Employee to Self-Employed: Things to Consider


Making the leap from employment to self-employment is a hugely exciting time. You may have funding agreed and a business plan ready to go, but have you thought about some of the staff benefits that you are likely to lose from your employed role and how you are going to replace these?

In this video, Ricky Clark from MHA Henderson Loggie Financial Planning takes a lot at some of the common issues and considerations when moving from an employed to a self-employed position.

Covered in this video:

✅ Some common staff benefits that will be lost
✅ A recent client example & how we were able to help them
✅ Some of the products and solutions that can be put into place

📌 If you have any questions, please drop them into the comments section below 👇 or contact Ricky directly at ricky.clark@hlfp.co.uk


What are the most common issues?

As an employee, you are often provided with different forms of remuneration via your staff benefits, such as pension contributions,  life cover, critical illness and income protection, private medical care, car benefits, and childcare vouchers. These benefits are valuable and when transitioning from your employed role to self-employed, unfortunately, these will be lost. However, there are solutions that can be put in place and these should be considered.


Transitioning from an employee to self-employed

We were recently approached by a client who had been considering transitioning from being an employee to owning a limited company herself. After careful consideration of the pros and cons, she decided to take that step. Through our discussions, we were able to identify some of the benefits she enjoyed as an employee that were unfortunately lost. We were able to identify some good solutions for her with her budget that she felt comfortable with in order to plug the gap of the ones that she’d lost.


What solutions were we able to put in place to help the client?

Firstly, we looked at her pension provision, her longer-term objectives, covering things like risk and the amount she wanted to pay in.

Secondly, we looked at income protection. This is really important for individuals changing from an employed role into a limited company role as they are reliant on their income. This plan provided her with a level of cover so that in the event of long-term illness or injury, she could rest assured she would have an income to cover her outgoings on a monthly basis.

Thirdly, we looked at the loss of death and service (life cover), which was an important factor for her and we were able to put in a term plan where it covered her for a set amount, which was payable on death. We also looked at the private medical cover, which was also able to include her husband and provide that security that she was concerned about.

Finally, we were able to identify that there was no mortgage protection in place that she had held with her partner, and therefore we agreed to put in place a plan that covered them both for death or critical illness. We were able to provide her tailored solutions, which protected her current and future financial security.


In conclusion

If you’d like more information, please contact Ricky directly (ricky.clark@hlfp.co.uk) or complete the contact form below.

Planning for Retirement: 10 Things to Consider


Retirement planning is vital for ensuring that you can meet your goals for retirement, but it can be fairly easy to put off and worry about later. However, chances are that you don’t want to work forever and you may already have big ideas for how you want to spend your retirement.

In this video, Ricky Clark from MHA Henderson Loggie Financial Planning shares the top 10 things you should be thinking about when planning for retirement.

Covered in this video:

✅ Reviewing your pension provisions
✅ Knowing your options at retirement
✅ Consider other investments
✅ How you can improve your position, & more!

📌 If you have any questions, please drop them into the comments section below 👇 or contact Ricky directly at ricky.clark@hlfp.co.uk


1. When do you want to retire and how realistic is your time frame?

You want to be thinking of a few important factors. You may wish to work on past your retirement, or you may indeed wish to retire early.


2. What pension provision do you have in place?

It’s really important to review everything that you’ve gathered throughout your employment history and this could be a variation of different types of pensions. This may be looking at your current employment pension or previous employment pensions. You may have also saved into a personal pension yourself, and of course not forgetting the state pension, where you can have a look to see what you may get and when you will indeed retire.


3. What will you get from your state pension?

Ultimately, what you will receive from your state pension is based on your national insurance contributions that you’ve built up over your employment years. You can find more information about this on the government website with only a few of your personal details.


4. Consider what income you will need to maintain your current lifestyle

After having looked at all the pensions that you have in place, it’s important to consider the income that you’ll need in retirement and the way that we would advise you to do this is by analysing it via an income vs expenditure worksheet.


5. Will you have any major expenditure plans?

When you retire, it’s often the case that individuals will consider spending large amounts of their pension they’ve accumulated. This may be on a planned holiday of a lifetime to celebrate your retirement, maybe to reduce outstanding mortgage debt or maybe to build a house extension, for example, or it could be that you’re simply looking to give some money to your family.


6. Knowing your options at retirement

After considering what pension pots you have and the income & expenditure you may need, it’s really important to understand the options that your pensions provide. This may be purchasing an annuity, which is an income for life or drawing down on your pensions in a flexible way.


