New Year, New Rules: Changes to Expect This Tax Year

Last month saw the renewal of the UK tax year, and with that comes an array of new rates, thresholds and allowances. That’s why today, we’re here to help by breaking down any changes, both big and small, that might affect your personal and business finances this tax year.

Personal tax

Income tax thresholds have risen, with the amount you can earn per annum before paying income tax now capped at £12,500 (up from £11,850 in 2018). This means most people can look forward to a minor reduction of £130 in tax across the year, while high-earners with an annual income of over £50,000 will face the 40% higher rate tax (up from £46,350 in the previous year).

In Scotland, a whole range of changes to personal tax rates were announced following the Scottish Budget announcement back in December 2018. Primarily, this entailed the introduction of new tax bands and subsequent thresholds:

  • Starter rate (19%): £12,500 – £14,549 PA (up from £11,850 – £13,850)
  • Basic rate (20%): £14,550 – £24,944 PA (up from £13,851 – £24,000)
  • Intermediate (21%): £24,945 – £43,430 PA (up from £24,001 – £44,273)
  • Higher rate (41%): £43,431 – £150,000 PA (up from £44,274 – £150,000)
  • Additional rate (46%): Over £150,000 (Same as previous year)

Commercial perks

Benefits in kind (BIK) tax rates have increased as of 6th April, with taxable rates on company cars now being based on the levels of CO2 emissions emitted from the vehicle. HMRC has released this handy guide to help you work out what tax threshold your company vehicle falls under.

Elsewhere, taxation fees now apply to any personal fuel allowances on company vans at an increased rate as of April, with BIK on fuel for a van with personal use allowance rising to £3,430 (up from £3,350 in the previous tax year).

Student loans

The new tax year brings good news for students, with The Department for Education confirming a rise in the repayment thresholds for all student loans:

  • Plan 1 loan repayments will now commence once the loanee is earning £18,935 PA (up from £18,330)
  • Plan 2 loan repayments will commence following a salary of £25,725 PA (up from £25,000 the previous year)

Workplace & personal pensions

The tax-free total you can pay into a personal pension remains at £40,000 each tax year, although the lifetime allowance for pension savings has now increased to £1,055,000 (up from £1,030,000).

In auto-enrolment workplace pension schemes, the minimum pay-in amount required has also increased. As of April, employer and employee contributions must be at least 8% of the employee’s qualifying salary.

Corporation tax

Corporation tax (the payable rates on a business’s total profits) remains at 19% this year, however the UK government has announced plans to reduce this to 17% for the following 2020/21 tax year.

This comprehensive guide to financial changes this UK tax year will ensure you can stay on top of your outgoings and taxes, enabling you to sufficiently budget for all aspects of the year ahead. For additional budgeting tips and tricks, why not check out the rest of our blog?

Self-Employment: What Does It Mean For My Personal Loan Eligibility?

Filling out a form

Amidst a cautious national economy, banks and lenders are becoming increasingly apprehensive surrounding personal loans, often tightening their criteria in favour of those with a strong financial history. This means that loans for self employed workers are, in theory, harder to come by, with applicants often lacking evidence of a secure stream of income.

Self-employment is, however, becoming an increasingly popular professional venture, with the most recent governmental statistics (at the time of publication) recording 15% of all UK workers as self-employed. Subsequently, there is an expanding self-employment market that requires financial support – so, although it may be harder to secure a self-employed personal loan, it’s by no means impossible.

First thing’s first…what is a personal loan?

A personal loan is an amount borrowed from a lender to cover any personal expenses life may throw your way. They are typically borrowed from a bank, credit union or private lender and don’t need to be secured against any asset. Because of this, however, lenders are typically more apprehensive about offering these loans – particularly to the self-employed – so interest rates are usually higher.

Where do I start?

Amongst a saturated financial market that offers options ranging from banks to payday loan providers, it’s difficult to know where to start when applying for a personal loan – especially if you’re self-employed.

