The Chancellor George Osborne’s final Budget last month before the forthcoming general election contained a number of important announcements for independent practitioners as well as the usual tinkering of personal allowances and tax bands. Ian Tongue assesses the impact on senior doctors and gives some timely advice
Following successive reductions in the Lifetime Allowance from £1.8m to the current £1.25m, the Chancellor announced a further reduction from 6 April 2016 to £1m.
This equates to a pension – under the NHS’s 1995 Pension Scheme – of just under £43,500 a year. Therefore, a significant proportion of doctors will be affected by this.
Transitional protections such as those available in the past should be available and this may be a good time to discuss your circumstances with an independent financial adviser (IFA).
Some good news is the announcement to index-link the Lifetime Allowance to the Consumer Prices Index from 2018.
The Annual Allowance remains unchanged at £40,000 a year.
Readers will also be aware of the changes to the NHS Pension Scheme that were implemented from 1 April 2015.
If you have any form of pension protection, it is advisable to speak with your IFA to ensure that the conditions to retain such protection are still valid. Significant penalties can arise for retaining certain pension protection when not eligible.
Also potentially affecting pension protection is ‘auto-enrolment’, which is well underway.
This measure is to introduce a workplace pension scheme for all employees. For those that have become deferred members, it is important that you take advice to ensure that you take appropriate measures to retain any pension protection you may have in place.
Tax avoidance schemes
HM Revenue and Customs (HMRC) certainly has the bit between its teeth when it comes to tax avoidance – as last month’s front page of Independent Practitioner Today demonstrated (right) – and the Budget built on those measures already implemented.
Measures to counter tax avoidance have been introduced over the past few years and the Government has introduced powers to allow HMRC to request any tax avoided in advance of any inquiries into the scheme being concluded.
If you have entered into any tax planning scheme it is important that you speak with the advisers that sold the scheme to understand your position.
Unfortunately, many taxpayers who have entered into tax avoidance schemes or aggressive tax planning are facing a tax shock, as Independent Practitioner Today made clear last month. (See ‘If it’s too good to be true, it is‘).
The Chancellor introduced a welcome change to the taxation of modest savings which, after all, have most likely already suffered tax.
Basic-rate taxpayers benefit the most with up to £1,000 of savings no longer subject to tax. For higher-rate taxpayers, this falls to £500 but equates to the same amount of tax. However, additional-rate taxpayers – those earning more than £150,000 – will not see any benefit. These changes apply from 6 April 2016.
Additionally, those that are saving modest amounts in an Individual Savings Account (ISA) may benefit from this change if they are able to obtain a higher interest rate elsewhere.
Following an overhaul of ISAs last year, the amount that can be invested in an ISA increased significantly from 1 July 2014 and the restriction on composition between a cash ISA and stocks and shares ISA was relaxed.
The 2015 Budget increased the maximum amount that can be saved to £15,240 for 2015-16 and announced more flexibility for those saving in ISAs.
Following consultation in the autumn with ISA providers, individuals should be able to withdraw and replace money from the cash ISA in the same year without it counting towards the annual ISA subscription limit. This is a welcome change and will broaden the use of ISAs.
The Government has also proposed a new ‘Help to Buy ISA’ launching in the autumn to assist first-time buyers in purchasing their first home.
Its proposal is for HMRC to pay up to £3,000 into the ISA, at which point you will have saved £12,000 over a four-year period.
This may be of use to help children over the age of 16 save for their first home. However, it should be noted that, under the proposals, if you take out a Help To Buy ISA, it restricts your option to open a cash ISA in the same year. Therefore, you should seek advice prior to going down this route to consider your options.
The headline rate of corporation tax has been falling for some time now and the Chancellor confirmed that, from 1 April 2015, the standard corporation tax rate is 20% irrespective of size, unifying small and large companies.
This measure will benefit those with larger private practices earning profits in excess of £300,000 a year.
Now is a good time to revisit matters for those not operating their practice through a limited company or have discounted this in the past due to earning in excess of £300,000.
Annual Investment Allowance
This has been a useful measure over the years to promote capital investment by businesses, providing them with accelerated capital allowances.
It was previously proposed to reduce to £25,000 from 1 January 2016, but the Chancellor has announced that this will be reviewed in the Autumn with the intention of it being at a more generous level.
The death of the tax return?
The Chancellor announced measures to remove the requirement to complete a tax return for individuals and small businesses by 2020 as part of a ‘Tax Simplification’ plan.
HMRC has not announced the detail apart from a framework of digital reporting, which is likely to be similar to that used for Pay As You Earn (PAYE) schemes known as Real Time Information (RTI).
For many taxpayers, this will come as a relief, as often a tax return is prepared with very little on it; for example, spouses. However, for the vast majority of consultants engaging in private work, their affairs are more complex and accounts need to be prepared.
The multiple income sources and complexity make a switch to monthly submission unlikely for many consultants in the short term at least.
If one were being cynical, ‘tax simplification’ and ‘tax payment acceleration’ can probably be used interchangeably here, as the winner is likely to be HMRC’s bank balance.
The biggest uncertainty for the adoption of the above is clearly the general election next month.
Many of the changes announced are to be implemented in the ‘next parliament’ or within a year, which gives the Government in power the option to change.
Should a new Government be in power, it is likely that a further Budget will be announced to implement immediate changes.
Ian Tongue (right) is a partner with Sandison Easson and Co