With the new tax year almost upon us, it is a great opportunity to ensure you have utilised your tax allowances, met important deadlines and your current circumstances are tax-efficient. Our Partner, Ian Tongue, looks at some of the important areas you should be considering.
There are several tax allowances that are lost if not used within a specific tax year. One of the most common ones is the ISA allowance for savings, which allows you to shelter from tax £20,000 per taxpayer per tax year. If you have not yet used your allowance, discuss this with your financial adviser. For individuals, there is a Capital Gains Tax annual allowance, which is lost if not utilised annually and is currently £12,300 for individuals. Therefore, if you are considering disposing of any assets or have high gains that are unrealised on shares, you may want to consider whether utilising the allowance would save you money. A UK taxpayer is allowed to pay into a pension up to £2,880 – £3,600 with the tax credit – in relation to a pension for their spouse or children. This would not form part or your £40,000 pension annual allowance. They may not thank you for it now, but paying this into a pension from an early age for your children should provide them with a significant pension in later life. For those with wealth in excess of the inheritance tax threshold, you may wish to consider giving away part or your estate, and £3,000 can be gifted in total to one or more persons which can actually be carried forward, so this would be £6,000 if you have not previously done this. Therefore, between a couple, you may be able to give away £12,000 without this being sensitive for inheritance tax. If you are thinking of paying into a pension and making gifts, speak to your accountant to ensure that you are within the acceptable limits for inheritance tax purposes.
This is usually the most significant decision when arranging your affairs to be tax efficient. Many consultants use limited companies for their private practices and, no doubt for a substantial number, this will still be appropriate. However, for some, the new tax changes relating to dividends from April 2022 and corporation tax increases from April 2023 will result in significantly more tax being paid and alternatives may need to be considered. One of the key factors here is whether you tend to draw out of the company the majority of the profits. If this sounds like you, then speak with your accountant to see if your current arrangements are appropriate for your circumstances.
Pension annual allowance
By now, most consultants will be aware of the dreaded annual allowance charges that have affected consultants in recent years. Changes were introduced in the 2019-20 tax year to compensate NHS Pension Scheme members who incurred a tax charge in that year only. The mechanism for reporting and paying the annual allowance charge remained the same for that year. But a compensation scheme was introduced which is an agreement between the member, NHS Pensions and your employing trust to make good the impact on the member’s pension from asking the pension scheme to pay the tax. There are two stages to this process and it is important that you have both of these applied for by 31 March 2022, as you will no longer be able to apply from then. There will be significant changes to the historic annual allowance growth figures once the McCloud remedy has been implemented, so it is important that you are well placed to amend your historic figures to potentially avoid overpaying annual allowance charges. If, while reading this, you are not aware of pension annual allowance-related matters for consultants, contact a specialist for advice right away.
Many of you will be familiar with the term capital allowances and these are the tax form of depreciation charges on the purchase of capital items for your business; for example, medical or computer equipment. These allowances are claimed as part of your accounts preparation and computation of taxes payable for both the self-employed and companies. If you have a financial year-end for your business of the tax year of 5 April 2022 – or 31 March – it may be worth accelerating the purchase to obtain the tax relief on these purchases at the earliest opportunity. For those trading as a company, there is a new ‘super’ capital allowance for purchases made between 1 April 2021 and 31 March 2023 to encourage investment, which allows you to expense 130% of the cost of qualifying expenditure.
As mentioned previously, there are imminent changes to the rate of income tax payable on dividends. The rates increase by 1.25% from 6 April 2022 in line with the increases to National Insurance payable – at the time of writing – from the same date. The new rates after the £2,000 tax-free allowance have been used are:
- Basic-rate taxpayer 8.75%
- Higher-rate taxpayer 33.75%
- Additional-rate taxpayer 39.35%
Depending on your circumstances, it may be worth considering whether additional dividends are paid from your company before the tax rates increase on 6 April 2022. Before doing so, speak with your accountant to ensure that the additional income does not give rise to other negative factors such as loss of pension annual allowances.
For those trading as a company, having a company car remains a popular choice. To date, there have been no proposed changes to the very low benefit-in-kind rates where a car is provided to a director or employee. The most common way of obtaining a vehicle is by way of a lease, which is usually easily obtained for an established private practice. For those with newer companies, you may need to accelerate the preparation of your practice accounts, so get these in to your accountant early to avoid the disappointment of not obtaining lease finance. Another practical consideration is the time-scale for delivery of a new vehicle, which can be significantly longer than usual due to supply chain and semiconductor supply issues. If you are considering a new car, you may need to get your order in soon. As always, speak with your accountant to understand the cost and savings for having an electric car through your company.
This is often an area overlooked, as it can be a difficult subject to consider, but the absence of a will should the worst happen can be extremely distressing and lead to significant financial loss through inheritance tax being payable. Usually, will planning is carried out by solicitors or specialists, but often accountants are involved in this process as well. Make sure your will is up to date for your circumstances. Approaching a new tax year is always a good point in time to consider tax planning opportunities that may be appropriate to your circumstances. Speak to your accountants and independent financial adviser to ensure that you are tax-efficient and utilising available allowances.