Financial Advice for Freelancers and Contractors
www.wealth-matters.co.uk
Tel: 01582 720511
FINANCIAL ADVICE FOR FREELANCERS AND CONTRACTORS
1. Contractor issues As a contractor, do you get frustrated when you are looking for good quality financial advice? Do you feel that banks and other financial advisers do not really understand the way that you operate? Donʼt worry, hundreds of contractors have come to Wealth Matters with similar stories. If you operate through a limited company, it is important to understand how best to minimise your income tax, national insurance payments, corporation tax and capital gains tax. The good news is that there are many planning opportunities as a director of your own limited company.
Your search for a company that understands your issues may soon be over… “We can help you make the most of your earnings, showing you how to make pension contributions tax efficiently and helping you to extract money from your company tax efficiently, whilst at the same time helping you to minimise your tax liabilities”
2. Wealth Matters and the Contractor market Wealth Matters specialises in working with contractors, freelancers and interim managers. We offer independent financial advice and guidance to help you make smart choices with your money. We have been working with professional contractors for over ten years. We understand the issues that you face as a contractor, including: ๏ Fluctuating income ๏ Cash flow issues
๏ IR35 issues
๏ Uncertainty of future contracts
๏ Planning for retirement/ pensions
๏ Tax implications
As a contractor, you receive no pension, no sick pay and no death benefits, so you need to make your own provisions. Wealth Matters provide pension advice to members of the Professional Contractors Group (PCG) and write articles for the PCG website including the indepth guide to pensions. We also work closely with other well established and respected experts in the contractor market, such as Baker Watkin and Crunch accountants. Wealth Matters is a fee-based, financial planning firm. We focus on honesty, integrity, service and transparency; helping you on the path to financial freedom through on-going support and advice.
Wealth Matters, 727 Capability Green, Luton, Beds, LU1 3LU Tel: 01582 720511 info@wealth-matters.co.uk www.wealth-matters.co.uk
FINANCIAL ADVICE FOR FREELANCERS AND CONTRACTORS
3. Our Process
Wealth Matters, 727 Capability Green, Luton, Beds, LU1 3LU Tel: 01582 720511 info@wealth-matters.co.uk www.wealth-matters.co.uk
FINANCIAL ADVICE FOR FREELANCERS AND CONTRACTORS
4. Pensions Pension planning is a complex area with many rules to understand. It is further complicated if you operate through a limited company and take a relatively small salary. Wealth Matters are the pension experts for contractors. We can explain whether to make company or personal contributions, what you are allowed to do and how much you should contribute to reach your goals. Our advice frequently saves contractors thousands of pounds every year, through reduced Corporation Tax, Income Tax and National Insurance contributions With a Wealth Matters pension, we offer the following features: ๏ You complete a detailed psychometric questionnaire to ensure that your investment matches your
attitude to risk ๏ We suggest an investment portfolio with a wide range of assets (cash, gilts, bonds, UK equities,
overseas equities) to spread risk. All funds are carefully selected by our investment team. We use a whole of market Self Invested Personal Pension (SIPP) so there are no restrictions in the funds that we can use. ๏ Your portfolio is rebalanced every year in line with your risk profile to give the appropriate balance of
lower risk and higher risk, higher growth funds. This process improves its longer term performance, whilst reducing volatility. ๏ We report to you every quarter with an investment review of your portfolio and you can see your fund
value on-line at all times. Funds are bought and sold for you when necessary. ๏ You have access to low cost funds that are not readily available to the public. ๏ You have access to our support team and advisers that specialise in the contractor market, all at a
“According to additional research by Skandia, over a 10 year sample case, an annually rebalanced investment portfolio would return 14% more than the same portfolio if it had not been rebalanced. In addition, the rebalanced portfolio would have been less volatile.” -‐ Professional Adviser 26/11/2009
lower overall cost than a discount broker may offer. ๏ Premiums for pension contributions are flexible. You can increase them over time or take a payment holiday if you cannot obtain a new contract. In
addition, if you wish to make a lump sum company contribution before the end of your tax year to reduce your corporation tax bill, just email or phone us and we can action this for you.
