Most people who work have to pay HM Revenue & Customs (HMRC) National Insurance Contributions (NICs) as well as tax. Payment of  NICs may entitle you to benefits, such as a state pension and jobseeker’s allowance. Some are paid at a flat rate with others, the amount payable is linked to earnings.
N I C Rates

Class 1 NICs are calculated using three levels of earnings set by the government – the earnings threshold (ET), the lower earnings limit (LEL) and the upper earnings limit (UEL). The LEL is the level at which employees are entitled to National Insurance benefits, even if they are not paying any contributions.

The actual rates are set at budget time and are complex see HMRC table. Employees pay 11% and employers 12.8% of chargeable pay.

N I C for employees and employers

Class 1 NICs

Employers are responsible for calculating, deducting and paying Class 1 primary NICs employees’ contributions, to HM Revenue & Customs (HMRC) on behalf of all employees earning above the earnings threshold. These must be deducted from their earnings. Employers must also calculate and pay Class 1A NICs due on taxable benefits given to employees

Employers must calculate and pay Class 1 secondary NICs employers’ contributions for all employees earning above the earnings threshold.  Employers must keep adequate records showing how NICs were calculated and what payments have been made for each employee.

The self-employed and National Insurance

Self-employed people pay two types of  NICs – Class 2 and Class 4.
Class 2 NICs

Most self-employed people pay Class 2 NICs at a weekly rate of £2.40 in 2009/10 You can apply for a certificate of exception if you have expected earnings of less than £5,075 in 2009/10.

Self-employed people do not have to pay Class 2 NICs if they are pensioner, under 16,  married women or widows entitled to pay reduced rate Class 1 NICs
Class 4 NICs

Class 4 NICs are paid in addition to Class 2 NICs by self-employed people who make a profit over a certain limit in the tax year   this limit is set at £5,715 in 2009/10. Self-employed people declare their profits annually on a self-assessment tax return.

Payment is made to HM Revenue & Customs either monthly by direct debit or by quarterly bill.

Class 3 NICs

These are paid voluntarily by individuals who want to protect their right to certain benefits, but have not paid sufficient contributions. Individuals are responsible for finding out if they need to pay Class 3 NICs and for setting up a method of payment.

• National Insurance Payments at HM Revenue
• National Insurance at Citizens Advice Bureau

What is an SME?

• · SME is a shorthand for Small Medium-sized Enterprises and fits into European Community definitions for support purposes.
• · SME’s have less than 250 employees, lower turnover and assets than €50 million.
• · Micro businesses have less than 5 employees but are also SME’s.
• · SME’s can be sole traders, partnerships, companies or some other variations.

Home Based SME’s

Home-based businesses tend to be cheaper to run and more flexible than conventional businesses.

Home-based businesses are popular because costs are lower and commuting is not an issue. You have the freedom and flexibility to work the hours you choose in an environment that you create.

If you are a regular Ebay trader, sell handicrafts or earn money from internet blogs etc you are probably, already an SME and therefore need to understand some issues. Depending on the nature of your business it is a good idea to check with some of the following:

* It is vital you advise HM Revenue & Customs and check to see what your income tax and VAT position is.
* Your mortgage lender or landlord/freeholder – your mortgage or tenancy agreement may prevent you from using your home to run a business.
* Your insurer to see if you need to take out extra insurance.
* The Valuation Office Agency (VOA), to see if you will be charged business rates and the Local Authority planning department if you need to make structural changes to your home
* The Health & Safety Executive or your local authority to find out the health and safety aspects of running a work at home business and how to do a risk assessment.
* Free advice is available in most parts of the UK from Business Link

What Records Must a New Business Keep?

· It is commonsense and a legal requirement to keep full and accurate records of your income and expenses from the start.

· Keeping good records helps you complete your tax returns easier and quicker, pay the right tax and avoid paying unnecessary interest and penalties.

· You should keep invoices and receipts to show what you have bought or sold relating to your business.

· If you are employing others, you must keep records of their wages and tax and National Insurance you have deducted and paid to HM Revenue & Customs (HMRC).

· Keep bank statements and all financial records especially if you don’t have a separate business account.

· You must be able to show clearly what you have spent personally and what is spent on business.

· When you use cash keep till receipts and a record book to keep track of it all.

Tips for Starting A Business

· Have a system and procedures to work on your business.

· Get a cash book or use a good software package that will prompt you to keep good accurate records.

· Have a day book and note everything down as it is easy to forget costs or issues when you are very busy ‘doing your business’.