Eligibility criteria can at first appear daunting and will vary depending on your provider, however there are a set of objective terms you can expect to see across the board:

Common Criteria

  • Age 21+
  • UK resident of 3 or more years with a UK bank or building society account
  • A minimum annual income of usually around £12,000
  • Employment history of at least 2 years
  • A visible credit history with a steady track record

Though this may already sound extensive, the likelihood is that you’ll already have most of the required information to hand in the form of tax returns and bank statements. Providing you meet the criteria, several mainstream lenders will be willing to supply loans for self-employed workers.

Alternatively, there are various specialist lenders who focus on more niche aspects of the lending market – giving you more options than you may have originally thought available. As such, it’s very important you start by shopping around, comparing loans to find the best possible option for you.

What documentation will I need?

Once you’ve decided on your lender, ensure you have all the relevant documentation to hand to help you speed up the process. As a rule of thumb, lenders will usually want to see the following before offering any form of personal loan:

  • Bank statements – A lender will typically request to see a collection of your previous bank statements in order to gauge a better understanding of your overall financial status (proven in any ingoing and outgoing patterns), as well as to calculate your total earnings as declared in your SA302 (Self-assessment tax return)
  • Tax returns – Lenders will request copies of your SA302 calculation from the past 2 years as a minimum as a means of proving income. These can easily be found online by logging into your online HMRC account
  • Business information – Your lender is going to want to know about your business or trade, including the business status (ie. sole trader, partnership etc.) and whether anyone else has financial investment in the company
  • Proof of residency – Proof of UK residency will be required, usually for the past 3 years at a minimum. This can usually be done by providing bank statements or mortgage documentation, although proof of tenancy agreements may sometimes be required

How much can I borrow?

Generally, personal loan amounts can vary between £1000 and £25,000, however there are many external factors that influence this decision. Lenders will assess loan applications by context, meaning everything from your lender’s assessment of affordability to your reasonings for borrowing can, and most likely will, play a role in the overall amount you’re granted.

Ensure you’ve done some thorough calculations before applying for a personal loan to avoid falling into the trap of taking on too much debt. Only apply for the amount you need, as failing to meet your repayments can have significant consequences on your credit score and subsequent future borrowing eligibility.

How much will my repayments be?

Again, this generally depends on a number of external factors. Though it’s commonly perceived that loans for self-employed workers come with higher interest rates, this isn’t necessarily the case – as competition continues to grow between lenders, you may find some providers offer the same APR rates as traditionally ‘safer’ personal loan lenders. This once more highlights how important it is for a borrower to compare loans to find the best rates for their individual situation.

How are my repayments calculated?

Just like with any type of loan, your repayments are calculated based on the amount you borrow, the APR and the length of your repayment window. To paint a clearer picture of how it all breaks down, let’s take a look at an example…

“John is a self-employed tradesmen. He applies for a personal loan of £15,000 to cover some of the expense of his upcoming wedding. He’s offered an annual fixed rate of 3.9% and a repayment window of 36 months (3 years), after providing all the relevant paperwork and meeting any eligibility criteria. This means John will have to repay £444.74 each month, with the overall cost of the loan equating to £15,902.64 – £902.64 in total interest charges over the £15,000 borrowed.”

Is this the best option for me?

Well, that very much depends. Alternative means of external funding are available to the self-employed, however working out which option is best for you would depend on your own situation.

Self-employed professionals may find lenders are more likely to provide them with a guarantor loan than a personal loan – especially if they don’t have the best of credit scores. This is because lenders have the added security of a third party (your guarantor), who is committed to paying off the loan if a payment defaults. Interest rates tend to be less competitive for these kinds of loan, however. You can find out more about whether a guarantor loan is the best option for you right here.

Alternatively, you could look at secured loans. If you’re looking to borrow to fund business equipment or materials (not stock), asset financing is a viable option – a lender will loan you an amount secured against the value of goods used for your business (buildings, vehicles, machinery etc.). Once more, these tend to be more expensive than regular personal loans.