7. Consider your appetite for investment risk

When approaching retirement, it’s important to consider your appetite to investment risk. Depending on the result and outcome of your feelings, this may have an influence on the income options you have in retirement.


8. Consider other investments you may have

So you’ve considered the fact that you may be entitled to a state pension and considered all of your other pension pots that can create an income in retirement. However, it may be the case where you have other assets that can produce an income for you, such as a rental property or any other types of savings and investments.


9. Think about your death benefits

So with your overall planning for your future retirement, it’s important that you review all of your pension plans in place and consider your future income options, and nominate your beneficiaries. This will ensure that in the event of death, money will pass on to your loved ones or those that you want to receive it.


10. How can I improve or help my position?

So having reviewed your overall pension position for consideration of your retirement, if you feel that you’re not where you need to be, there are a few easy steps that you can take to improve your current position.

First, you could consider increasing your pension contributions. Second, you could look at the funds you’re invested in and whether they’re appropriate or not. And thirdly, you could review your existing pension plans that you have in place to ensure that they are doing what they need to, and whether or not they may be better placed elsewhere.


In conclusion

Hopefully, you’ve been able to take some helpful information away from this video. If you’d like further guidance on it, please contact Ricky directly (ricky.clark@hlfp.co.uk) or complete the contact form below.

Pension Contributions: Personal vs Company


Pension contributions can be very tax-effective – but should these be paid from personal income or directly by your company?

In this video, Ricky Clark from MHA Henderson Loggie Financial Planning shares the main differences between pension contributions when made on a personal basis vs a limited company basis.

Covered in this video:

✅ How personal pension contributions work
✅ How company pension contributions differ
✅ The benefits of both options

📌 If you have any questions, please drop them into the comments section below 👇 or contact Ricky directly at ricky.clark@hlfp.co.uk


How do personal pension contributions work?

Pension contributions paid on a personal basis initially attract basic rate tax relief meaning that your pension contributions are increased towards your pension fund. As an illustration, if you were to pay £100 net from your salary, you would have your pension grossed up by basic rate tax relief, meaning you’d receive £125 into your pension fund.

If you’re an individual who draws an additional rate or higher rate tax income from your business, you may be entitled to further tax relief via your pension. This is done by completing a self-assessment tax return on an annual basis. Whilst higher rates of tax can be obtained on personal contributions, those that may be drawing on a smaller salary will be limited to the amount of personal contributions they can pay.

An individual can make contributions up to 100% of their relevant earnings, subject to annual allowance limits for tax purposes. However, be aware that relevant earnings include salary but not dividends.


How do company pension contributions differ?

Rather than having to draw extra income to pay contributions towards your pension, your company can pay contributions on your behalf. Company contributions are not limited to an individual’s relevant earnings. However, there are certain rules around the pension contribution to ensure that it’s appropriate for that individual in question.


What are the benefits of company pension contributions?

A benefit of a company contribution is it’s a tax relievable expense for the company. However, unlike a personal contribution, there will be no tax relief added on a personal basis. Making a pension contribution from the company is a tax-efficient way of withdrawing money from your business with no tax or national insurance contributions payable on the amount paid to the pension.


In conclusion

As an individual or a business owner, you’ll have many important things to think about like the day-to-day running of your business. However, considering your own financial circumstances is as important, and a common way of doing so is withdrawing capital from your business and paying this towards your pension. The benefits of doing so are that you’re covering your future pension outcomes in retirement, and you’re also able to withdraw capital from your business in a tax-efficient way.

If you’d like any further information, please contact Ricky directly (ricky.clark@hlfp.co.uk) or complete the contact form below.

How to Use a Pension to Buy Commercial Property


We are often asked by business owners, “Can I use my pension to buy commercial property?” and for some individuals, this could be very beneficial and tax-efficient. In this video, Jonathan McDowall from MHA Henderson Loggie Financial Planning shares why you might consider using a pension to buy commercial property and the pros and cons of doing so.

Covered in this video:

✅ The positives of buying commercial property via your pension
✅ A client example and the long-term benefits
✅ The main considerations to take into account

📌 If you have any questions, please drop them into the comments section below 👇 or contact Jonathan directly at jonathan.mcdowall@hlfp.co.uk


What’s the benefit of buying a commercial property with your pension?

Firstly, if your business already owns the property, then purchasing within a pension can release capital back into your business for investment elsewhere. Or if you are buying new premises, using your pension can provide a very tax-efficient way to buy that property.