Some people or businesses are reluctant to switch banks because they think the process could be time-consuming and risk loosing information.  It is easy to stay with the bank you first chose through inertia when but switching your account could help you get a better deal.

The Banking Conduct of Business Sourcebook (BCOBS) which replaced the Business Banking Code on 1 November 2009 commits banks to making the transfer of your account quicker and simpler.

The development of telephone and internet banking, means there’s a range of attractive packages and products available. Most of these are designed to help banks make profits so check that you are getting what you want and what you are willing to pay for.

Your old bank has to send details of your direct debits and standing orders to you and your new bank within three days of a request to do so. Your new bank must then set up these payments and inform the recipients of your direct debits within four working days. If they fail to fulfil their commitments you may be entitled to a payment from the bank concerned.

What should I consider before changing Bank?

* Understand why you are going to change banks eg cost, reliability service, location etc.
* Consider whether you are comfortable using telephone or internet banking or do you need to visit your branch.
* Do you need advice from your bank about credit, mortgages, business or other matters.
* Select your new bank after deciding on the above factors

How do you make the Transfer Smoother?

* Check the terms and conditions of the new account carefully. Contact your new bank and obtain application forms.
* Discuss any concerns you have before returning the forms.
* Complete the mandate from your new bank. This allows them to deal with your old bank on your behalf and request details of regular payments.
* The new bank will arrange for standing orders and direct debits to be switched. Check whether the bank will notify them, or whether you should do this.
* You should tell everyone who automatically sends you money like salary and dividends  your new account details so they can continue to pay you.
* Keep monitoring both accounts carefully to check for errors or problems such as payments being made twice or missing altogether.
* If possible, keep your old account running until you’re sure the new bank can deliver the service you require.
* Your new bank should notify you when they are satisfied they’ve completed their responsibilities for the switch.

What are the Pros of switching bank accounts?

* A new account might offer more attractive interest rates or lower bank charges.
* Many bank accounts come with introductory offers, such as free banking for an initial period.
* If you’re unhappy with your relationship with your current bank, a new one might understand your requirements better.
* Your current bank may not offer 24-hour telephone or internet banking services you might want to transfer your business to one which does. Making payments and transferring funds electronically could also help you reduce bank charges.

What are the Cons of switching bank accounts?

* If your accounts are complex, it can still take time and there’s no guarantee of avoiding problems altogether.
* You will need to assess the impact of switching on other arrangements you might have with the bank such as loans or credit cards Your new bank may want to change the level or refuse them altogether.
* Staying with one bank for several years can sometimes help you demonstrate a certain level of financial stability. This can be important if you ever want a loan or are seeking other sources of finance.
* You will lose the benefits of personal relationships and the understanding of you as a customer that has built up with your current bank.
* Changing cards and documents means time and effort, new passwords and a bit of vigilance on your part during the change over.

Tips For Changing Bank

* When you do change keep your old account open for a while in case of problems.
* I have found it easier to open a new account for new transactions and never close the old account. More bumph but also more control.
* Joint accounts and business accounts are similar in function but make sure every signatory knows what is going on.

1. If it looks too good it probably is – only go in to investments you understand – buyer beware.

2. Keep an eye on all your savings to be sure they are still giving you the best deal and remain appropriate for your circumstances.

3. Diversify your investments and savings. Spread the risk with different providers in different markets and products.

4. Make investments that compound your returns interest on interest mounts up over time and you are not investing for a quick buck.

5. If the return is higher than government bonds there is likely to be a risk The bigger the return the larger the risk.

6. The risk is most obvious when the investment is volatile but still exists before it becomes volatile.

7. Question any ‘low risk investment’ advice that offers superior returns.

8. Do not copy friends or follow the crowd because it seems to be the thing to do. A desire to conform can make for bad investment decisions.

9. Drip feed your investments rather than buying all at the same time to get the benefit of pound cost averaging

10. Do not rely on FSA regulation for a product or company it is only an indicator.

11. If the sums are material use a professional advisor or investment manager who should have experience of minimising risk and exposure to fraud.

12. Listen to advisers particularly if they offer cautious, contrary advice about an investment you want to make. They may know some thing you don’t.

Travel Cheaply

Book early for the best fares. Check out good deals on train fares at www.thetrainline.com. or for Buses try www.megabus.com.

Arrange lifts by relatives and friends only offering to contribute to petrol if they are poorer than you.

If you hire a car look for deals on compact models with good fuel consumption rather than being encouraged to splash out because ‘that is what you do at Christmas’.

