Budget tax blow for independent practitioners
Self-employed doctors and those who take dividends from their own limited companies came off badly in the Chancellor’s first and last spring Budget.
In a bid to ‘close the gap between the tax treatment of different workers’, Philip Hammond announced that from April 2018, class 4 national insurance contributions (NICs) for the self-employed will rise from 9% to 10%.
From April 2019, the rates will rise to 11%. Class 2 NIC will be abolished as planned.
Independent practitioners running their business as a limited company will also pay more tax, as plans to dramatically reduce the new dividend tax allowance were announced – just one year after it was created.
From April 2018, the new allowance will be cut from £5,000 to £2,000, affecting doctors who pay themselves in the form of dividends as well as those who hold shares in portfolios outside of ISAs or pensions.
The Government estimates that this move will impact around 2.27m individuals in 2018-19.
Currently, dividend income above the £5,000 threshold is taxed at 7.5% for basic-rate taxpayers, 32.5% for higher-rate taxpayers and 38.1% for additional-rate taxpayers.
Simon Bruce
Simon Bruce, managing director of specialist financial planners Cavendish Medical, explained: ‘The changes in company dividend taxation announced just last year had already increased tax payments for many doctors running their practices as limited companies. Facing another tax rise so soon will be a further blow.
‘The modest 1% cut in corporation tax previously announced to start in April 2017 will offer little comfort to high-achieving doctors working long hours to create a competitive and client-focused practice.
‘Investors with shares held outside ISAs or pensions should also take note. With harsh reductions to the lifetime and annual allowances for tax-free pension savings, ISAs are already an important consideration for the successful professional – particularly with the increased limit of £20,000 a year available from this April.’
The income tax personal allowance will rise from £11,000 to £11,500 from April. The higher rate tax band will rise from £43,000 to £45,000 and the additional rate tax band will remain unchanged, at £150,000.
From autumn, a new National Savings & Investments bond will be available, paying 2.2% on deposits up to £3,000.
However, Mr Hammond had earlier announced that inflation is forecast to rise to 2.4% this year – already above the bond’s return. The bond is still likely to be popular, given the poor returns available on other cash accounts and the security of a government-backed product.
The Chancellor will no longer prepare a spring Budget, preferring to declare his financial intentions in the Autumn Statement.
Mr Bruce continued: ‘We are unable to control the ever-changing financial landscape, but we can ensure our own finances are in the best possible position to react to opportunities and challenges as they arise.
‘If you are facing higher tax on profits, increased tax from over-saving into your pension – both annually and overall – and reduced tax relief on any buy-to-let properties you own, you should check without delay that your own financial plan is still fit for purpose.’