Medical News
Autumn 2021
Welcome to our Autumn 2021 Medical News
In this issue
Autumn Budget Summary
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)
NHS Pension and COVID Life Assurance Schemes- review of death benefits
New NHS Pension Scheme guide
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.
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 medical 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 doctors) 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 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.
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.
Medics 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 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, clinicians 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 clinicians 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. Clinicians can access the compensation form by visiting the NHS England website.
Medics in secondary care
Once the form has been completed, your application should be endorsed by your main employer for 2019/20 to confirm that you have been working for that organisation in a clinical role that requires professional clinical registration in 2019/20 and that you have that registration. Once endorsed, you can submit to NHS BSA by post or email (preferably to both) on the following:-
By Mail: NHS Pensions, PO Box 2269, Bolton BL6 9JS
Email: nhsbsa.pensionsmember@nhsbsa.nhs.uk
GPs in Primary care
Once the application has been completed, the form should be uploaded to PCSE for endorsement. This is purely to confirm that you have been working in a clinical role during 2019/20 that requires professional registration and that you hold that registration. PCSE will then send an electronic copy to the GP and a further copy onto NHSBSA. Further details will be provided in due course as to when the applications can be uploaded to PCSE.
Hospital locums
When the application has been completed, locums who are eligible should get the organisation that they work with most often to provide the employer endorsement.
We strongly advise you take independent pension advice should the above be relevant to you.
NHS Pension and COVID Life Assurance Schemes- review of death benefits
Life assurance cover and lump sum benefits are provided to members of the NHS Superannuation Pension Scheme. Members of the Pension scheme can nominate an eligible dependent to receive pension or lump sum in the event of a member’s death.
Eligible dependents could include either a nominee, an adult dependant or a dependant child.
There can be very substantial death benefits which will be calculated according to the NHS Pension scheme that the member is a part of and their status at the time of the death.
In addition, the COVID Life Assurance Scheme was set up to provide death in service provision for NHS frontline health, social care and other staff whose lives were lost during work as a result of COVID-19. This is a non-contributory £60,000 lump sum payment to staff who are:
- Employed by an NHS body
- Work for organisations that support the delivery of NHS Services, including outsourced or subcontracted services
- Work on an NHS contract, including primary care medical and dental services
It is vital that NHS Staff and members of the NHS Pension Scheme routinely check their appropriate nominations to ensure their expressed beneficiaries are up to date.
You can cancel or change a previous nomination by using the forms on the following link
It may also be prudent to ensure that any appropriate nominations fit in with existing will provisions.
Given the sizeable death benefits involved and that these can be subject to Inheritance Tax, you should consider these when planning for every eventuality. Our Trust and Estate Support services team specialises in personal and inheritance tax planning and can assist in the drafting of wills. Should you require advice or assistance, please speak to a member of our team.
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 members.
To view the new guide, please click on the following: -
NHS Pensions - Retirement Guide (nhsbsa.nhs.uk)
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