Avoid expensive extras

If you are really hard up make a virtue out of being environmentally friendly. Wrap gifts in old newspaper. Reuse padded envelopes. Help recycling by buying from Charity shops.

Continue reading →

On-Line Shopping Rights

Are you shopping early for Christmas and using internet suppliers? If you buy on-line your rights are a bit different to those you get when buying from a shop.

Delivery Issues

Always check the promised delivery times on the web site. If no delivery time is given then delivery should be within 30 days. If your goods are not delivered within this time you are legally allowed to cancel the order and get a full refund if you have already been charged.

If goods have been personalised or built specially to your requirements you can not automatically cancel the order.

Items lost in the post should be replaced or a refund given by the supplier after the courier or Royal Mail have been given two weeks to trace the first delivery.

Under Distance Selling Regulations you have a 7 day cooling off period after receipt during which you can return unopened items for full refund including initial delivery charges (but not returning costs).

Good Practice

• Print a hard copy of your order with the site reference. If the purchase is large save a copy of the terms and conditions after checking them.
• Deal with reputable suppliers who have a bricks and mortar presence in addition to web sites. They must give you their full geographical address (a PO Box is not enough) no later than at the time of delivery of goods
• Always check there are secure payment facilities Https and golden locks are signs to look for.
• Use a credit card for payments £100- £30,000 as the credit card company has liability with the shop if the goods are faulty, not as described or not delivered.
• Paypal is useful for smaller payments.
• Look for voucher codes for discounts and special offers.
• Do not assume web prices are always cheaper. It pays to shop around.
• Get more information from a specialist web site like Online Shopping Rights
• Special Purchases
• The rules for buying cars are a bit different. A trader has to honour the 7 day distance Selling Regulation cooling off period. A person selling the car on the web isn’t tied to this. Also check for guarantees and warranties.
• Distance Selling Regulations are to protect buyers who have not met sellers. If you visit a furniture shop for example then order on line you may loose the 7 day period
• Be careful when buying at online auctions because auctioneers, unlike other sellers, can refuse to accept responsibility for the quality of the goods they auction. Read the conditions of sale with care.
• Finance and insurance products, land and for some reason vending machines are not covered by the same rules. The Consumer Credit act offers different protections in some of these circumstances.

Again check for common sense. One problem is knowing when to stop as there are so many side issues. keep your disclaimers upto date

The Co-operative movement has a long tradition of financial prudence and support for members. Parents and grandparents will remember saving the ‘Divi’ on food purchases or even opening a share account at the local Co-op. The Co-op has moved on with its own Co-operative Bank plc although it still retains much of what was good about old traditional co-operative societies.

A new interest in Credit Unions has developed to fill the void between the old local Co-op, friendly societies and banks. Credit unions are financial co-operatives owned and controlled by their members. Credit Unions exist to offer savings and loan facilities to members.  They can usually claim to be local, ethical and know what their members want.

Borrowing From a Credit Union

Contact your local credit union or one linked to your region, employer or association, such as a church or trade union. A ‘common bond’ links members with rules and common links.

Credit union loans should come with no hidden charges and no penalties for repaying the loan early. Life insurance is usually built in, at no cost to the borrower, so if you were to die before repayment insurance would repay the loan. Terms vary so check them out carefully. You can often repay over a time of up to 5 years or even 10 years if you have some security.

After you have repaid the loan keep up the monthly payments as a painless way of saving. This helps the credit union, your financial co-operative, find the funds to lend to others.

Save with Your Credit Union

Saving money with a credit union is usually made simple using local shops and collecting facilities that allow deposits as and when. Regular savings mount up best. Interest is earned annually in the form of a dividend based on the Unions performance. This has been as much as 8% of the amount that people have saved, but is typically 1- 3%.

Investing in your local credit union, the only people you are benefiting are yourself and your fellow members not shareholders and large head office overheads. Credit unions keep money within a community because there are no outside shareholders to pay.

PPI is intended to cover loan repayments and credit card debts in times of crisis such as illness or redundancy thus providing some comfort and piece of mind to borrowers.

Changes need to be made to the aggressive selling of this type of insurance according to the Financial Services Authority (FSA). Over 180,000 complaints have been rejected by companies but 80% of those investigated by the Financial Ombudsman have been up held in favour of the customer.

