Welcome to our Spring 2021 Dental News
The Partners and staff at Humphrey & Co hope that all our clients and contacts are keeping well and staying safe. We would like to reassure you that Humphrey & Co continue to support you in this very unsettling time.
The Spring Dental E-News focuses on the key measures outlined by the Chancellor in his recent budget including the latest increases in financial support for businesses. As the situation is fast moving, information is constantly changing.
Tax thresholds and Personal allowance
The personal allowance is currently £12,500. Budget 2018 announced that the allowance would remain at the same level until 2020/21 and the statutory provision to increase the allowance annually by CPI was to be overridden. The Chancellor has confirmed that the personal allowance will increase by CPI (0.5%) for 2021/22 to £12,570.
There is a reduction in the personal allowance for those with ‘adjusted net income’ over £100,000. The reduction is £1 for every £2 of income above £100,000. So, for the current tax year there is no personal allowance where adjusted net income exceeds £125,000. For 2021/22 there will be no personal allowance where adjusted net income exceeds £125,140.
The Chancellor announced that the personal allowance will be frozen at £12,570 for the tax years 2022/23 to 2025/26.
The threshold for the higher-rate of tax will increase from £50,000 to £50,570 but will be frozen for five years to 2025/26.
The Coronavirus Job Retention Scheme (JRS)
The current JRS allows an employer to place an employee on furlough and apply for a grant to cover wage costs for the time an employee is on furlough. The employer:
- can claim 80% of ‘usual salary’ for hours not worked, up to a maximum of £2,500 per employee (pro-rated for hours not worked) per month
- needs to fund employer National Insurance contributions (NICs) and the minimum employer automatic enrolment pension contributions.
In December 2020, the Chancellor extended the scheme until the end of April 2021.
Further extension of JRS
In Budget 2021 the Chancellor has further extended the scheme to 30 September 2021.
The level of grant available to employers under the scheme will stay the same until 30 June 2021.
From 1 July 2021, the level of grant will be reduced and employers will be asked to contribute towards the cost of furloughed employees’ wages. To be eligible for the grant an employer must continue to pay furloughed employees 80% of their wages, up to a cap of £2,500 per month for the time they spend on furlough.
The reduction in the level of the grant means that the percentage recovery of furloughed wages will be as follows:
- for July 2021 70% of furloughed wages up to a maximum of £2187.50 and
- for August and September 2021 60% of furloughed wages up to a maximum of £1,875.00.
Employers will need to continue to fund employer NICs and mandatory minimum automatic enrolment pension contributions.
The Chancellor has also extended eligibility for the scheme. For periods starting on or after 1 May 2021, employers can claim for employees who were employed on 2 March 2021, as long as a PAYE Real Time Information (RTI) submission was made between 20 March 2020 and 2 March 2021, notifying a payment of earnings for that employee.
Self-Employment Income Support Scheme (SEISS)
Budget 2021 has confirmed details of a fourth grant. This will be 80% of three months’ average trading profits to be claimed from late April 2021.
Payment will be in a single instalment capped at £7,500 in total and will cover the period February to April 2021. The scheme has been extended to those who have filed a 2019/20 Self-Assessment tax return prior to 3 March 2021. This means that the newly self-employed from April 2019 now qualify subject to satisfying the other conditions, although the eligibility criteria which exclude most self-employed dentists – remain the same.
A fifth and final grant was announced and can be claimed from late July 2021 to cover the period May to September 2021. This grant will be determined by a turnover test. Where the self-employed business turnover has fallen by 30% the grant will be worth 80% of three months’ average trading profits capped at £7,500. People whose turnover has fallen by less than 30% will receive a 30% grant, capped at £2,850.
For those who are eligible, commenced self-employment in 2019/20 and wish to claim the SEISS grants (fourth/fifth and final grant), HM Revenue & Customs are undertaking pre-verification checks to some taxpayers including a request to confirm their identity and provide evidence of trade.
HM Revenue & Customs expect that taxpayers will receive a letter between 8 March to Mid-April 2021 informing them that they shall be contacted by phone within 10 working days and to ensure that their telephone contact details held with HMRC are up to date. Upon phoning the taxpayer, HM Revenue & Customs will request the taxpayer to confirm their email address and agree to a secure Dropbox link being sent. The link is to facilitate uploading relevant identity documents and bank statements to demonstrate business activity. Once received and HMRC have checked the information, HMRC will confirm eligibility and invite the taxpayer to claim ahead of the service opening later in April.
Taxpayers who receive the letter but do not provide information to complete the necessary checks will be unable to claim a grant under the scheme.
