Dental News
Autumn 2021
Welcome to our Autumn 2021 Dental News
In this issue
Autumn Budget summary
HMRC and Associates: self-employment status
Health & Social Care tax levy and taxation of dividends
Making Tax Digital (MTD) for income tax postponed to 2024/25
Simplified tax reporting rules for Doctors – alignment of income tax and basis periods
Company loss relief can be claimed early
Obtaining pension statements and scheme pays deadlines (2019/20 extended to 31 March 2022)
GDS and PDS contracts – repayments for underperformance and Q4 adjustment
New NHS Pension Scheme guide
NHS England contract arrangements – 1 October 2021 to 31 December 2021 (Q3)
General Dental Council (GDC) Annual Retention Fee (ARF)
Hove office move
Autumn Budget summary
The Chancellor Rishi Sunak presented his third Budget on 27 October 2021. In his speech he set out the plans to “build back better” with ambitions to level up and reduce regional inequality.
Tax measures include:
- a change in the earliest age from which most pension savers can access their pension savings without incurring a tax charge. From April 2028 this will rise to 57
- the retention of the £1 million annual investment allowance until 31 March 2023
- individuals disposing of UK property on or after 27 October 2021 now have a 60-day CGT reporting and payment deadline, following the completion of the disposal.
Increase to the normal minimum pension age
The current earliest age at which most pension savers can access their pension savings without incurring a tax charge is age 55. From April 2028 this earliest age will rise to 57.
This measure will affect individuals born after 5 April 1973 whose earliest date to access their pension benefits will see a two-year delay to those born on or before that date.
Capital allowances - Plant and machinery
Most corporate and unincorporated businesses are able to utilise a £200,000 annual investment allowance (AIA) to claim 100% tax relief on their qualifying expenditure on plant and machinery. The allowance was temporarily increased to £1 million for expenditure incurred on or after 1 January 2019 and was due to revert back to £200,000 from 1 January 2022.
The £1 million allowance will now be retained until 31 March 2023. Transitional rules will apply to accounting periods that span 1 April 2023.
For companies, this aligns the end of the temporary AIA with the end of the ‘super-deductions’ as announced by the government in Spring Budget 2021.
A reminder of super-deductions
Between 1 April 2021 and 31 March 2023, companies investing in qualifying new plant and machinery are able to benefit from new capital allowances, termed ‘super-deductions’ or ‘first year allowances’, as follows:
- a super-deduction of 130% can be claimed on most new plant and machinery investments that ordinarily qualify for the 18% main rate writing down allowances
- a first year allowance of 50% can be claimed on most new plant and machinery investments that ordinarily qualify for the 6% special rate writing down allowances.
These reliefs are not available for unincorporated businesses.
Businesses incurring expenditure on plant and machinery should carefully consider the timing of their acquisitions to optimise their cashflow. In 2023 the tax relief rules for expenditure on plant and machinery will change and for companies the percentage corporation tax relief saving on the expenditure may change as well.
CGT reporting and payment following a property disposal
UK resident individuals who dispose of UK residential property are sometimes required to deliver a CGT return to HMRC and make a payment on account of CGT within 30 days of completion of the property disposal. Broadly, this only applies where the property disposal gives rise to a CGT liability and as such usually excludes the disposal of a property to which private residence relief applies.
Non-UK residents are subject to similar deadlines in respect of the disposal of all types of UK land and property.
In both cases, for disposals that complete on or after 27 October 2021, the reporting and payment deadline is extended to 60 days following the completion of the disposal.
From the same date, changes will clarify that for UK residents disposing of a mixed use property, only the portion of the gain that is the residential property gain is required to be reported and paid.
Some Budget proposals may be subject to amendment in the Finance Bill 2021-22. Should you need any further help or support please contact us.
HMRC and Associates: self-employment status
In recent years, the employment status of dental associates has been put under the spotlight.
For most dental associates, their tax status as self-employed is not in question as this has been acknowledged by HMRC and supported by HMRCs published internal employment manual guidance. The guidance applies “where standard forms of agreement for associate dentists which have been approved by the British Dental Association (BDA) and the Dental Practitioners Association (DPA). These agreements relate to dentists practising as associates in premises run by another dentist. Where these agreements are used and the terms are followed, the income of the associate dentist is assessable under trading income rules and not as employment income. In these circumstances the dentist is liable for Class 2/4 NICs and not Class 1 NICs.”
“The NHS General Dental Services Contract, which came into force from 1 April 2006, provides for less fluctuation in associate dentist’s income. However, providing the associate dentist continues to be responsible for paying their share of laboratory fees etc for work relating to their patients and other terms of the standard agreement are followed, the above guidance will still apply.”
HMRC has announced that the above guidance will be withdrawn from 6 April 2023 and has reiterated that this is not a change to the self-employment status but a change to their guidance, to stop referring to third party advice.
From 6 April 2023, new and ongoing associate dentist’s engagements should be considered in line with standard employment status checks. HMRC will not be opening retrospective enquiries into periods prior to 6 April 2023.
