Medical News
Spring 2024
Welcome to our Spring 2024 Medical News
In this issue
Spring Budget 2024
Simplified tax reporting rules for Doctors – alignment of income tax and basis periods changes come into effect
Electric company cars
Travel and subsistence. Which costs can you claim tax relief for?
Spring Budget 2024
Following the Spring Budget announced by Chancellor Jeremy Hunt in March 2024, we have put together a summary to highlight the key points that may affect you and your business.
In his statement to Parliament, the Chancellor set out a plan with measures to ease the tax burden and stimulate economic growth.
Our summary will cover the following areas:
- Reduction in NI contributions
- Corporate Tax
- Residential Property Capital Gains Tax
- Non-Dom Tax Status
- VAT thresholds
- Furnished Holiday Lettings
If you have any questions on the Budget, or would like to know how we can help then please contact us
Simplified tax reporting rules for Doctors – alignment of income tax and basis periods changes come into effect
Self-employed Doctors and consultants 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 which is due to be introduced in April 2026, 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.
Medical Practitioners who have a 30 April year end will be particularly affected as they will need to report profits for the year ended 30 April 2023 at the same time as profits generated between 1 May 2023 and 31 March 2024. This could potentially lead to higher tax bills.
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 2023/24 transition year.
Example
A sole trader draws up their accounts to 30 April. Their profits for the year ended 30 April 2023 are £55,000, and for the year ended 30 April 2024 £66,000. They have overlap profits brought forward of £20,000.
The profits for the tax year 2023 to 2024 are as follows:
- Current year basis element – year ended 30 April 2023 – £55,000
- Plus, transitional element – 1 May 2023 to 5 April 2024 – £66,000 x 11/12 = £60,500
- Less overlap profits (£20,000)
- Total profits for tax year 2023 to 2024 = £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 2023 to 2024 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 2023 to 2024 onwards (until 2027 to 2028 at the latest) until the £40,500 is extinguished.
The above illustrates that those affected will need to consider their position ahead of time to determine how the changes will impact their January 2025 tax payments.
For our clients who are impacted, it is advisable to provide accounting records early to enable us to advise you on your personal tax liability well in advance to assist in you making the necessary provisions. If you do require advice or wish to discuss, please contact us.
Electric company cars
Switching to an electric vehicle continues to be tax beneficial. However the favourable 100% first year allowance tax relief is due to come to an end on 31 March 2025.
For the 2024/25 tax year, a fully electric vehicle will fall in the 2% Benefit in Kind tax rate, which does sit favourably when comparing the tax due on either a petrol or diesel vehicle, although an incremental increase will apply of 1% per annum to 5% in 2027/28 tax year.
These low Benefit in Kinds (BIK) on fully electric cars (or good hybrids with emissions of less than 50g/km) 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 (2% for 2024/25) 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 2024 the BIK % for cars which are fully electric will be 2%.
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 £1,800. For a higher-rate tax payer, income tax liability of £720 (£1,800 x 40%) will arise on the company car for the 2024/25 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 £248.40 (£1,800 x 13.8%). Please note however, that the company will receive Corporation Tax relief on the Class 1A National Insurance Contributions paid.
Capital Allowances
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:-
CO2 Emissions |
Capital Allowances |
0 g/km |
100% first year allowance – (can only be claimed on new and unused cars) |
Between 1 g/km and 50 g/km (or second hand EVs) |
18% reducing balance |
Above 50 g/km |
6% reducing balance |
Electric charge-points are also eligible for 100% first year allowances until 5 April 2025.
Please note that currently 100% first year allowances are available on new and unused electric and zero emissions cars which are due to end on 31 March 2025. If you are considering buying a vehicle, you may wish to acquire before this date 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 (relief subject to 15% disallowance if >50g/km).
NHS Fleet car leasing scheme
Employed doctors and consultants may be eligible to use the NHS fleet scheme by virtue of their NHS permanent employment. The car leasing scheme offers favourable rates and is open to permanent staff and their families to allow them to lease a new vehicle for three years. The scheme works as a salary sacrifice whereby the car lease payments are deducted from an employee’s salary, enabling them to save income tax, national insurance and pension contributions. Salary sacrifice in turn reduces an employee’s pensionable and taxable income which may impact on pensionable pay and subsequently on NHS pensionable benefits.
For future or present high earners, it is essential that there is careful planning as when the salary sacrifice arrangement ends, a salary will increase back to pre-salary sacrifice levels and may lead to an individual’s pension input exceeding the annual allowance threshold (currently £60,000).
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.
Travel and subsistence.
Which costs can you claim tax relief for?
There is much confusion surrounding the availability of tax relief on travel and subsistence costs for Doctors who are self-employed.
For those doctors who are self-employed, you can claim tax relief on the following expenses:
Travel
Travel expenses must relate to journey’s undertaken wholly and exclusively for business purposes and must not be in respect of journeys between your home and the Hospital and/or Consulting Rooms in which you work.
In the case of Samadian v HMRC, the medical consultant argued that he had a place of business at home and claimed tax relief on expenses from his home to private hospitals, but the Upper Tribunal held that as he needed ‘a home on which to live and carry on his private life’ the travel costs were incurred for private purposes and tax relief was disallowed.
If a self-employed doctor has one or more regular places of work (other than home)
So what can you claim for? Here are the main travel costs you can obtain tax relief on:
- Domiciliary visits
- Travel to courses
- Opening up Consultancy rooms for an out of hours emergency treatment
- Travel in connection with your business e.g. going to see your Accountant!
We would recommend that a mileage log is kept detailing all business mileage undertaken. By maintaining a log, it will provide evidence of business mileage if HMRC request information to support the travel costs in your accounts. We do provide a mileage log template to our clients when requesting their tax and accounting records.
Subsistence
The general rule is that the costs of meals is not eligible for tax relief as the self-employed doctor must eat to live and consequently does not meet the wholly and exclusively test. However, subsistence costs incurred at a place travelled to in the course of trade, or the costs of food/drink consumed in the course of travelling to such a place can be deducted providing attendance at that place is occasional and there is no regular ‘pattern’ of travel. In practice, it is unlikely that Doctors will meet these conditions.
What about costs incurred in connection with going on a CPD course?
As a GMC requirement, you need to carry out CPD, the costs of which are tax deductible (as long as you are building on existing knowledge and not acquiring a completely new skill). Associated costs in connection with attending a course are also tax deductible.
An example:
You are planning to attend the Acute & General Medicine Conference in London this October and decide to travel to the event the evening before. What expenses can you claim?
- The travel costs to get there
- The cost of the hotel room
- Meals whilst attending
Please be aware if you take your Partner, their costs are not tax deductible.
Remember all receipts should be kept as part of your accounting records.