a mistake, your business would be liable. Many people shy away from completing their tax returns due to the added pressure it brings.

An alternative method is to invest in a tax software (for example Quickbooks) that keeps track of your income and expenses throughout the financial year. Providing you input your figures carefully, the calculations should be error-free! On the other hand, spreadsheets, calculators and good book-keeping can help you be your own accountant. Although it may not be as simple as tax software, it is undoubtedly attainable if you have a good head for numbers!

How can a tax account be useful? 

Business accountants deal with numbers daily, therefore, are ideal for protecting your figures. More so, they know the conduct; what you are and are not entitled to claim and how you can cut your liabilities. Employing an accountant not only saves bundles of stress but also a lot of time, it is typically around £150 for a reputable firm, often a little less if you only require a basic service. The price may seem quite reasonable to a business who may on average spend several hours completing their own tax return. 

If you feel like you could benefit from having an accountant, don’t hesitate to get in contact!

How to Reduce Your Debt

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According to an announcement from the National Audit Office, over 8 million people in the UK are currently struggling to pay their debts or meet their monthly household costs. Most homes are spending a substantial amount more than they are actually earning, with an extraordinary 8.1% more spending on credit cards within a year. It is crucial that people start to recognise the difference between essential and non-essential expenditure and borrowing in order to make significant changes towards lowering their total amount of debt. 

It is essential to realise that not all debt is the outcome of poor management; the amount of people requesting debt advice has increased in the past few years. TUC, general secretary, Francis O’Grady stated that: 

‘Years of austerity and wage stagnation has pushed millions of families deep into the red.’ 

Meaning that economic policies have increased taxes and decreased funding towards social services and a lack of wage growth. Following this, education costs are incredibly high; the average graduate from a three-year degree carries a whopping £50,000 worth of debt around with them. This does not even account for the exorbitant interest rates that go along with it. 

Diminishing credit card debt 

It is no secret that many families rely on credit cards to get by. It may seem impossible, but there are ways to reduce total debt. There are a variety of applications out there that offer users the opportunity to categorise and cut down on their spending, for example, Money Dashboard or Emma. They help reduce credit card debt by obtaining a repayment plan specifically targeting high-interest spending and comparing interest rates. Most banks offer refined programmes that identify fraudulent purchasing patterns; however, the purchase amount is often not large enough to alert the cardholder. Therefore, users must keep a close eye on establishing transactions made by fraudulent means. 

Debt management plans

Debt management plans can help guide people back onto the right track. They enable monthly payments to be made to the provider who communicates with creditors to negotiate supportive stipulations. A debt management plan is useful for those who have non-priority debts such as personal loans. Additional options include debt relief order suitable for those with low incomes, individual voluntary arrangements which often give several years in which the debt must be paid and bankruptcy which allows people relief from all debts. 

Those tackling finance problems should first try and cut down on unnecessary spending; however, if that does not solve any issues, financial planning may be mandatory in aiding those coping month to month.

All of the above solutions can be beneficial but should first be discussed with a financial advisor to ensure you are the right candidate for the plan picked out for you.