Some PPI Problems

• PPI can incur very high costs up to 20% of the loan value in some cases.
• PPI can be hard or impossible to cancel.
• Sometimes the policies are bought alongside a loan without the customer being made aware they are paying for this insurance.
• There appears to have been aggressive and mis-selling of PPI
• In some cases all the premiums on say a three year loan were due up front and the cost was added to the loan so customers also paid insurance on top.

How To Deal With PPI Misselling

• If you have had a claim rejected unreasonably then request a review and make a claim via the Financial service ombudsman if still unsatisfied. See: PPI at Financial Service Ombudsman
• If you think there was mis-selling you may have a valid case if you were self-employed or unemployed when you bought cover.
• A claim can also be made if PPI was added to a loan without the salesperson telling you that you were purchasing the cover.
• Making a mis-selling claim if you were told the loan would be refused unless you took out the insurance.
• On future loans consider if you need the comfort PPI may provide or you are just giving the lender higher profits. Check your other insurance that may already give adequate cover like Disability, Critical Illness insurance or Life Assurance.

Your ability to borrow money or borrow money on good terms is influenced by your credit score. This is an amalgam of your history with financial institutions, credit cards, store cards banks and other lenders.

If you never borrow, never get into debt, always repay your credit cards 100% first time then you will not get on the radar of Credit Checking Agencies like Experian and Equifax. At the other end of the scale if you have lots of credit cards, miss payments, have county court judgements, apply for credit and don’t take it up or apply and fail too often then you may end up with a poor credit score.

What Can You Do to Improve you Credit Rating?

• Be aware you are leaving a credit footprint. This financial reputation will stay with you (or at least be accessed by future lenders form checking agencies).
• You can ask the agencies for a copy of your personal credit report to see if there are any black marks against your name for a cost of £2 admin fee.
• Check to see whether any mistakes have crept in.
• Improve your score by making at least the minimum payment on your credit cards
• Check you are on the electoral roll.
• Close any old cards even if they have a zero balance as the ‘facility’ ( possible credit limit) will be used in assessing how much you may borrow from a new lender.
• Use web tools to check you are eligible for good deals before applying. Too many failed applications count against you.
• Lenders prefer people with a history of repaying loans rather than someone who never takes out a loan or credit card.

Other Credit Score Tips

• Be cynical about companies who say they will repair your credit for a fee.
• If you are consistently refused credit there is probably a good reason. Get advice from National Debt line or Citizens advice Bureau.
• Scoring systems are not published and differ lender-to-lender, so just because one company rejects you, it doesn’t automatically mean another will.
• If you disagree with anything on your credit file write to the agency and request it is changed. If they and the original lender refuse to amend your file you are entitled to add your own comments as a ‘notice of correction’.

Interest rates swaps are a way for financial bodies to exchange risk on the movement of interest rates. They were originally designed as a way for firms to avoid exchange rate controls because interest rate swaps can be done in different currencies.

Interest rate swaps are one of the most common type of derivatives and are highly liquid (meaning easy to buy and sell).

The most common type of interest rate swap is a combination of fixed and variable rate payments.

In this example.

Firm A wishes to swap variable interest payments for fixed interest payments. Bank B is happy to pay a variable rate in return for a fixed rate

• Firm A pays a fixed rate to Bank B. (e.g. a rate of 5%)
• Bank B pays a variable rate to Bank A. (e.g. Libor rate + 0.5%)
• A notional amount is decided on e.g. £1m so this will determine the amount of interest paid.

This means that Bank B gets a fixed interest payment of £50,000
Bank A is receiving a variable interest payment which depends on the libor rate

Firm A is paying a constant interest payment.

Firm B is experiencing the risk associated in changing interest rates. The amount it has to pay depends on interest rate movements.
If interest rates increase Bank B pays more to firm A, if interest rates goes down it pays less to firm A

Suppose a firm took out a loan and  had to pay variable interest payments on this loan. The firm would be vulnerable if interest rates rose rapidly. This would increase its costs and could make the firm go under.

Therefore, to hedge against a rise in interest rates, the firm, may seek to enter into an interest rate swap. It would choose a situation where it would receive a variable rate and paid a fixed rate.

Therefore, if interest rates rose it would have higher costs from its loan. But, this would be compensated by receiving a higher variable rate on its interest rate swap. Therefore, if interest rates rose, it would not be as damaging for the firms costs.

In this way an interest rate swap provides  a mechanism for firms (or other institution) to hedge against rising interest rates. Of course, it means they don’t benefit from falling interest rates, but, they have greater certainty over their costs and payments.

Related

• Credit default Swaps explained
• Interest rates explained