Wealth Matters, 727 Capability Green, Luton, Beds, LU1 3LU Tel: 01582 720511 info@wealth-matters.co.uk www.wealth-matters.co.uk
FINANCIAL ADVICE FOR FREELANCERS AND CONTRACTORS
5. Protection products relevant to contractors Did you know that as a contractor, you can take out life cover and health insurance AND claim tax relief on the premiums?
Tax efficient Death-In-Service benefits
Executive Income Protection What would happen if you are unable to work due to illness? Your level of income could fall and your financial plans may be compromised. An executive income replacement plan can pay out once you have been unable to work for a set amount of time. ๏ It can cover salary and dividends, along with other costs to the
company such as employer pension premiums and National Insurance contributions. ๏ The benefits are paid tax-free to the business. The business can
then pay the employee the benefits in the form of salary or dividends.
Life cover or death-in-service cover for contractors is known as a ʻrelevant life policy.ʼ It is set up in the name of the company and the life assured can be the director or any other employee. The premiums are paid by the company and the benefit can be paid to an individual (spouse/ loved one) through a trust, tax-free and free from inheritance tax.
The premium is paid by the company and can be classed as a taxdeductible expense for the business and a claim for corporation tax relief can be made.
Furthermore, the policy premiums are normally classed as a tax deductible expense so your business can receive corporation tax relief on the premiums at your highest rate.
Wealth Matters, 727 Capability Green, Luton, Beds, LU1 3LU Tel: 01582 720511 info@wealth-matters.co.uk www.wealth-matters.co.uk
FINANCIAL ADVICE FOR FREELANCERS AND CONTRACTORS
6. Other services we offer Critical Illness Cover:
ISAs, Bonds and Regular Savings:
If you are diagnosed with one of a list of illnesses, this cover will pay you a tax-free lump sum (or income). The best providers list and cover c.35 illnesses including: cancer, heart attack, stroke, deafness, blindness, coma etc. This type of policy must be paid through personal premiums and not through your business.
We regard ʻsavingʼ as short term (0-5 years) and often recommend: Cash ISAs (individual savings accounts), high interest deposit accounts, bonds or NSI products. ʻInvestingʼ means more than 5 years, ideally 10 years plus. We help you make use of tax-efficient savings vehicles like Equity ISAs and bonds if applicable. We show you how to invest, relative to your risk tolerance and put together your portfolio of funds. We encourage regular premiums which is key to long to long term wealth.
Private Medical Insurance (PMI): Often regarded as a luxury form of cover, PMI covers you for in-patient and out-patient care, nurses and ambulance fees, specialist fees and surgery costs. You can cover your whole family including your children and be assured of private care and less time waiting to be treated. Your company can pay for this cover, but the premiums will be treated as a benefit in kind.
Family Income Benefit (FIB): Another form of life insurance, but which pays a tax-free monthly income to your family if you were to die prematurely. Often used to provide for spouses or children to cover the costs of education. The premiums are usually paid from personal income and are cost effective given that the cover is effectively reducing over time.
School Fees Planning for Children: How do you best save for your childʼs education? Wealth Matters can show you how best to do this tax-efficiently. We may use deposit saving schemes (in the childʼs name receiving interest gross), National Savings and Investments (NSI), Unit Trusts, ISAs or childrenʼs bonds.
Cash flow analysis and budget planning: We help you understand how you spend your monies and we offer advice in the form of budget planning. We also project your finances using cash flow analysis techniques to help you achieve financial independence.
Wills and Inheritance Tax (IHT) planning: Having a will written is one of the first things that any adult should do if they are serious about their financial future. Dying without a will is called ʻdying intestateʼ and could mean that money is given to people other than you may have wished. If you were to die prematurely, make sure you put the right money in the right hands and the right time. Creating a will is the first step in mitigating IHT. Wealth Matters can set up a will (or review an existing will) and advise on the use of Trusts and allowable gifts.