Corporation tax rates
The main rate of corporation tax is currently 19% and it will remain at that rate until 1 April 2023 when the rate will increase to 25% for companies with profits over £250,000. The 19% rate will become a small profits rate payable by companies with profits of £50,000 or less. Companies with profits between £50,000 and £250,000 will pay tax at the main rate reduced by a marginal relief, providing a gradual increase in the effective corporation tax rate.
The main rate of corporation tax has been 19% since 1 April 2017. The rate for the Financial Year beginning on 1 April 2020 was due to fall to 17% but the Chancellor reversed this decision in Budget 2020
Super-deduction for investment in new equipment
Between 1 April 2021 and 31 March 2023, companies investing in qualifying new plant and machinery will benefit from new first year capital allowances.
Under this measure a company will be allowed to claim:
- a super-deduction providing allowances of 130% on most new plant and machinery investments that ordinarily qualify for 18% main rate writing down allowances
- a first-year allowance of 50% on most new plant and machinery investments that ordinarily qualify for 6% special rate writing down allowances.
A claim will not be available for motor cars.
This relief is not available for unincorporated businesses.
It is not yet clear whether dental equipment will be eligible.
Prison Dentists now able to access NHS pension scheme
NHS Business Services Authority (BSA) have recently confirmed that prison dentists are now able to retrospectively access the NHS Pension schemes.
Dentists that are currently working or have previously worked as a prison dentist (or in secure children’s homes and immigration removal centres) may have been incorrectly excluded from the NHS Pension scheme. From February 2021 onwards, prison dentists will be able to enter the scheme and contributions included retrospectively. There is no time limit as to how far back one can go.
If you are affected, this may potentially impact on your NHS Pension. The level of impact will be dependent on annual pensionable earnings and other factors.
You will need to take financial advice from an Independent Financial Adviser (IFA) as to whether you should make a claim, given the implications and potential effect on both the Annual Allowance (AA) and Lifetime Allowances. If you do not have an IFA, please let us know and we will put you in touch with one who will be able to provide specialist advice.
Dependent on circumstances, there will be backdated contributions payable based on earnings for relevant years given that application to the NHS Pension scheme is made retrospectively. However, tax relief will be allowable on the paid contributions.
For example, if you worked as a prison dentist for 1 day a week over a three year period and earned £680 per week, your pensionable earnings would be £35,360. Under the current tiered contribution rates, 9.3% would be payable. You would therefore owe £3,289 for each year of missed contributions leading to a combined total of contributions for the three years of £9,867.
For those wishing to claim retrospective NHS Pension scheme membership, you can register your interest by completing the following: NHS Pension Scheme – General Dental Practitioners Retrospective membership application form: www.nhsbsa.nhs.uk/sites/default/files/2021-01/GDP_Retrospective Membership %28Patients of Detained Estates%29 V1 01.2021.pdf
Completed forms should then be submitted by email to firstname.lastname@example.org by no later than 31 March 2021.
NHS Business Services will then calculate pension contributions due. Completing and submitting the form does not legally commit you to claiming retrospective membership. Should you wish to further your claim, you will then need to provide proof of earnings.
CQC registration delays
There are currently significant delays in CQC dealing with registration changes.
Currently, there is a backlog of between 16-20 weeks to deal with dental practices during sale. According to the BDA, 79% of dental practice sales in progress may be currently stuck in a log jam. The delay is hindering principals and practice owners from completing sales, due to a recent surge in activity. It was widely expected that the Spring Budget would include capital gains changes and potentially the removal of Business Asset Disposal Relief (Entrepreneurs’ Relief), however the Chancellor made no changes to the current legislation in his recent budget.
CQC have confirmed that they have moved more staff to the registration team and practice inspectors are being trained to also assist with this process outside of normal working hours. Expected timeframes are now being issued to some applications.
NHS England contract arrangements – 1 January to 31 March 2021 (Q4)
NHS England has imposed contractual performance targets to NHS dental practices across England. Practices will need to perform 45% of their normal quarterly UDA target for the quarter ended 31 March 2021 (less an abatement for variable costs not incurred) in order to pay the full contract value. For orthodontic activity, 70% of monthly contracted UOAs must be completed.
NHS Contract holders delivering this monthly activity during this period will then be deemed to have performed the equivalent of full contract for this period when calculating any annual clawback calculations.
If the UDA/UOA target is not met, contract payments will be assessed on the percentage of UDAs/UOAs delivered against the above targets.
For example, an NHS practice/contract holder who performs 80% of the 45% target for January 2021 to March 2021 will have effectively completed 36% of contracted activity for this quarter (i.e. 80% x 45%). This will result in the NHS practice/contract holder receiving 80% of their contract payments for the quarter. Any delivery between 36% and 45% will lead to proportional contract funding of between 80% and 100%.
