Medical News
Autumn 2022

Welcome to our Autumn 2022 Medical News

In this issue

Tax increases and public spending cuts

Freezing income tax bands and more to pay 45% income tax

All quiet on pensions

NIC bands frozen

Dividend income – reduced 0% band

Cars taxation!

CGT annual exemption cut

A mini U-turn on SDLT

And remember...

Making Tax Digital - Update

NHS pension scheme – pension tax ready reckoner for 2022/23

NHS pension scheme - contribution percentage rate and tier changes

Staff entertaining & trivial benefits

Simplified tax reporting rules for doctors – alignment of income tax and basis periods

Tax deductible expenses for doctors and tax relief available

Tax increases and public spending cuts

The new Chancellor Jeremy Hunt had warned the public and the financial markets that his Autumn Statement would include “eye-watering” cuts in public spending and tax rises for those with the ‘broadest shoulders’. Unlike the ill-fated Fiscal Event of 23 September, the Government “rolled the pitch” this time with several leaks prior to the event. Mr Hunt wants to avoid the austerity that followed the 2008 financial crash and is focused on measures that will keep the period of recession as short as possible.

Freezing income tax bands and more to pay 45% income tax

It had already been announced that the income tax personal allowance (£12,570) and higher (40%) rate threshold (£50,270*) would be frozen until 5 April 2026, instead of increasing each year in line with inflation.

The Chancellor has now announced that these freezes will continue until 5 April 2028.

As earnings increase, this will result in more higher rate taxpayers and is often referred to as ‘fiscal drag’ because it will raise more tax without actually increasing income tax rates.

The income level at which point the ‘additional’ 45% rate of income tax starts to apply will be reduced from £150,000 to £125,140* from 6 April 2023.

The new £125,140 threshold ties in with the £12,570 personal allowance being gradually withdrawn for those with income in excess of £100,000. For these individuals, once their income exceeds £125,140, they will no longer be entitled to a personal allowance and, from April 2023, will move straight into 45% income tax.

*It should be noted that, for Scottish taxpayers, income tax rates and thresholds are, for certain income types, separately set by the Scottish government.

All quiet on pensions

In good news for doctors, we did not see measures to further restrict tax relief for pension contributions. There were no changes to tax legislation relating to annual allowance and lifetime allowances.

Please do talk to us about how your pension contribution strategy could help to lessen the impact of the above income tax changes.

NIC bands frozen

Employers will be relieved that there are no more changes to NIC rates and bandings or therefore consequential payroll software changes!

Like the main income tax bandings, NIC thresholds are now also frozen until 5 April 2028. This means that employers’ NIC will continue to apply at 13.8% to earnings in excess of £9,100 a year (£175 per week) and employees and the self-employed will continue to pay 12% and 9% respectively on earnings/profits between £12,570 and £50,270 and 2% thereafter.

Despite rumours to the contrary, the 1.25 percentage point increase to NIC rates that has just been removed from 6 November 2022, will not be making a return from 6 April 2023.

Dividend income – reduced 0% band

For all individuals, the first £2,000 of dividend income is taxed at 0%.

The government has now decided that this 'dividend allowance’ of £2,000 will be reduced to £1,000 in the 2023/24 tax year and then again to just £500 in the 2024/25 tax year.

It should be remembered that the income tax rates applied to dividend income outside of the allowance have only recently been increased to 8.75%, 33.75% and 39.35% (for dividend income falling into basic rate, higher rate and additional rate bands respectively).

Combined, these measures will mean that those reliant on dividend income will pay more tax.

If you are a director/shareholder, please contact us to discuss the best strategy for extracting profits from your company from 6 April 2023.

Cars taxation!

For those doctors provided with an electronic or ultra-low emission company car (emitting less than 75g of CO2 per kilometre), there will be annual increases in the benefit-in-kind percentages, and therefore the taxes paid by both employees and employers, from the 2025/26 tax year.

For all other company car users, there will be a 1 percentage point increase (up to a maximum of 37%) in the calculation of the benefit-in-kind in 2025/26 before being fixed for the following two tax years.

The government have also announced that they will introduce Vehicle Excise Duty on electric cars, vans and motorcycles from April 2025.

CGT annual exemption cut

Many were predicting that the rates of Capital Gains Tax (CGT) paid by individuals would increase, possibly to align with the rates of income tax.

Instead, the Chancellor has announced that the current £12,300 annual tax-free CGT exemption (or allowance) will be reduced to just £6,000 in 2023/24 and only £3,000 in 2024/25.

This change will mean that those disposing of investments such as shares, second homes and buy-to-let properties will pay more tax.

If you are planning any capital disposals, please contact us to discuss the best strategy for timing of sale.

A mini U-turn on SDLT

One of the few changes announced on 23 September that has not been reversed concerns Stamp Duty Land Tax (SDLT) in England and Northern Ireland. The starting threshold was increased from £125,000 to £250,000 (and, for First Time Buyers, from £300,000 to £425,000) from 23 September 2022.

However, it has now been announced that these are to be temporary changes and, from 1 April 2025, the thresholds will return to their original rates.

And remember...

As previously announced and as we head into 2023;

  • The £1million Annual Investment Allowance - giving 100% tax relief to businesses investing in qualifying plant and machinery - is now permanent.
  • The Government is increasing the generosity and availability of certain Venture Capital Schemes, including the Seed Enterprise Investment Scheme for start-up companies.

And finally, in all matters, we are here to help you. Please do get in touch about any of the Autumn Statement measures or otherwise.

Download Autumn Statement PDF

Making Tax Digital - Update

Making Tax Digital (MTD) for VAT has been with us since April 2019, with the extension to all VAT registered businesses from April 2022.

The next roll-out will be the introduction of MTD for income tax which is scheduled to start in April 2024.

The obligation to keep records in a digital format and report information quarterly will apply to unincorporated businesses (such as consultants, locum doctors and general practitioner businesses) and property landlords with gross income from all business activities in excess of £10,000 a year.

Changes will be significant for these businesses who will require “functional compatible software” for income tax purposes and will need to get into a new routine for income tax reporting.

If you believe you need a new digital accounting system for your business, there are a number of MTD compliant accounting software packages on offer and we can advise you on the one that is most appropriate for your business. There are even relatively low-cost software packages specifically designed for property rental businesses.

We are in the process of identifying all clients we believe will be required to comply with MTD for income tax and will be in touch with further details in due course as to how we will be helping our clients comply with the new requirements.

NHS pension scheme – pension tax ready reckoner for 2022/23

Given the rate of inflation continues to rise and is at its highest rate in 40 years, it is likely to affect performer’s pensions and potentially lead to increased pension tax charges in the 2022/23 tax year.

NHS Employers have now created a useful tool for healthcare workers, enabling members of the NHS Pension scheme to obtain a pension growth estimate for the 2022/23 tax year. Individuals will then be able to assess whether an Annual Allowance tax charge may apply.

It will provide members with an overview of their annual allowance pension and also calculate if a tapered annual allowance may apply.

To use the ready reckoner tool, please access using the following link:-

Assessing annual allowance - ready reckoner tool and demonstration | NHS Employers

NHS pension scheme - contribution percentage rate and tier changes

The Department of Health and Social Care (DHSC) has recently announced changes to contributions into the NHS Pension scheme, following a public consultation held in October 2021.

From 1 October 2022, contribution percentage rates changed and pensionable pay tiers used to determine the rate at which contributions into a pension are made have been updated. The value of pension benefits will be unaffected.

The contribution rates are to be brought in over two phases, with the first commencement on 1 October 2022 and a further change planned in 2023.

The method to assess which tier an individual pensionable pay falls in is also changing. Previously it has been determined on a member’s full-time equivalent pay. However, it will now be assessed on their actual annual rate of pay. For NHS members who work on a part time basis, it may mean that contributions are less as their contribution rate will be based on how much they are paid each year rather than their whole-time equivalent figure.

Please see the new rates and tiers below:-

New Pensionable salary tiers from 1 October 2022

Contribution rates from 1 October 2022 (based on actual annual pensionable pay):

Future planned contribution rates (based on actual annual pensionable pay):

Up to £13,231

5.1%

5.2%

£13,232 to £16,831

5.7%

6.5%

£16,832 to £22,878

6.1%

6.5%

£22,879 to £23,948

6.8%

6.5%

£23,949 to £28,223

7.7%

8.3%

£28,224 to £29,179

8.8%

8.3% 

£29,180 to £43,805

9.8%

9.8% 

£43,806 to £49,245

10%

10.7%

£49,246 to £56,163

11.6%

10.7%

£56,164 to £72,030

12.5% 

12.5%

£72,031 and above

13.5% 

12.5%

Staff entertaining & trivial benefits

With the Christmas season suddenly on the horizon, doctors will be looking at ways to thank their staff for their contributions and hard work during the year. Whatever your plans are, you do need to be aware of the tax implications of entertaining and making such gifts.

Staff entertainment

As an employer providing social functions and parties for your employees, you have certain National Insurance and reporting obligations.

