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...

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.

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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...

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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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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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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Partner Ian Tongue presents a recap on Value-Added Tax (VAT) and how this may affect your private practice. 

VAT is a tax we are all familiar with, as it is paid on the majority of the goods and services we buy.

Sometimes an invoice will separate out VAT, but in much of our day-to-day expenditure the price we pay is inclusive of VAT, particularly in the retail world.

When running a business, it is normal to have to be VAT-registered, but within the medical profession it is less common for private practices.

The reason for this is that medical services are usually exempt from VAT, meaning that VAT does not need to be considered. But there are some exceptions which this article considers further.

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