The withdrawal of this guidance is likely to have minimal impact on the self-employed status of the majority of our associate dentists but may pose an issue for associates who are subject to an increased level of control of their working arrangement.
It would be prudent for associates and principals to review current associate engagements to re-affirm status which you can do by using HMRC’s CEST toolkit below.
www.gov.uk/guidance/check-employment-status-for-tax
A copy of the result should be maintained. We will provide additional information in due course.
Health & Social Care tax levy and taxation of dividends
The Prime Minister announced on 7th September that the government will introduce a new 1.25% Levy to provide an extra £12 bn a year to support the NHS and social care.
From April 2022, it is proposed that there will be a 1.25% rise in National Insurance Contributions (NICs) to be paid by both employers and workers. This will then become a separate Levy on earned income from 2023/24 - calculated in the same way as NIC and appearing on an employee's payslip.
Note that the 1.25% increase also applies to the Class 4 contributions paid by the self-employed on their profits. The Class 1 NI contributions paid by employees increase to 13.25% of earnings above £9,568 and the self-employed rate increases to 10.25%. The 3% differential remains for the time being, although there are rumours that the rates will align in the future. Above £50,270 earnings or profits the rate will be 3.25%.
The employers Class 1 NIC rate will increase from 13.8% to 15.05% from 6 April 2022, however, many small businesses are able to offset the £4,000 employment allowance against their employers NIC liability. Many workers operating through personal service companies to whom the new “off-payroll” working rules apply will also be caught by the proposed measures.
Dividend Tax Rates Also Increasing From 2022/23
It is also proposed that there will be a 1.25% increase in the rate of tax payable on dividends received by those who own shares in companies. This would mean that after the £2,000 tax free dividend allowance the rate of tax would be 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers and 39.35% for those with income in excess of £150,000 a year. This will catch many family company director/shareholders who traditionally “pay” themselves by taking a low salary and larger dividends to minimise NICs.
Planning Actions Before the New Rates Commence
The announcement of the proposed changes more than six months before they take effect means that there is time to reduce the impact. Employees could consider agreeing a salary sacrifice arrangement with their employer, for example, sacrificing their £5,000 annual bonus for an additional pension contribution paid by their employer. Such an arrangement would save 1.25% NICs for both employee and employer as well as £2,000 income tax where the employee is a higher rate taxpayer.
Employees might also consider a salary sacrifice arrangement in favour of an electric company car.
Shareholder/directors of family dental practice companies could consider bringing forward dividend payments to before 6 April 2022. Such a strategy needs careful planning as if the extra dividend takes the taxpayer’s income above £50,270 the excess would be taxable at the 32.5% rate instead of the 7.5% rate and the planning could backfire.
Making Tax Digital (MTD) for income tax postponed to 2024/25
Having listened to stakeholder feedback from businesses and the accounting profession, the government have announced that they will introduce Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA) a year later than planned, in the tax year beginning in April 2024.
This will give the self-employed and buy to let landlords an extra year to prepare for the digitalisation of Income Tax and also allow HMRC more time for customer testing of the pilot system.
The start date for partnerships to join MTD for ITSA has been put back still further to the tax year beginning in April 2025.
There has been no change to the £10,000 per annum gross income threshold which means that most self-employed traders (including dentists) and buy to let landlords will be mandated to comply with MTD for income tax from April 2024.
Simplified tax reporting rules for Doctors – alignment of income tax and basis periods
Self-employed Doctors and dentists who prepare accounts using a different accounting date rather than a 31 March or 5 April accounting year end are set to benefit from simpler tax reporting rules.
From the 2023/24 tax year and in readiness for Making Tax Digital (MTD) for Income Tax, businesses will be taxed on profits arising in a tax year (tax year basis) rather than profits of accounts ending in the tax year (current year basis). This is with the aim of aligning self-employed profits with any other sources of income, such as property and investment income in order to simplify matters.
Doctors and dentists who have a 30 April year end will need to report profits between 1 May 2021 and 5 April 2023 in the 2022/23 tax year and will be particularly affected.
If the business also has overlap relief (overlap profits arise in the first years of a business or a change of accounting date), these will be relievable against profits in the 2022/23 transition year.
Example
A sole trader draws up their accounts to 30 April. Their profits for the year ended 30 April 2022 are £55,000, and for the year ended 30 April 2023 £66,000. They have overlap profits brought forward of £20,000.
The profits for the tax year 2022 to 2023 are as follows:
- Current year basis element – year ended 30 April 2022 – 55,000
- Plus, transitional element – 1 May 2022 to 5 April 2023 – 66,000 x 11/12 = 60,500
- Less overlap profits (20,000)
- Total profits for tax year 2022 to 2023 = £95,500
These profits exceed the profits under the current year basis by £40,500 (i.e. the transitional element less overlap profits). The sole trader can therefore elect to spread the excess over up to 5 years.
The minimum amount per year to be added is 40,500 / 5 = £8,100. Under this election, assuming the sole trader chooses to add the minimum amount, the profits for the tax year 2022 to 2023 are reduced to 55,000 + 8,100 = £63,100. A minimum adjustment of £8,100 per year will be required to the profits of each of the tax years from 2022 to 2023 onwards (until 2026 to 2027 at the latest) until the £40,500 is extinguished.