Tax Planning: Wealth Matters work with contractor-specialist accountants Crunch and Baker Watkin to help you plan your financial affairs as tax-efficiently as possible. This means giving advice on how best to extract monies from your business (what level of salary, dividends and pension contributions) as well giving advice on allowable expenses, VAT and IR35.
Second Opinion Service: If you have amassed a number of different policies over the years (including personal or occupational pensions, protection plans, endowments, savings or investment plans), Wealth Matters can help you decide which are worth keeping, cancelling or if they may need replacing. In cases like this we tend to recommend a holistic review of your finances and a written report.
Wealth Matters, 727 Capability Green, Luton, Beds, LU1 3LU Tel: 01582 720511 info@wealth-matters.co.uk www.wealth-matters.co.uk
FINANCIAL ADVICE FOR FREELANCERS AND CONTRACTORS
7. Example Case Study Background ๏ Mr Client in mid 30s, single with no children ๏ IT contractor working through his own limited company
Challenges ๏ Insufficient insurance for a self-employed contractor ๏ Had a large cash lump sum in business and wished to extract it in a tax efficient manner ๏ Pays himself a salary and dividends but his billing rate is far greater than the total
of his expenses, salary and dividends ๏ Client has pensions from previous employment but no strategy ๏ Previous pensions are a mess and no clear savings strategy
What we did ๏ Created a Financial Plan to give on-going financial direction ๏ Set up Life Insurance and Critical Illness policy to cover outstanding liability on mortgage. ๏ Income Protection policy set up to guarantee income if contractor could not work due to ill health ๏ Utilised pension rules to maximise company contributions ๏ Showed client how to extract money from his company tax efficiently. We explained the trade off
between National Insurance, Income Tax and Corporation Tax to create tax efficient investments ๏ New pension set up and incorporated old underperforming pensions. New scheme can be monitored on-line, funds are bought and sold when appropriate and Wealth Matters provide investment bulletin to review funds every quarter ๏ Client still had surplus cash in the business earning little interest, so a Unit Trust was set up in the business. The client could then “sweep” investments into their own ISA or pension when appropriate at no cost to transfer and without the need to disinvest.
The Result ๏ Client fully protected against any death or ill-health risk ๏ Saved client £10,500 lump sum and £6,300 per annum in tax charges through our tax planning strategies ๏ New investment strategy improved performance and reduced risk at the same time ๏ Created tax efficient saving strategy for clients, further reducing their tax bill
Wealth Matters, 727 Capability Green, Luton, Beds, LU1 3LU Tel: 01582 720511 info@wealth-matters.co.uk www.wealth-matters.co.uk
FINANCIAL ADVICE FOR FREELANCERS AND CONTRACTORS
8. What happens next? Please contact Wealth Matters on 01582 720511 or info@wealth-matters.co.uk and we can get things going.
“Never have I experienced such fast responding excellent customer service, particularly from an IFA. Wealth Matters are in a class of their own. I have everything now consolidated under one roof including frozen pensions, critical life cover and ISAs. Simply brilliant!”
-‐ Darren Fell, Founder and MD of Crunch Online Accountants
“As a freelance contractor with pre-‐existing pension funds, I wanted advice on how best to invest these and on how much to save. With Wealth Matters, I felt that I was getting true expertise and advice and I felt in control of my own pension and investment future and happier that freelancing was benefitting my retirement, rather than worrying about what the future would hold." -‐ Teresa Trangmar, IT Contractor
“I have had no hesitation in recommending Wealth Matters‘ services to friends, family and associates given their excellent service, enthusiasm for addressing your financial needs and professional manner in which they see through requests."
-‐Laurence Dale , Contractor and Director of Celerity Mobile Ltd
Wealth Matters, 727 Capability Green, Luton, Beds, LU1 3LU Tel: 01582 720511 info@wealth-matters.co.uk www.wealth-matters.co.uk