How The Budget has affected independent practitioners
Independent practitioners are being advised to review their business structures in the wake of the Spring Budget.
Gary Telford, director of tax services at medical accountants Shelley Stock Hutter, London, told Independent Practitioner Today: ‘For consultants who are self-employed, there will be a hike to the rate of National Insurance contributions – increasing 1% next year and the year after – and a reduction in the tax-free dividend allowance to £2,000 from the current £5,000.
‘However, the Chancellor will return to this in the autumn following the publication of a report in the summer on this disparity and he may attack cash retained in smaller companies and extend the attack on the status of consultants using personal service companies.’
Mr Telford said one of the few business-friendly announcements in The Budget was that Chancellor Philip Hammond confirmed that research and development tax credits would be easier to claim in the future.
He said: ‘This is good news for the medical profession, as it will mean they can benefit by getting some relief from the hike in business rates.’
The Chancellor delayed the quarterly reporting for businesses with turnover under £85,000. This will be deferred for one year to April 2019, which will give them more time to prepare, but will still be an unacceptable burden when it arrives, warned Mr Telford.
He said it would mean having to buy approved software to be able to run the system and would add to the administrative burden.
‘Consultants in the profession should be reviewing their business structures now to anticipate these changes,’ he said.
Currently the self-employed pay only a small weekly contribution through ‘class 2’ National Insurance contributions and then 9% on income between £8,060 and £43,000.
This is lower than the standard 12% rate for employees, and the Government also misses out on employer National Insurance payments as well.
Meanwhile, company owner-managers can currently get even lower tax rates because they can take income from their company through lightly taxed dividends.
It is estimated that a £5bn subsidy arises from this gap in National Insurance rates and that the self-employed account for over two-thirds of the £7bn underpaid tax through self-assessment.
DIVIDEND ALLOWANCE CUT
Old Mutual Wealth pensions expert Jon Greer said: ‘The news could have been worse for the self-employed. A small increase to 10% and then 11% will still see the self-employed paying a lower rate of National Insurance than their employed peers.
‘But the dividend allowance cut was a surprise and will be really unwelcome for business owners and investors, effectively reducing the amount they can take free of tax from their business by 60%.
‘The measure will also undoubtedly prove controversial and attract criticism from those that believe it breaches the Government’s pledge not to boost personal taxes.
Mr Greer added: ‘Reducing the tax-free dividend allowance from £5,000 to £2,000 for 2018 will impact people who have direct holdings over £50,000. With the ISA allowance increase to £20,000, people would be wise to maximise ISA contributions if they aren’t already doing so.’
He said despite this ‘double-whammy’ tax change, pitched as a measure to ensure ‘fairness’ for the employed, it should not be forgotten that while the self-employed currently enjoyed a reduced rate of National Insurance, they also missed out on sick pay, holiday entitlement and other perks enjoyed by those in employment.
A ‘BLOW FOR DOCTORS’
James Gransby, head of healthcare at MHA MacIntyre Hudson and an executive board member of The Association of Independent Specialist Medical Accountants, warned that the fall in the tax-free dividend allowance from £5,000 to £2,000 a year from April 2018 would be ‘a blow’ for doctors operating through a limited company.
He said it followed hot on the heels of a 7.5% increase to dividend rates that they were already reeling from.
‘The tax cost of this change for a husband and wife owning shares in a limited company who are both higher-rate taxpayers will be £1,950 a year, and more for additional-rate taxpayers.’