Key positives

  • One of the key positives of holding property within a pension is that when the property is held within the pension, it can grow free of tax, so there’s no capital gains tax on the sale.
  • The rental income that you receive from the property, within the pension, would also be free of income tax. If you’re still the occupier of the property as your business, then the rent you would pay to the pension will be deemed as an allowable business expense.
  • Once the property is held in the pension, it will no longer be subject to Inheritance Tax if that was an issue for you. 
  • When the property is held within the pension it is not accessible to creditors, for example, in the event of personal or business insolvency.
  • If you don’t have enough pension funds as an individual, to buy the property, you can combine your pension funds with other fellow business owners/individuals to purchase the property within a pension.
  • In a similar way, if the pension funds weren’t sufficient to be able to buy the property, a pension can borrow up to 50% of its assets to help it purchase that property.
  • Finally, holding the property within a pension can serve as a good form of exit planning at retirement, if you’re intending to sell your business. You could retain the property within the pension and still receive ongoing rental income to help towards meeting your retirement income needs.

Client example and the long-term benefits

We recently had a client who was looking to expand his business and acquire new premises to do so. He needed advice on how best to acquire that property. He had three options; he could have either rented a new property, his company could have purchased a property, although that would have involved borrowing to do so, or thirdly, we introduced the option of using his pension fund to buy the property.

After a detailed assessment of the individual’s pension provision and financial circumstances, we were able to advise that using his pension funds to buy the property was a suitable option for him. In this case, the individual had enough funds within his pension to be able to buy the property in mind. However, if he hadn’t, we could have looked to make additional pension contributions to allow him to do so.

The result of this advice was, that it allowed the individual to buy the property in a tax-efficient manner using his pension fund without having to borrow to do so. In the long term, this should provide a very beneficial asset to hold within the pension with rental income accumulating to help grow the value of his pension fund. He will also have the ability to sell the property in the future, free of tax, for example, at retirement.


Main considerations

There are several considerations to take into account when you’re buying commercial property within a pension.

  • Firstly, there’s going to be costs involved; for example, legal costs, tax and VAT. There will also be costs associated with the pension. These could be initial costs and ongoing costs.
  • Once the property is held within the pension it’s no longer on the company balance sheet, so it can’t be used as collateral for any loans. 
  • The firm occupying the property within the pension, even if it’s your own business will still need to pay rent. There would need to be regular revaluations in the property and reviews of the rent on an ongoing basis, which could incur a cost. 
  • There will still be ongoing expenses associated with the property and ongoing maintenance, whether or not a tenant was in place in the property.
  • If the property is the primary asset of your pension, it could leave the investments held within your pension poorly diversified. Property is generally an illiquid asset so it can take longer to sell if capital is needed at short notice.

In conclusion

Hopefully, this video has provided a useful summary of using your pension fund to buy a commercial property and also highlighted a potential option as to how we can use our pensions, that you may not have been aware of. If this is something you’d like further advice on, please feel free to contact Jonathan directly (jonathan.mcdowall@hlfp.co.uk) or complete the contact form below.

Saving vs Investing: What’s the Difference?


Is it better to have cash savings or should you look to invest your money? Whilst cash savings won’t fall in value, they will be impacted by inflation. On the other hand, investments could provide an effective option for your money over the longer-term, but there are risks involved.

In this video, Jonathan McDowall from MHA Henderson Loggie Financial Planning provides an overview of cash savings vs investments to highlight the differences between the two options.

Covered in this video:

✅ The pros and cons of savings and investments
✅ Why you could consider investments
✅ The risks of investing
✅ A comparison of saving vs investing over a longer period

📌 If you have any questions, please drop them into the comments section below 👇 or contact Jonathan directly at jonathan.mcdowall@hlfp.co.uk


Why would I use cash savings?

By cash savings, we mean a bank or building society savings account. These come in different forms, ranging from instant access savings accounts, notice accounts, fixed-term deposits and cash ISAs. The return that you receive on cash deposits will be determined by the interest rate that the bank or building society provides. In turn, the interest rate that they provide is influenced by the Bank of England base rate.

Cash savings are regarded as safe, and the value of your money will not fall. There is also protection offered by the government under the Financial Services Compensation Scheme, so if a bank or building society were to become insolvent your money would be protected by up to £85,000. 

Generally, cash savings are better suited for shorter-term needs, so money that you know you may require in the short-term or money used for an emergency fund.


Are cash savings risk-free?