Contract holders delivering less than the threshold of 36% of contracted UDAs/UOAs for the period (which is 80% of the 45% target) will only be deemed to have delivered the actual activity performed during the months of January 2021 to March 2021, plus any deemed activity for the months April 2020 to December 2020.
In effect, for Quarter 4, if a practice reaches the threshold of 36% pro-rata UDA delivery, each UDA delivered is worth 2.2 UDAs (the 2.2 equates to 100%/45%). If the practice fails to reach 36% of pro-rata UDAs, each UDA is worth one UDA and will be paid on UDAs delivered rather than at the enhanced 2.2 rate.
Commissioners do have discretion to make exceptions to practices where in exceptional circumstances, the activity target is not achievable for example where practice staff are required to self-isolate. It is also worthy to note that should practices perform more than 45% of activity in the quarter, any overperformance of up to 2% can be offset against 2021/2022 UDA requirements.
In order to monitor performance, NHS Providers can now access a newly launched Quarter 4 report via Compass.
Contractual provisions for the 2021/22 year will commence on 1 April 2021 and as at the time of writing are still to be announced by NHS England.
Self Assessment – time to pay extension
HMRC has announced that Self Assessment tax payers will not be liable to a further 5% late payment penalty if they have not paid their tax or set up a “Time to Pay” payment plan by 1 April 2021.
The normal payment deadline is 31 January following the end of the tax year and late interest is charged from 1 February on outstanding tax. Usually if tax remains owing at 28 February, HM Revenue & Customs will levy a 5% late payment surcharge on unpaid tax still outstanding at 1 March. However, due to COVID-19, HMRC have further extended the deadline to allow taxpayers more time to pay.
For those unable to make payment in full due to reasons relating to COVID-19, taxpayers with liabilities of up to £30,000 can make use of HMRCs ‘self-serve time to pay’ facility to secure a payment plan over an additional 12 months. This means that liabilities ordinarily due by 31 January 2021 can be deferred up until 31 January 2022. This also means that payments due by 31 July 2020 that were previously deferred until 31 January 2021 can be further deferred up to 31 January 2022.
The self-serve time to pay scheme is available through HMRCs website and eligible taxpayers will receive automatic and immediate approval.
Taxpayers who wish to set up their own self-serve Time to Pay arrangements must meet the following requirements:
- they need to have no:
- outstanding tax returns
- other tax debts
- other HMRC payment plans set up
- the debt needs to be between £32 and £30,000
- the payment plan needs to be set up no later than 60 days after the due date of a debt
Taxpayers using self-serve Time to Pay will be required to pay any interest on the tax owed. Interest will be applied to any outstanding balance from 1 February 2021.
Self Assessment taxpayers can set up their own online payment plan to help spread the cost of their tax bill. Please click here for further details.
HMRCs normal time to pay self assessment helpline (details can be found here: https://www.gov.uk/difficulties-paying-hmrc) is still available to taxpayers unable to use the online service, whose debts exceed £30,000 or require more than a year to repay their tax debts.
However, it must be appreciated that this is a measure to assist those suffering financial hardship due to the Coronavirus pandemic. HMRC expect taxpayers who have not suffered financial hardship and have sufficient funds available to make their payments on time.
Pension contributions for high earners
From the 6 April 2020 an individual may invest £40,000 in their pension(s) each year and will be entitled to tax relief unless their “threshold income” (for ease think taxable income) exceeds £200,000 and their “adjusted income” (for ease think taxable income plus pension growth) exceeds £240,000. An individual’s pension annual allowance is abated by £1 for every £2 their adjusted income surpasses the £240,000 threshold. This continues until it reaches the minimum taper annual allowance of £4,000 (this is when adjusted income is equal or exceeds £312,000).
Any unused Annual Allowance from the last three tax years can also be carried forward and added to the current year’s Annual Allowance. However, it is now likely that many higher earners will have now fully utilised available unused annual allowances against previous tax years. Assuming NHS pension growth (plus any contributions to private pension schemes) remains below £40,000 and ‘threshold income’ remains below £200,000 then annual pension tax charges should be avoided.
If dentists who are in the NHS Pension scheme and are liable to an annual allowance charge, then it may be possible to elect for the scheme to pay this on your behalf.
For annual allowance charges arising in the following tax years, please note:-
The government has further extended the voluntary scheme pays deadline for the 2018/19 tax year by a further five months from 31 October 2020 to 31 March 2021.
NHS Pension Allowance Compensation Policy scheme
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.
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.
Please note that this applies to the 2019/20 tax year only.
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 the HM Revenue & Customs deadline of 31 July 2021.