Secured loans for the self employed don’t have to be for means of business, however. If you’re looking to borrow to fund a personal expense, standard secured loans are a viable option. Once more, lenders will be more inclined to grant the self-employed this kind of loan because of the added guarantee of securing the loan against an asset. If you think a secured loan is the best option for you, read more by visiting our dedicated page right here.

Though it’s harder to secure a personal loan while self-employed, it’s by no means impossible. Whichever avenue you eventually decide to take, ensure you’ve thoroughly researched your decision and are comfortable with your repayment ability. For further information about personal loans, check out our detailed guide right here.

Bad Credit Score: 8 Tips to Improve Your Score

Completing a checklist

Your credit score is a three-digit number that lenders use to decide whether or not they will approve your application for a loan or credit card. If you have a bad credit score, it’s likely that your application may get refused or rejected. Don’t worry, you’re not the only one who this happens to!

Many Brits face loan or credit card rejection, but the good news is that there are many different activities you can carry out in order to rebuild your credit score…

Register on the electoral roll

If you’re not already on the electoral roll, be sure to get registered ASAP as registering can make it much easier to be accepted for credit as it can improve your overall score.

Not only does it help your credit rating, but it can also speed up the loan application process – as lenders will often check who you are against the electoral roll for identification purposes.

If you’re in a situation where you’re not eligible to vote in the UK then don’t worry. All you need to do is send proof of residency to the credit reference agencies.

Check your file for mistakes

Your credit score is decided upon by all of the credit reference files that are held under your name by credit reference agencies such as Equifax, Experian or TransUnion.

Checking your files annually should suffice, however we would suggest that you perform a further check before you put in an important or major application. While it might seem like a long and tedious job, it may highlight an error in the data stored on you which could affect your application.

If you have got as far as submitting your application and have been rejected, go through your credit files with a fine-tooth comb to see if the data held against you to be wrong. Now and again, it’s possible that errors can happen, therefore increasing the potential of your loan being rejected. If you find something and get it removed, it could improve your score.

Check whether your name is linked to someone else

There’s a chance that you have a bad credit score because your name is linked to another person you’ve previously shared a financial product with. Financial products that you might be linked to someone on could be a joint mortgage, a joint loan, a joint bank account or, sometimes, a utility bill.

Being financially linked to someone means that when you’re being assessed, the lender is also likely to assess the other person before they decide whether to accept you. If the person you are linked to has a poor credit history, then it’s in your best interest to keep your finances separate to theirs, so you don’t feel the potential negative financial effects.

Pay your bills on time

While it might seem like an obvious one, you need to pay your bills on time. If you went through a period of time where you missed payments and now have a bad credit score as a result, the best way to build it back up is not to get in that situation again.

Every time you meet a payment, this goes in your file and counts towards improving your score because it shows to future lenders you were able to meet payments and, subsequently, you’re less of a risk to lend to.

Pay off debts

If you’re in debt, then there’s a good chance you have a poor credit rating.

Create a plan of how you’re going to start paying these debts off before you apply for any other credit. Paying off the existing debts will help you to rebuild your credit score, which will help get your application approved.

If your debts have become unmanageable, then check out our information on a debt consolidation loan and see if this is an option that could help you.

Don’t apply for a credit card for no reason

Many people will apply for a credit card and not spend on it, thinking that this will go towards building them a good credit score. However, the chances of it actually improving your credit score are very small, meaning it’s not worth it.

Any unnecessary credit can harm your file in multiple ways and gives you a tempting way to overspend on and grow your debt – which is the opposite of the desired effect.

Find a guarantor

If you’re struggling to receive a loan or pay for something on credit, consider getting a guarantor. A guarantor makes a guarantee to your lender that in the case of you not being able to meet the payment, they will pay it for you.