Whilst savings in a bank or building society won’t fall in value, they will be impacted by inflation. Interest rates have been very low since 2009, so over that period you will have received a very modest return from cash savings. The main risk is inflation eroding the purchasing power of your money, in other words, your money will buy less for you in the future.


Why would I consider using investments?

Investments come in various forms and differing levels of risk. This could range from holding individual shares where you own a small part of an individual company, to managed investment funds that can invest across a range of assets and are managed by an expert for you.

When investing, the returns that you receive are based on the performance of the assets held, for example, shares, property and bonds. These offer the potential for greater returns than interest rates can provide and also the potential for your capital to grow or an income to be received that can outstrip inflation, providing a real return over the long-term. 

Investments are generally best held for longer-term periods of at least five years. Therefore they’re better suited to meet longer-term financial objectives.


What are the risks of investing?

All investments carry some form of risk and this varies depending on the type of investment held. The value of an investment can fall as well as rise, and you may get back less, depending on when the investment is sold and the market conditions at that point in time. The returns received are also variable and they’re not guaranteed.


What does saving vs investing look like over a longer period?

Because of the potential risks of investments, they are better to be held over a long-term period. By taking this approach this offers the opportunity to benefit from the higher returns that can be provided by investments, but also gives you time to recover from any falls in value that may occur along the way. 

In this graph, we highlight the performance of an average investment that is invested across a range of assets including shares, property, bonds and cash. This is set against the Bank of England base rate and it’s also set against the Consumer Price Index, as a measure of inflation. 

This graph shows both negative and positive periods throughout the timeline. In particular, it highlights the financial crisis of 2007/2008 showing a significant market event and the impact it had on the investment value, but also the recovery that was experienced after that.


What does this comparison show us?

This highlights how an investment can perform versus cash savings and inflation over a longer-term period, even with a significant market event. It also highlights the potentially greater returns that can be received from an investment over the longer-term, even with fluctuations along the way.

So, for an individual that has surplus capital that isn’t required over a longer-term period and they wish to achieve greater returns, an investment can potentially provide a good solution for this. However, it is important to point out that past performance is not necessarily a reliable indicator of future performance.


In conclusion

We believe in diversifying and having an element of your portfolio in cash as well as an allocation to longer-term investments, where appropriate. Firstly, it’s important to have the security of an emergency fund in place and then have money set aside for use and enjoyment. Then you should think about the future and money that you wish to work harder and earn a better return, could be allocated to investments.

Hopefully, this video has provided a useful comparison of cash savings versus investments. If this is something you’d like to discuss in more detail please contact Jonathan directly (jonathan.mcdowall@hlfp.co.uk) or complete the contact form below.

5 Ways to Reduce Inheritance Tax


Are you wondering how Inheritance Tax may affect your assets and the money that you leave to your family in the future? As with many other areas of tax, there are ways in which you can minimise IHT.

In this video, Jonathan McDowall from MHA Henderson Loggie Financial Planning explains what Inheritance Tax is and shares 5 ways that you can reduce your Inheritance Tax bill.

Covered in this video:

✅ What is IHT and how can it affect you?
✅ How spending can help reduce your IHT liability
✅ Gifting
✅ Using trusts
✅ Investments that qualify for IHT relief
✅ Life assurance policies

📌 If you have any questions, please drop them into the comments section below 👇 or contact Jonathan directly at jonathan.mcdowall@hlfp.co.uk


What is Inheritance Tax and how can it affect you?

Inheritance Tax (IHT) may affect individuals when their estate is above a certain value on death or if they make certain gifts during their lifetime above a certain value. 

Each individual has a nil-rate band, which is your exempt amount for Inheritance Tax. This is currently £325,000 per person. The nil-rate band can be transferred between spouses, so a total nil-rate band of £650,000 could be available on second death. It’s important to consider that assets passed between spouses are exempt from IHT. 

One potential issue with the nil-rate band is that it has been frozen for many years now, but over those years we’ve had a significant rise in asset prices, which could potentially be an issue, leading to more individuals being liable to IHT.

A further nil-rate band is also available in relation to your main residence. As long as you leave your main property to your direct family, whether that be your children or grandchildren, a further exemption can be claimed. The current main residence nil-rate band is £150,000 per person and this will rise to £175,000 from April 2020.

It’s important to be aware that the main residence nil-rate band could be reduced if your estate value exceeds two million pounds. The main residence nil-rate band is a complex area and I would suggest that you seek professional advice to assess your position towards this. 