Also, an annual allowance charge compensation policy application form will need to be completed online. 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.
Electric company cars
Switching to an electric vehicle can be tax beneficial and the UK government is actively encouraging companies to move to zero emission vehicles by offering favourable tax rates over the next three years.
For the 2021/22 tax year, a fully electric vehicle will fall in the 1% Benefit in Kind tax rate, which does sit favourably when comparing the tax due on either a petrol or diesel vehicle, although the government has announced an incremental increase of 1% to 2% for the 2022/23 tax year.
These low Benefit in Kinds (BIK) on new and fully electric cars (or good hybrids) means that anyone operating via a limited company may consider leasing or purchasing a relevant vehicle. Based on current legislation, it is generally tax-efficient to purchase fully electric cars as company cars via a limited company. This is because the company car tax (1% for 2021/22) will be less than the Income Tax payable on the dividend should a company director/shareholder wish to extract funds to fund the car purchase personally.
If you purchase a plug-in hybrid car then it will be dependent on how many miles a vehicle can cover under battery power and the emissions figure as to whether it is more tax-efficient to purchase as company cars through a limited company or individual ownership.
Please see below the things to consider regarding purchasing a car from the company.
Benefit in Kind (BIK)
It is important to know that the provision of a company car gives rise to a benefit in kind, which has tax implications for both you and the company. You will be liable to pay Income Tax on the benefit and the company would also suffer Class 1A National Insurance (NICs).
The benefit in kind (BIK) rate is also dependent on the level of CO2 emissions of the car, but as you are aware from 6 April 2021 the BIK % for cars which are fully electric will be 1%.
The BIK % is applied to the list price to get the BIK figure - this will then be the figure that you will pay Tax on. The BIK will be declared on your personal Tax Return as employment income.
For example, a Tesla car with a list price of £90,000 would generate a BIK figure of £900. For a higher-rate tax payer, income tax liability of £360 (£900 x 40%) will arise on the company car for the 2021/22 tax year.
The company will also be liable to Class 1A National Insurance Contributions at a rate of 13.8% of the BIK figure. In the above example this would be £124.20 (£900 x 13.8%). Please note however, that the company will receive Corporation Tax relief on the Class 1A National Insurance Contributions paid.
The company will be able to claim tax relief on the purchase, the amount of the relief is dependent on the level of CO2 emissions of the car. From 6 April 2021, the following capital allowances can be received on the cost of the car:-
100% first year allowance – (can only be claimed on new and unused cars)
Between 1 g/km and 50 g/km
18% reducing balance
Above 50 g/km
6% reducing balance
Electric charge-points are also eligible for 100% first year allowances until April 2023.
Please note that currently (up to 5 April 2021) 100% first year allowances are available on new and unused vehicles where emissions do not exceed 50g/km. If you are considering buying a low emission car that is not necessarily fully electric you may wish to acquire this before 5 April 2021 in order for the company to benefit from full tax relief on the cost of the vehicle.
In order to obtain tax relief in the form of capital allowances, the company will need to either:
- purchase the car outright
- purchase the car using a straight-forward loan with interest in the company’s name or
- by hire purchase in the company’s name.
It is also worth noting that if Capital Allowances are claimed, when you come to sell the car in the future, if the car is worth more than the ‘tax value’ of the car then the company may have to repay back some of the tax relief. This is known as a ‘balancing charge’.
Tax relief on financing and associated car expenses
The company will also receive tax relief on car running expenses and if the vehicle is purchased using a loan, the company will receive tax relief on the interest element of the monthly repayment.
The company would not receive capital allowances however if it were to lease the car. Instead the company would receive Corporation Tax relief on the lease/rental payments. (From 6 April 2021 relief subject to 15% disallowance if >50g/km).
For cars financed via a Personal Car Purchase (PCP), the initial deposit would qualify for full tax relief and the company would receive Corporation Tax relief on its monthly contract payments and balloon payment (agreed final sum to purchase the car or transfer agreement to a new car).
If you would like assistance in calculating tax savings and any tax and National Insurance implications on any specific cars, you should speak with your usual contact at Humphrey & Co for more details.
Identify HMRC related scam phone calls, emails and text messages
Please beware of emails and messages pertaining to be from HMRC. Take extra caution at this time and do not click on links or share personal details. Please talk to us if you want to confirm whether any correspondence is genuine.
HMRC have issued a checklist to decide if a suspicious contact is a scam and not a genuine phone call, text message (SMS) or email. For further details please click here.
We continue to keep our clients and contacts updated via our Coronavirus Hub with the information issued by the Government to support businesses and individuals. We will continue to update the hub with the latest developments so please check back regularly. Alternatively, you can follow us on our social media channels below: