Doctors are facing many changes around the tax system and rates – and these may have a significant impact on your private practice business. Some of these measures have already been introduced and others are planned for the near future.
BASIS PERIOD REFORM
Basis period reform applies to sole traders and partnerships where their financial accounts are drawn up to a date that is not coterminous with the fiscal year-end, which is 5 April – or 31 March for many in practice.
These year-end dates have often arisen from the commencement of the business or, for older businesses, when the self-assessment tax system was introduced.
Legislation has now been introduced so that you have to report your profits to 31 March/5 April 2024, which may be a change to your usual year-end.
You do not officially have to change the date of your accounts, but it is expected that most businesses will, unless you are expecting significant differences between accounting years, in which case some planning may be required.
The impact of the change is that it can accelerate income tax due on the profits, as it unwinds the timing difference for the disclosure of earnings.
This creates overlap profit, or in other words, you have used the same profits twice on the first period of 1 July 2010 to 5 April 2011.
This can be a benefit if profits are rising, as it builds in a timing difference that you are effectively paying the tax on profits later.
Over the life of your practice, this would naturally unwind with usually a higher tax liability in the final year, often well after the business has, in fact, ceased.
The basis period reforms basically unwind the timing difference to align the disclosure for tax to the tax year-end. In doing so, the first period that was included twice is deducted from the longer period. More...
Value Added Tax is a levy applied to most products and services. It is a complex tax, but for many businesses it is part of the day-to-day finances. VAT is charged on invoices and recovered on certain costs incurred.
There are special provisions within the VAT legislation specific to medical services, but reviewing and evidencing that those exemptions apply is extremely important. Alec James gives some wise advice.
Generally speaking, VAT is not on the radar of many doctors. The reason is that there is an exemption which covers the majority of your work in the private sector.
There is detailed HM Revenue and Customs (HMRC) guidance regarding VAT for medics, referred to as VAT notice 701/57.
Fundamentally, where your income meets the following two requirements, the income is deemed to be exempt from VAT and therefore your business has no VAT obligations:
1 The services are within the profession in which you are registered to practice;
2The primary purpose of the services is the protection, maintenance or restoration of the health of the person concerned.
As registered doctors providing medical care to patients, your private practice income would usually pass these two tests and therefore is exempt from VAT.
This means you are not required to charge the current VAT rate of 20% on your invoices.
Where an income stream does not meet the two requirements for VAT exemption, you need to consider your VAT position, because the income will be considered to be a ‘VAT-able supply’ – or ‘standard-rated’ as it is formally known. More...
Opportunities to work in groups are now on the increase for more consultants. Richard Norbury gives tips on the various structures you need to consider
With the NHS’s current challenges, the focus is on cutting waiting list times – but many consultants are understandably anxious about performing additional work and being paid extra salary under PAYE.
They are obviously concerned for a variety of reasons, including:
* High tax rates;
* Loss of certain childcare benefits;
* The potential tapering of the annual allowance causing additional pension tax charges.
Now NHS trusts are becoming more innovative to try and reduce their waiting list times and are under significant pressure to do so.
And that means consultants may have opportunities to group together.
This could be in a variety of formats with different levels of commitment, starting from a loose/cost-sharing arrangement to a more formal legal structure such as a company or limited liability partnership (LLP).
It is important to establish the common goals and objectives of the group as early as possible, because this will, no doubt, have an impact on the decisions made, including which tax structure you choose.
Consultants who are new to their posts may find they are offered the opportunity to join existing arrangements. They will have varying commitment levels to such groups, from being very involved in the management to effectively subcontracting. More...
As we all breathe a sigh of relief after our 2021-22 tax returns have been submitted, it is worth looking ahead to see how you can save tax. Partner, Alec James gives ten tips to boost your finances before the end of the tax year.
With the tax year shortly drawing to a close, whether you have self-employed income or trade via a limited company, now is a good time to review your position for both the current tax year and the tax year ahead.
The combined impact of lowering the threshold of 45% additional rate for the personal income tax rate and increased corporation tax rates from April 2023 means that careful planning should be done now to help mitigate the impact of this. More...
UK inflation rates have recently seen a large rise in response to a variety of factors.
Understandably, many doctors are now thinking about how savings and investments keep pace with inflation. Interest and gains on investments often cause tax charges.
Partner Richard Norbury looks at practical and tax issues to consider with common investment areas
Due to high income tax and potential tax charges on pension growth, many doctors trading as limited companies will not be withdrawing all the available funds from the company.
If you are in this position and the money is building up to sizeable amounts, then these sums can be considered for investing. More...
2023 is set to be a testing time for independent practitioners’ finances following Chancellor Jeremy Hunt’s Autumn Statement. Partner, Richard Norbury, sets out what is waiting in the wings and suggests some useful action points for you to take now to limit the damage.
There has been a mixed response to the Chancellor’s changes, but many professional commentators highlight that further tax measures and spending cuts may be announced after the 2024 General Election, regardless of which party comes to power.
The term ‘fiscal drag’ has been used by professional commentators to highlight that although basic and higher rates of tax have remained unchanged, it will, in a period of inflation, bring more individuals into paying higher rates of tax.
More...
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.
More...