If your assets exceed your available nil-rate bands, then IHT is applied at a rate of 40%, so a significant tax can be applied.


5 ways to reduce your Inheritance Tax

There are several options that you can consider to help mitigate an IHT liability. Five of these, that are beneficial ways to reduce IHT are highlighted below:

Spending

Although it sounds a bit strange coming from a financial adviser, spending is a simple way for you to reduce the value of your assets/estate and resulting Inheritance Tax liability. It’s important to consider when spending, to spend on something that’s not a tangible asset. For example, go on a nice holiday, but if you were to buy an expensive car, that’s still going to be an asset in your estate. You need to be mindful about what you’re spending, making sure it’s within your means, and making sure you’ve still got enough to last the remainder of your lifetime.

Gifting

Gifting is another option that I’d always recommend to consider, allowing you to gift assets or money directly to your beneficiaries and also allowing you to see them enjoy the benefit of these gifts. There’s a number of exemptions that you can consider when gifting that allow you to reduce your Inheritance Tax liabilities. Firstly, we have an annual exemption, which allows you to gift up to £3,000 in total per tax year. We also have the Small Gift exemption allowing you to give up to £250 per person, per year. In addition to this, we can make gifts in respect of marriage. We can gift up to £5,000, to children, up to £2,500 to grandchildren and up to £1,000 to other beneficiaries in respect of marriage. 

Gifts made to charities are also exempt, either during your lifetime or through your will. 

If you make any gifts that exceed your exemptions, these are regarded as Potentially Exempt Transfers and this means that you need to survive a period of seven years from making the gift for it to be regarded as fully out with your estate, for Inheritance Tax purposes.

Using trusts

Trusts allow you to make a direct gift into trust, allowing you to remove money/assets from your estate. Providing you survive seven years from the date of the gift, it would be exempt from Inheritance Tax. 

A common use of trusts is gifting money to children or grandchildren for them to benefit from that money in the future. When we place money in trusts, we will place it in an appropriate investment so the money can still grow. The advantage of this is that any growth received would be out with your estate once placed in the trust. 

There are various types of trusts available and different options as to how money can be accessed in the future, from the trust. However, as this is a complex area, I would recommend you seek professional advice if you would like to discuss this further.

Investments that qualify for Inheritance Tax relief

Another solution available is investments that qualify for an exemption called Business Relief. Providing these investments are held for two years and at the date of death, they would be exempt from Inheritance Tax. 

One of the benefits of these investments is that they would still be your investments allowing you to retain control and access to the money. However, these investments do come with significant risks and wouldn’t be appropriate for all individuals. Again, professional advice would be needed on the subject to assess the suitability of these types of investments.

Life assurance policies

The final solution we could consider is arranging a Whole-of-Life assurance policy, held in a trust. This option will provide a capital sum on death that would cover the potential IHT liability. The potential benefit of this being that your beneficiaries wouldn’t need to sell your other assets to pay the IHT bill. Arranging a life assurance policy isn’t going to reduce your Inheritance Tax bill, however, it will just provide a means to pay that tax liability.


In conclusion

Hopefully, this article has provided a good overview of Inheritance Tax and the potential considerations as to how you can mitigate any liability that may exist. However, as you can see, it is a complex subject and there is a need for professional financial advice. So if this is an area of concern for you, please feel free to get in touch with Jonathan directly (jonathan.mcdowall@hlfp.co.uk) or complete the contact form below.

Risks in Retirement: Are you prepared?

There are many risks to navigate in later life, including those which can impact your financial health. Added to that list is a potential financial shock that comes about as a result of a little-noticed change to the state pension system. The risk, identified by insurer Royal London, follows a state pension system charge in 2016.

That change could result in older couples facing an unexpected financial shock when one of them dies. The change means a typical pensioner could lose between one-half and two-thirds of their household income following such a bereavement. The death of a partner in retirement often results in a fall in household expenditure, although not usually by as much as this forecast fall in household income.

This means potential living standards can be squeezed. Steve Webb, Director of Policy at Royal London, said: “As well as the emotional impact of bereavement, losing a spouse in later life can have a huge impact on living standards. Under the new state pension system, widows and widowers will inherit little, if anything of their late spouse’s pension and income from an annuity often ceases when the recipient dies. Household outgoings may reduce somewhat following a bereavement, but income is likely to fall by much more. Couples in retirement need to make sure they know where they would stand and plan ahead to make sure they do not face an unexpected financial shock.”


So, what has prompted this new retirement risk?

Before the state pension system was changed in 2016, the death of one member of a married couple in retirement would result in the surviving spouse claiming an enhanced state pension, based on the late spouse’s National Insurance record.

The introduction of a new state pension system in 2016, came with a new set of rules for bereaved spouses. Instead of the ability to claim an enhanced state pension, there is now minimal scope to inherit a superior National Insurance record.

Pensioners in receipt of an occupational pension income in retirement will often continue to receive half of the income, in the event of the spouse dying. Where retirement income comes from a standard “single-life annuity”, it’s often the case that no future income passes onto the surviving spouse. Ongoing income in this scenario will depend on whether death occurs during the guarantee period for the annuity, which is typically the first 5 or 10 years.


Things to consider

There are three key matters for couples approaching or in retirement to consider that will help them deal with this potential retirement income risk:

  • Firstly, you should find out where you stand. Finding out your likely financial position means checking how much occupational or private pension income would continue to pay, should your spouse die before you in retirement.
  • Secondly, you need to be careful with your finances earlier in retirement. One way you can mitigate this retirement risk is by building up a pot of savings or investments, creating a useful financial buffer in the event your income suddenly falls.
  • Finally, you should consider a financial product that would payout if one partner were to die. This financial product could take the form of life assurance, although the cost of such cover can be expensive as we get older.

Regardless of the action, you decide to take; it’s essential to recognise this retirement risk and plan to mitigate its financial impact on your life. MHA Henderson Loggie Financial Planning would be happy to help.


Get in touch

Jim Wilson
Managing Director

Ricky Clark
Financial Planning Consultant

Jonathan McDowall
Financial Planning Consultant

David Legge
Senior Consultant


Henderson Loggie Financial Planning Ltd is authorised and regulated by the Financial Conduct Authority.

Saving vs Investing | What are the long term effects?

Understanding the difference between savings and investments is important. Savings in banks or building society accounts won’t fall in value but will be impacted by inflation over the longer term. On the other hand, if you invest in real assets, such as shares, you can lose money, but in return there is potential for the value to grow and outstrip inflation, giving a positive return in real terms.

All investments carry some risk, however small or large that may be. Our advice is to strike a balance. Firstly, make sure you have enough to provide you with security in case of emergencies; a pot of money for enjoyment; and then think about the future and how best to make your money work harder and provide the potential for better returns.

It’s now over a decade since the last financial crisis when investments took a major hit.  However, over the course of time markets have recovered.  

Conversely, typically safe investments (for example savings accounts, fixed-term deposits and cash ISAs) would have provided protection against the falls experienced in 2008/2009.  However, back in 2008, the Bank of England (BOE) base rate was 5.25% and by the following January, it had fallen to 1.50% and has never recovered.  The current base rate is now 0.75%.

With inflation currently standing at 1.9% (Office of National Statistics, June 2019) this means that inflation will have eroded the purchasing power of bank savings.

This is demonstrated in the chart below where we have looked at the BOE rate against inflation (the Retail Price Index from 2007 to the present day) and the benchmark for a Low to Medium Risk investment. 

As you can see, even with the market crash an “investment” would have generated a better return over time. 

Please note that when investing, your capital is at risk and is not guaranteed. The past performance shown in the chart is based on the actual performance of the indices shown over a 12-year period. Please also remember that past performance is not a reliable indicator of future performance.

For those who have a fear of investment, we believe in diversifying and ensuring you have an element of your portfolio in cash, with an appropriate allocation to longer-term investments. Our approach is to ensure we review your objectives and long-term goals regularly and consider that over longer periods of time, there will be ups and downs in investment markets.

Our ongoing advice and support are always available and we are happy to work with you to manage your expectations and to help you achieve your longer-term goals in a carefully planned manner.


Get in touch

Jim Wilson
Managing Director

Ricky Clark
Financial Planning Consultant

Jonathan McDowall
Financial Planning Consultant

David Legge
Senior Consultant


Henderson Loggie Financial Planning Ltd is authorised and regulated by the Financial Conduct Authority.

Where can I get funding for my startup business?

You have a great idea for a product or service that’s going to bring some value into the world. But you know you need money to help get your startup idea off the ground. Where do you look and how does this work in practice?

In this post, we’ll see how your startup can get funded.


What do I need to supply to get startup funding?

Because your new business has no background or credit history of its own, it’s essential that you put together a solid business plan that sets out the problem your business is going to solve and how you’re going to do it.

Potential investors will want to know how much money you need, how you intend to use it and how you can give them a return on their investment. You’ll increase the chances of an investor opening their wallet to you by clearly expressing:

  • why the investor should invest in you, and
  • what the investor will get out of it.

As the saying goes, “people invest in people”. Even though your plans should include figures to show that your business case that stacks up, your potential investors also need to build trust in you and your team. Investors will want to hear your clear take on the problem your business solves and why you came up with your idea. You and the plan both need to be credible.

Investors need to feel confident that their investment is going to be repaid, so paint a picture of a sales/exit strategy that benefits everyone involved.

All of this may seem unfamiliar territory. After all, you might be trying to build an app, create a popup restaurant or imagine some other new product or service. Your skills lie in doing that thing, not in writing business plans or considering finance options and exit strategies.

Rather than muddling your way through in the hope of convincing an investor to part with their cash, it’s often wise to seek help when putting together the plans for your startup.

We’re used to talking with startups and positioning their new businesses in a way that appeals to potential investors. We can make introductions to relevant finance providers and industry contacts. Get in touch if you need a hand.


Before you look for investment

Aside from building a solid business plan, what else should you do to give your startup the best chance of receiving funding?

Our best advice is to do as much as possible by using your own personal funds. That might also involve borrowing from family and friends. It’s never easy to ask for money, but this is a more realistic early route than approaching a bank and expecting them to support a new business with no credit history.

Self-funding, including earnings from work you do in separate jobs, will show investors your commitment to your idea. After all, why should they take a chance on you unless you’ve shown the willingness to take a risk first?

Those early funds can also be crucial in helping you build a prototype of your idea. If you can create something to show to potential investors, that will be far more convincing than an idea on paper.

If your plan is to sell a physical product, could you get a model built? If it’s an app, could you make a video showing what it might do? If you’re creating a restaurant, could you develop a menu and some sample dishes?

There’s another important point to consider while you’re getting ready to pitch your idea to the world. The last thing you want is to share your plan before you’ve protected your intellectual property (IP) and investigated any relevant copyright issues.

Failing to do this means that your idea could be used without you getting any of the credit. Take the necessary steps to protect your startup before seeking investment or go to market.


Where can startups look for investment?

Let’s say you’ve developed your business plan and have put your own funds into getting some form of prototype ready.

Having reached the limits of what you can do by yourself, you now want to secure some funding to grow your startup business. Here are some routes to investigate.

Business Gateway

Business Gateway is known for offering courses on how to get started and improve your business.

It can act as a stepping stone to accessing funds to help your startup. Though you won’t receive any money directly from Business Gateway, you can make connections with relevant organisations who may be able to help with investment.

For example, promising new companies in Scotland may pass through Business Gateway and be referred to Scottish Enterprise, who in turn can help with access to government-backed grants.

Business Gateway can also advise you about research and development grants and other routes to access funds to support your startup.

European funding

Startups can benefit from loans of up to £25,000 via the Scottish Growth Scheme, a £500 million package of financial support for Scottish businesses from the Scottish Government and the European Regional Development Fund. This fund isn’t tied to the UK’s status as a member of the EU (in other words, it’s not affected by Brexit).

At MHA Henderson Loggie, we’ve successfully helped clients raise debt finance through Business Loans Scotland (https://www.bls.scot/), but these funds can also be accessed through:

  • DSL Business Finance Ltd
  • Business & Enterprise Scotland Ltd
  • Techstart Ventures
  • Foresight Group

As you might expect, accessing funds like this isn’t just a simple case of filling in a form, so it’s best to talk to a competent professional partner who can help. We make introductions like this for many of our startup clients, so get in touch if you’d like to discuss this further.

Debt funding of up to £100,000 is available for more established businesses, so these loans aren’t just for startups.

Business angels

Most of the business angel networks in Scotland will be registered with LINC, the Scottish Angel Capital Association, and details of their investment preferences and appetites can be found on the LINC website (https://lincscot.co.uk/). Look up the “business angels” who are interested in your field. They have their own websites that allow you to submit your plans.

Such submissions generally go to a gatekeeper who then filters the applications and proposes the most relevant and interesting plans at the angel investor meetings. Your plan needs to be attractive enough to survive the selection process and be offered up in front of the investors.  It can help to have talked to one or more of the angels directly in advance and have them champion your plan. Meetings might take place every few weeks or months, so you may need to be patient. In most cases, significant investments are unlikely to be arranged quickly.

Business introductions

Your accountants are likely to have their own network of high-net worth individuals. In our case, we often make introductions between our startup clients and our network of clients who have expressed an interest in making such investments.

To give our startup clients the best chance of securing the funding they need, we help them brush up their business plans to make them “investor ready” before passing them on to their potential future business partners.

Also, our network includes bankers, lawyers and other professional service providers, so we can often make introductions that help startups with the other tasks associated with doing business.


Does my UK location affect my potential for startup funding?

Your location usually isn’t relevant to whether you can secure funding for your startup.

However, when it comes to local authority-backed grants, the funding process can differ a little across the UK.

Regional Selective Assistance grants, for example, depend on your postcode. In areas with low employment, Scottish Enterprise may offer a grant based on your business employing staff. The extent of such a grant depends on the area you’re in and number of employees you take on.

Schemes like this are based on your business making a financial outlay and then recouping some of your costs – so you still need the funds to spend in the first instance.


How true is the Dragons’ Den version of startup funding?

The good news is that the reality of dealing with investors is less adversarial than what we see on TV. What works on an entertainment show doesn’t always reflect the truth of business.

If you meet with a potential investor, it’s safe to say that they’re already interested in working with you. The difficult part is getting them into the room to begin with.

So, the challenge is to get on their radar. Getting a startup funding deal over the line is more about good research and preparation than it is about a face-to-face battle of wits.


How are startup funds paid?

Even if you’ve made a winning case, remember that any investors in your startup will need a legal agreement before a penny is exchanged.

Your business plan should include details on what you’re offering to investors and this will form the basis of negotiations over the investment structure such as how many shares their money gets them and how many seats they’ll occupy on your board.

With this information clear, agreed and legally binding, your investors will deposit money into your business bank account. Remember that there should be no doubt about what the money will be used for and how long it’s expected to last.

Investors don’t want surprises. Do everything you can to uphold your side of the agreement.


Let’s sum up

Running a startup isn’t easy and neither is securing funding to help it grow.

Potential investors need convincing before they loosen their purse strings. Our best advice is to build a robust business plan that stands up to their close inspection.

Start small and do what you can with your own funds first, including creating a prototype of your product or service to build your credibility and help give investors confidence in your work.

Be clear on what problem you’re going to fix and let the investors buy into you as much as they do the business itself. Approach Business Gateway and look for business angels who can make referrals to the right groups, and keep in mind that some startups may be able to access government-backed grants.

Finally, speak with the people who can put your plans in order and give you the best chance of connecting with the investors who can help make your startup a success.

To chat with us about how we help connect our startup clients with potential investors, get in touch now.


Pension Contributions: Personal vs Company?


Many of the businesses we deal with are owner-managed limited companies, where the owner/director could be the only employee. In this situation, the owner/director can choose to make pension contributions either personally or via the company. We are often asked which way is best and we thought it was worth highlighting the key differences for consideration.


Personal:

  • The owner/director will draw an income, normally broken into an element of PAYE remuneration and Dividend payments.
  • Pension contributions paid “personally” attract basic rate tax relief at source, increasing the value of the contribution. Higher/additional rate tax is claimed via self-assessment.
  • Whilst higher rates of tax relief can be obtained on personal contributions, individuals withdrawing a smaller salary will be limited in the amount they can contribute.
  • An individual can make a contribution of up 100% of their “relevant” earnings, subject to their available Annual Allowance for tax relief. Relevant earnings include salary but not dividends.

Company:

  • Rather than draw extra income to pay a personal contribution, contributions can be paid by the company.
  • Company contributions are not limited by the individual’s relevant earnings but must meet the “wholly and exclusively” rules ensuring that the pension remuneration is appropriate to that individual. The individual’s available Annual Allowance needs to be considered.
  • Company contributions are a tax relievable expense resulting in a reduction in Corporation tax. Unlike a personal contribution, no individual tax relief is added to the contribution.
  • Pension contributions provide a tax-efficient method of extracting money from a company, with no tax or national insurance liabilities on the money paid to the pension.

In summary, there are benefits of making both personal and company contributions and the optimal method would be to make a combination of both, if possible. However, in reality, it will depend on the individual’s financial needs and business profits. In many cases, we find that making employer contributions tends to work best for many business owner/directors.


Get in touch

Ricky Clark | Financial Planning Consultant

Email: ricky.clark@hlfp.co.uk or tel: 01382 207067

Jonathan McDowall | Financial Planning Consultant

Email: jonathan.mcdowall@hlfp.co.uk or tel: 01382 207067