Annual allowance – don’t you just hate the restrictions? Partner, Alec James gives an update on the tax charges on your pensions.

Many readers may not be aware that when the pension savings annual allowance was first introduced in April 2006, the allowance was £215,000 rising in successive years to £255,000.

This meant that considering the annual allowance position was rarely an issue for doctors. However, when the markets took a downturn in 2008, it was seen by successive governments as a mechanism to generate more tax by reductions in the allowance. The allowance is now normally £40,000, but can decrease down to £4,000 if tapering is applied.

In this article is a summary of the rules and the upcoming changes.  More...

The Chancellor, Jeremy Hunt, presented his Autumn Statement on Thursday 17 November 2022.

The announcements have received mixed response, with many professional commentators highlighting that further tax measures and spending cuts may be announced after the 2024 election by whatever government comes to power.

Although headline income tax rates remain unchanged the thresholds at which different rates of tax apply remain unchanged except for the upper tax rate of 45% that will apply from £125,140, previously £150,000, from April 2023.

The term ‘fiscal drag’ has been much used by professional commentators to highlight that although basic and higher rates of tax thresholds have remained unchanged, it will, in a period of increasing wages, bring more individuals into paying higher rates of tax.

For example, the number of people paying 40% or 45% tax has risen from 4.1 million in 2019 to 6.1 million prior to the Autumn Statement and will rise further.     More...

The year has not yet ended, and we have our fourth Chancellor, Jeremy Hunt. Brought in by Prime Minister, Liz Truss, after the sacking of Kwasi Kwarteng having held the position for only 38 days.

I know everyone will welcome a hopeful return to stability in the markets that reacted so adversely to the Budget announcement on 23 September 2022; the aftermath saw mortgages rise more than anticipated and the pound fall to record low levels.

On Monday morning, 17 October 2022, Chancellor Jeremy Hunt made an unprecedented television address, pre-empting his Budget changes that were later announced in the afternoon, such was the keenness of the Government to restore some stability after the last few weeks that spooked the nation.    More...

Extreme busyness goes with the territory of clinicians when they are occupied with their NHS commitments, private practice and other roles. As their careers progress, it is likely their tax affairs will become more complex and it is easy to miss some vital dates. That can be financially costly as well as increasing the chance of a HM Revenue and Customs (HMRC) inquiry.

Partner, Richard Norbury covers some of the more common tax deadlines you will face during your career           

Individuals

Most readers will surely be familiar with the tax return deadline of 31 January. In recent years, this has been extended to 28 February due to Covid.

But it is expected that the usual 31 January deadline will now be enforced in future. The majority of consultants and GPs will be required to prepare a tax return by this date.

Here are few of the most common reasons why you might need to submit a personal tax return:

• Untaxed income received – for example, self-employed earnings/ dividends/property income/partnership profits;
• Taxable earnings in excess of £100,000;
• Declaration of annual allowance pension tax charges.

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Kwasi Kwarteng, the new Chancellor of Exchequer, delivered his first budget announcement that cut Income Tax, National Insurance, Corporation Tax, and Stamp Duty.

Prime Minister Liz Truss and three other conservative MP's published a booklet back in 2010 titled ‘Britain Unchained’ that set out their vision for the UK to be a leading player in the world economy.

The cuts outlined below may be the beginning of their vision as set out over 10 years ago when they became newly elected MP’s.

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All members of the NHS pension scheme pay a percentage of their pensionable pay towards the scheme.  From 1^st October 2022, the amount you pay for your pension will change and further changes are planned in 2023.  For many of you, this may result in a lower percentage paid in pension contributions.

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As your private practice grows, you will need to build a team to support you. This may be a secretary or administrative support or another healthcare professional.

Unlike your work in the NHS, where these resources are likely to be already available, you will need to build your own team. The team you pick can impact the success of your private practice and can have different financial implications.

Medical Secretary

A medical secretary will likely be your first – and possibly the most important – role you recruit for. Your secretary will often be your patients’ first point of contact as they look to arrange an appointment with you.

Medical secretaries are usually either:

• Employed by the private hospital where you work;
• Work on a self-employed basis or via a limited company;
• Employed by your business.