What you need to report and pay depends on:

  • if it’s an annual event
  • if it’s open to all of your employees
  • if it costs more than £150 per head
  • how many events you provide during the tax year
  • whether the employee is a director, and how much they earn

You might not have to report anything to HM Revenue and Customs (HMRC) or pay tax and National Insurance. To be exempt, the party or similar social function must be all the following:

  • £150 or less per head per year
  • annual, such as a Christmas party or summer barbecue
  • open to all your employees

 

Trivial benefits

You do not have to report a benefit for your employee if all of the following apply:

  • it costs you £50 or less to provide (per employee)
  • it is not cash or a voucher that can be exchanged for cash
  • it is not a reward for their work or performance
  • it is not in the terms of their contract

This is known as a ‘trivial benefit’. You do not need to pay tax or National Insurance or let HM Revenue and Customs (HMRC) know.

The employee will have to pay tax on any benefits that do not meet all of the above criteria.

If a business provides a bottle of wine in a nice gift bag as a Christmas gift, for example, the value of the gift bag should be included in the value of the gift when deciding whether the total value exceeds the trivial benefits limit.

Staff Christmas Bonuses

Staff bonuses issued must be reported through payroll as these are subject to Income Tax and National Insurance.

Bonuses paid to staff must be included in payroll as additional earnings. If you do have plans to pay a bonus, you will need to speak to your payroll provider in advance of the payment to ensure that this is reported to HMRC at the time of payment.

As always, do feel free to contact us should you require advice.

Simplified tax reporting rules for doctors – alignment of income tax and basis periods

Self-employed Doctors 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 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.

Tax deductible expenses for doctors and tax relief available

There can be significant costs involved to practise in medicine. Mandatory licence registration fees along with relevant insurance and continuing CPD development can be expensive annual costs.

It can be easy to forget to claim expenditure, which may qualify for tax relief which may include:-

  • Membership fees and annual subscriptions to a professional body
  • Professional Indemnity insurance
  • Subscriptions to trade journals/publications
  • Courses and conferences

Whether tax relief can be claimed on the above will be dependent on a doctor’s employment status (whether employed or self-employed).

Here, we provide a brief summary as to what must be considered before claiming.

Self-employment expenses

In order to qualify as a deduction, the general rule of thumb is that an expense can be claimed against profits if it relates to revenue expenditure and has been incurred “wholly and exclusively” for the purposes of the business.

No deduction can be given where an expense has been incurred for business and non-business purposes whereby it has a “duality of purpose”.

Employment expenses

For doctors who are employed, the rules are more restrictive. You can only claim tax relief on expenses incurred “wholly, exclusively and necessary” in the performance of your duties of employment. In other words, you are contractually obliged to incur the expense.

The definition means that professional membership such as General Medical Council (GMC) and British Medical Association (BMA) will qualify. However, in order to claim, the professional membership must also belong to those included on the HMRC Approved professional bodies list which can be accessed by clicking the following link:-

Approved professional organisations and learned societies (list 3) - GOV.UK (www.gov.uk)

Training whilst employed

HM Revenue & Customs will only accept a training expenses claim (exams and resits, courses, study materials etc) if you were employed on a training contract where training was an intrinsic contractual duty of the employment and:-

  • The expenses must be incurred by each and every employee in the same role as you,
  • It is necessary for you to incur and pay these expenses personally
  • The expenses must be incurred and paid
  • The expenses are incurred wholly, exclusively and necessary as part of the duties of the employment

HMRC may request additional evidence, when processing a claim such a proof of payment or a copy of your employment contract to confirm the training post.

Tax relief available

Basic-rate taxpayers will be eligible to claim tax relief of 20% and increases to 40% for higher-rate taxpayers. Further National Insurance contributions savings are also available to those self-employed.

Tax relief is claimed in the tax year that qualifying expenditure has been paid. For those who are self-employed, the relevant expense can be deducted as an expense against any self-employment income received during the tax year.

If you are employed and your professional expenses claim is for the current tax year and is less than £2,500, you are able to receive tax relief on work related expenses via an adjustment to your PAYE coding notice.

Where expenses paid during a tax year exceed £2,500, the individual will be required to prepare and submit a Self-Assessment Tax Return to claim the relevant expenditure.

You must claim within 4 years at the end of the tax year that you paid for the expense and you must retain records should HMRC inquire.

If your claim is for the previous tax years, HMRC will either adjust your PAYE tax code or process a tax refund.

A claim can be made using the online services accessible below:-

Claim tax relief for your job expenses: Overview - GOV.UK (www.gov.uk)

Tax legislation behind this can be complex and therefore should you require assistance, please do contact your Humphrey & Co representative.