The above illustrates that some will face higher tax bills for 2022/23 as a result of the changes. If you do require advice or wish to discuss, please contact us.
Company loss relief can be claimed early
Where a company makes a trading loss of no more than £200,000 in an accounting period it is now possible to claim relief for that loss even though the corporation tax return CT600 has not been submitted.
This will enable the company to carry back the loss to earlier years and obtain a repayment of tax previously paid.
HMRC will, however, need evidence of the loss to support the claim, in particular a PDF of the company’s management accounts for the period.
In determining whether the loss is no more than £200,000 the company is required to claim all available reliefs, in particular capital allowances.
Where companies are members of a group the £200,000 limit applies to each individual company. Note that for members of a group the £2,000,000 limit on the temporary extended carry back applies to the group as a whole. The extended carry back allows companies to carry back trading losses two further years in addition to the normal one year carry back.
We can, of course, advise you on the best use of trading losses.
Losses carried back will result in a repayment of corporation tax at 19% whereas, if carried forward against profits, the losses may save tax at up to 26.5% after April 2023.
Obtaining pension statements and scheme pays deadlines (2019/20 extended to 31 March 2022)
NHS Pensions have extended the 2019/20 voluntary scheme pays deadline to 31 March 2022.
Dentists in England & Wales who are members of the NHS Pension Scheme and have an annual allowance tax charge arising in 2019/20, will be able to have the charge repaid for this particular year by the NHS Pension Scheme, rather than having to settle personally.
The NHS have made a commitment to pay Clinicians and Dentists a corresponding amount on retirement in order to fully compensate for the effect of the 2019/20 Scheme Pays deduction on their income from the NHS Pension in retirement.
In order to be eligible, dentists must: -
- Be a member of the NHS Pension Scheme in the 2019/20 tax year
- Be employed or engaged in a clinical role delivering care to NHS patients that requires registration with an appropriate healthcare regulatory body.
- Have a valid registration for the period of the 2019/20 ‘Scheme Pays’ election.
- Have an annual allowance tax charge, in respect of membership of the 1995/2008 and/or 2015 NHS Pension Schemes and uses Scheme Pays to settle the annual allowance tax charge.
For dentists who do meet the above criteria, a ‘scheme pays’ election form will need to be completed before HM Revenue & Custom’s extended deadline of 31 March 2022.
Also, an annual allowance charge compensation policy application form will need to be completed online by the same date. Dentists can access the compensation form and submit to NHS Pensions using Compass.
We strongly advise you take independent pension advice should the above be relevant to you.
GDS and PDS contracts – repayments for underperformance and Q4 adjustment
Principals who are NHS Contract holders should have received a 2020-21-year end reconciliation from NHS Business Services. These are available to view on Compass.
Any repayments for underperformance and the Q4 adjustment will commence from September 2021 (1 October 2021 pay) and will be recovered over three instalments.
New NHS Pension Scheme guide
A new NHS Pension Scheme guide is now available on the NHS website.
The guide provides an overview of the NHS Pension Scheme rules, how your pension is administered and information on roles and responsibilities in relation to the NHS Pension Scheme for NHS GDPS.
To view the new guide, please click on the following: - NHS Pensions - Retirement Guide (nhsbsa.nhs.uk)
NHS England contract arrangements – 1 October 2021 to 31 December 2021 (Q3)
NHS England have confirmed contractual arrangements for the third quarter ending 31 December 2021 (Q3). Contract holders are expected to meet 100% of their activity target. Clawback will not be applied to practices delivering at least 65% of their normal quarterly UDA target for the quarter ended 31 December 2021 in order to pay the full contract value. For orthodontic activity, 85% of monthly contracted UOAs must be completed.
Clawback will reduce proportionally down to a lower threshold of 52% of UDAS and 60% UOAs. Below these levels, normal clawback will apply.
NHS England has also reduced the abatement for undelivered contract activity from 16.75% to 12.75% for general dental contract holders.
Commissioners do continue to have the discretion to make exceptions to practices where in exceptional circumstances, the activity target is not achievable.
General Dental Council (GDC) Annual Retention Fee (ARF)
The General Dental Council (GDC) is now offering dentists the option to settle their Annual Retention Fee (ARF) over 12 months, in four quarterly Direct Debits.
For dental care professionals (DCPs) this is four Direct Debits of £28.50. For dentists this is four Direct Debits of £170. Where a dentist holds specialist titles, the annual fee of £72 per title will also be collected in the first Direct Debit.
In order to use this facility, you will need to inform GDC before the renewal window opens on 31 October 2021 by clicking on the following General Dental Council website link
Please click on the General Dental Council website link for more information: - Pay by instalments Direct Debit (gdc-uk.org)
Hove office move
In case you are not a subscriber to our monthly e-news we would like to let you know that we have relocated our Hove office. We have enjoyed 18 years at Curtis House however the time has come to move to larger, fresher and more spacious offices.
The new office address is as follows: -
1A City Gate
185 Dyke Road
Hove
BN3 1TL