While, of course, you should only get credit if you know you can afford to pay it month by month, having a guarantor might be the difference between being accepted and not. So if it’s an option that can help you to secure a loan and build up your credit score, see if you have someone who would be willing to do this for you.

Time your application

Getting your application approved can be about the timing of when you submitted it. Some problems can stay on your credit file for 6 years after the incident such as bankruptcy or county court judgements. Data about previous loans you’ve applied for can also stay on your file for a year if you were rejected. So if you’re coming up to the time where previous issues are going to lapse, hold off to apply until the data isn’t held against you anymore.

If you are aware that you’ve previously had bad credit, then use a tool to check your credit score before applying so you don’t receive another rejected application – making your score worse.

We hope that some of the tips we’ve given you in this post will help you to start improving your credit score. If you’re in a tricky financial place and want to find out about if you’re eligible for bad credit loans, check out our information on them here. Or alternatively, if you’re serious about wanting to get your finances in check, have a look at the Jolly Good Loans blog for other helpful money saving hints and tips.

 

6 Questions to Ask Yourself Before You Become a Guarantor

Couple buying home

Becoming someone’s guarantor can be life-changing to them – it could help buy them their first home, get a car on finance or many other monumental life achievements. However, there are considerations a person should take into account first before they sign on the dotted line.

A friend or relative may request for you to become their guarantor for a variety of reasons. It could be that they simply haven’t built up their credit history yet, therefore need some help for their first big purchase. For some people, however, it could be that they have a poor credit rating – in which case, there are a number of questions to ask yourself. From ‘can you trust the person you’re becoming a guarantor for?’ to ‘what will you be responsible for?’, in this post, we’re highlighting the all-important questions.

What is a guarantor?

First thing’s first, we’ll quickly cover exactly what it means to be a guarantor so you don’t have to go looking elsewhere.

Becoming someone’s guarantor means you are guaranteeing to their lender or contract holder that you will repay the money they owe in the event of them not being able to meet the repayments – it’s as simple as that.

What is a guarantor responsible for?

A guarantor is responsible for meeting any payments the borrower hasn’t been able to make. Before the lender contacts you to take payment, they will often contact the borrower to offer some kind of payment plan before the guarantor is forced to take responsibility. However, this may not always be the case, so it’s best to check first.

Can you trust them to pay the loan back?

You need to consider how well you know the person you are acting as a guarantor on behalf of to ensure you trust them to repay their loan. If they’ve asked you to be their guarantor, then you’re within your rights to ask them why they need one. If they have defaulted previous payments and have a bad credit score as a result, is there a chance they will do this again and leave you with the responsibility?

Another thing to think about is how good your relationship is with the borrower. If you think there is the potential for this loan to ruin a friendship, then perhaps it’s not a good idea to become a guarantor for them.

Can you afford to pay back their loan in the event of them not paying?

One of the most important things to consider when becoming a guarantor is that, in the event the person you’re helping defaults on a payment, can you actually afford the payment which will automatically come to you? You may be without a couple of hundred pounds one month if you end up having to cover the cost.

Before agreeing to anything, find out exactly how much the monthly payment is and consider whether this can be worked in to your monthly budget. If you don’t have the disposable income to cover the cost for them, do you have a savings account where the money could come from? If you don’t think it’s likely that you’d be able to cover the cost, then it’s in your best interest not to become the guarantor. The last thing you want to do is get in a situation where you end up losing valuable assets due to neither of you being able to afford repayments.

Further to this, consider whether, in the circumstances of you having to cover a payment, the borrower will be able to pay you back and afford the next payment due.

Do you have a lump sum you can lend them instead?

Sometimes, becoming a guarantor isn’t always the best solution. If you have a good enough relationship with the person asking you to become a guarantor, then you might want to consider another option – if you have a lump sum of money that you’re not putting to use, could you either gift or loan them this money instead?

Now of course, if they were asking you to be a guarantor on a mortgage, then you would have to gift them the money – this means they don’t legally have to pay this back to you, as you’ve signed a gift declaration form. If you’re not giving it to them as a gift, then you won’t be able to lend the money for a mortgage. However, if the funds were being used to pay off another loan or to buy a car instead of getting it on finance, then supplying them with the money instead of becoming the guarantor could be a viable option.

Do you know what you’re becoming a guarantor for?

As mentioned above, there are a number of different reasons someone might be applying for a loan or finance. It could be to rent a property, get a mortgage on a property or buy their first car. However, before you agree to guarantee their loan, consider whether it’s for a non-urgent purchase or a necessity.

For example, if it’s so they can get a premium branded car with a high price tag instead of a reasonably priced one, the borrower could save money to purchase this on their own. Becoming a guarantor so the borrower can live somewhere, on the other hand, is a far more important necessity. Subsequently, evaluate what you’re helping them with before agreeing to anything.

We hope that some of these questions we’ve highlighted have helped you make the decision of whether you want to become a guarantor or not. If you would like to learn more about guarantor loans, then check out our page with all the information you need.

Planning Your Financial Future: 3 Easy Steps

Woman holding hands up

Planning for a debt free, easy life is often easier said than done – especially once the responsibilities of being an adult start racking up. Unfortunately, almost all of us will find ourselves in restricting financial times. From managing bills and student loans to personal loan repayments, it makes a future of living debt-free appear impossible.

However, that doesn’t have to be the case – and in today’s blog, we’ll be providing helpful budgeting tips that will set you up for a debt-free future.

Start saving now

Making money is one thing, but saving it is another. One of the best ways to plan a financially stable future is as simple as saving. Look at where you may be wasting money and try to make real use of it instead, by allocating it to a savings account – it’s worth even making a savings plan to ensure you’re achieving your savings goal. Unexpected expenses can pop up at any time – and if this happens, you can rest safe in the knowledge that your savings account can cover the cost.

Different banks have different saving accounts which can be hugely beneficial if you find yourself spending unnecessarily. It pays to do your research here, as some back accounts come with an option that means you can’t withdraw money for a certain time period. This way, you will see your savings steadily increase as you remove the temptation to keep dipping into them.

 Pay into your pension

Paying into a pension is essential, but it’s unlikely it’s at the forefront of your mind when starting your first job fresh out of school or university – as retirement seems so far away.

The UK pension is currently £164.35 per week which is not a huge amount of money, however, if you look at how to budget your money now, by the time you come to retire you should have a good pension along with personal savings. Without knowing what it could be in the next 20-40 years, we would advise that you start paying into it as soon as possible so you can receive the maximum pension available to you.

You can look at different pension schemes to see which one would be best suited to set you up for an easy retirement. A lot of options are available, so do your homework and find an option that works best for you. Ensure it’s affordable in the short-term but also allows for enough to be saved in the long-term.

Paying into your pension is now easier than ever because of the ‘opt out’ option set up as a government scheme. If you’re aged over 22, you will be automatically enrolled on to a pension scheme by your employer. Both your employer and yourself make a financial contribution every month to your pension – you can find out more information about workplace pensions here.

Two people holding a pink piggy bank

Invest your money

If you’re in the fortunate position to have money that’s sitting in the bank and currently doesn’t have a purpose, investing could be a wise option to help increase its value. Investing, if done sensibly and with a clear thought process, can provide you with attractive returns and increase the value of the money originally invested.

Investing money can come with risks, however, when it’s done wisely and the correct research has taken place, it can prove a wise path to follow. If you’re unsure on how to invest your money safely, there are companies and banks who can assist you. You can express to them whether you want to invest in high risk, medium risk or low risk opportunities and then they’ll take care of it for you.  

By using some of these simple tips, you can start your journey to setting up financial stability and more importantly, security, for your future. If you think it’s time to get serious about your financial future, check out the Jolly Good Loans blog for plenty of tips and advice.