It is reported over and over again, from news channels to business blogs to newspapers, that interest rates are at an all time low. Whilst there may be very little that we can actually do about it, as business owners there are ways that we can minimise the impact such low interest rates have on our annual profits. Here we take a look at some of the main factors affected by low bank rates.
Business savings allowance
“Even if interest rates stay low, not all hope is lost for savers, because there are government initiatives that can support those eligible, such as the personal savings allowance,” says Rachel Springall, spokeswoman for Moneyfacts, the financial research group.
In the past, interest from savings accounts was taxed as income unless it was held in an Isa. Since April 2016, basic-rate taxpayers have been allowed to receive £1,000 a year of savings interest tax-free. For higher-rate taxpayers the sum is £500. This means that most people do not pay tax on their savings.
Those with savings income over and above the personal allowance can keep far more in tax-free Isa accounts than they could in the past. Up to £20,000 a year can be sheltered, compared with £7,000 in 2007.
Other schemes that help savers include the Help to Buy and Lifetime Isas. With these accounts the government adds a 25 per cent top-up to your savings, although each has eligibility criteria to get the extra cash. The Lifetime Isa, for example, is open only to people aged between 18 and 39 and the money must be used after the age of 60, or to buy a home. The Help to Buy Isa is only for first-time homebuyers.
Insurance for your business
Government austerity measures since the financial crisis have meant cost-cutting and tax increases. Insurance is no exception. Insurance premium tax (IPT), which is levied on products such as home, car and travel insurance, has more than doubled in two years. The Treasury expects to raise an extra £2.4 billion from it by 2021 when it will be raking in more than inheritance tax or air passenger duty.
IPT is charged as a percentage of an insurance premium. It is felt most keenly by those buying car insurance, which tends to be the most expensive type.
There are two bands. The standard rate applies to policies such as home insurance. It was increased to 12 per cent from June, up from 6 per cent in October 2015. In 2007 it was 5 per cent.
The higher rate at 20 per cent is for travel, electrical appliance insurance and some vehicle cover.
“The great fear is that the standard rate will increase further in keeping with other countries that have this tax, and the rate on travel and electrical goods insurance, which is 20 per cent,” says Mr Pratt.
Pensions for your employees
Before April 2015, most people approaching retirement had to use their pension savings to buy an annuity, which would pay a fixed amount of money for life. Payout rates from annuities have been abysmal since the crisis, and this was one of the reasons why the government overhauled pension rules two years ago. People can now take up to 25 per cent of their savings tax-free and choose what to do with the remainder, whether staying invested, taking frequent lump sums or buying an annuity. The pension changes have been popular with retirees, says Steve Webb, the head of pensions policy at Royal London, a pensions company. “Any future government would find it politically impossible to reverse this policy,” he says.
It is important to safeguard your business and your employees against base rate changes at from the bank. Do you have any suggestions on how to avoid tax penalties and deductions? Get in touch to share your ideas.