In most cases, secretaries are employed by the private hospital or the secretary is self-employed. You will be billed monthly for the hours/days the secretary has supplied or, occasionally, a per-centage of your fees. You should be provided with an invoice detailing the hours they have worked for you and then the amount.

For accounting purposes, you should keep either a physical or electronic copy for seven financial years. No employment rights Secretaries paid in this way have no employment rights from your business. This means that if they are sick or on annual leave, they should not be paid or alternatively a replacement should be provided to you.

Secretaries working in this way will often be working for a number of consultants. As your private practice grows, it may be that you find you require a secretary that works exclusively for your business. Where someone is working exclusively for you, it is likely that HM Revenue and Customs (HMRC) would class them as an employee rather than someone who is self-employed.

This status is not a choice, but a question of fact. To help you determine the status, there is a toolkit available on the HMRC website.

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Many of you will have read reports in The Telegraph over the weekend headed ‘The electric car trap that could land you a £30,000 bill’.

The article highlighted the pitfalls associated with such a scheme and gave the example of NHS consultants.

The article is good in that it brings to the public attention something that, we as specialist medical accountants, have been aware of from the inception of the concept of the Annual Allowance (AA) many years ago and are well versed in giving advice.

The article goes on to explain that having the car for two years can avoid the AA tax charge. This is true in the majority of circumstances.

This is because the majority of any tax is associated with the deemed growth in the 1995 NHS Pension Scheme which is linked to your final salary and the best of the last three years of your service.

What the article failed to address is if there are any other ways to avoid the Annual Allowance Tax if you were in a three year or longer contract or coming up to retirement.

The good news is that there is a way to mitigate/extinguish the AA tax if you are in one of these scenarios.

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Most Independent Practitioner Today readers have some form of employment income in addition to their private practice. For many, this will be the NHS – and the health service’s payslip can be complex.

Although this complexity makes understanding your payslip more difficult, this does mean we can gather a significant amount of information from a single payslip. Richard Norbury (right) has some practical tips to aid understanding of the payslip and highlights some common pitfalls 

Tax code

Your tax code reflects the tax-free amount being applied to your salary.

It is made up of a number of elements, but for medics will primarily relate to personal allowance, tax relief on employment expenses and adjustments for unpaid tax in previous years.

The tax code is usually a number with a prefix or suffix letter. The number dictates the tax-free amount divided by ten.

For a lot of people, the tax code will just be the personal allowance, currently £12,570 for 2022-23.

The tax-free personal allowance can be reduced when an individual earns over £100,000 of taxable income. Then it reduces by £1 for every £2 over the threshold.

This means when you reach £125,140 you have none of the original £12,570 left. The effect of losing your personal allowance in full is additional tax payable of £5,028.

Your tax code may also include any professional subscriptions paid so that the tax relief is spread during the year. The code may also incorporate regular charitable donations under Gift Aid.

It may be that you have under-paid tax in previous years. If you are not ordinarily submitting a tax return or if you opted to pay any shortfall of tax via your tax code, your tax code may include the col-lection of underpayments.

The loss of personal allowance can lead to an underpayment of PAYE. Understandably, HM Revenue and Customs (HMRC) struggles to accurately calculate tax codes in these circumstances, especially if the salary goes up during the year.

If your taxable income was under £100,000 in the preceding tax year, then HMRC will have no reason to reduce your tax code in the next financial year.

HMRC should send you a copy of your tax code calculation. It is possible to have the tax code amended if required.

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Do you know how many patients you currently have in your care homes?

In the first quarter of the financial year, it is a good time to check the number shown against your Practice Residential Nursing Home Index on your GP statement.

If you find there is a significant difference in your care home patients’ numbers between these please see below.

Just a few different could just be timing as the GP statement weightings are only updated at the start of each quarter.  However, an increase in the RI weighting should also increase the monthly global sum for your practice.

If you have a significant difference, you can check this using your clinical system searches.to check the coding for these patients that you know are in your care homes – set up a search if you haven’t got one already that checks the number of patients in each home and then a sub search based upon this population for the VO code to identify either those that are coded or those not coded and then add the code accordingly.

Please click here for further guidance.

If you require further assistance then please do not hesitate to contact us using the details below.