Independent Practitioner Today columnist and accountant Julia Burn gives a round-up of key points for doctors in private practice.
Despite all the leaks, the Budget still contained some surprises. Here are the topics most likely to affect medical practitioners.
During the pandemic, the Government has offered various measures to support businesses. The following changes to the key support measures to note are:
Furlough (Coronavirus Job Retention Scheme)
The furlough scheme, which was due to come to an end, has now been extended again to September. This is a welcome measure for businesses who have had to close their doors and continues to give assistance, allowing them to be flexible while lockdown eases.
Businesses will be asked to contribute 10% of the furlough amount in July and 20% in August and September.
Business rates holiday has now been extended to the end of June, followed by a six-month period where the discount will be two thirds. Relief is capped at £2m per business.
Additional funding may also be available through the Recovery Loan Scheme, but we await the details of eligibility criteria and how to apply. The current COVID-19 Business Interruption Loan Scheme and Bounce Back Loan Schemes close to applications at the end of the month.
1 Income tax
The tax-free personal allowance at £12,570 has been frozen from April 2021 until 2026. While not strictly a tax rate rise – allowing manifesto promises to be honoured – in real terms, people’s take-home pay will reduce as these allowances have not kept pay with inflation.
Likewise, the higher rate income tax threshold of £50,270 has been frozen from April 2021 to 2026.
Income tax rates also remain unchanged.
Pension lifetime allowance has been frozen until 2026. This measure could have a real impact on long-term pension savings and may actually encourage those people on attractive defined benefit pension schemes –for example, consultants who have a contract in the NHS – to retire earlier than planned so that they can avoid the punitive 25% surcharge tax associated with pension savings in excess of the lifetime allowance threshold.
The Government has reintroduced a tiered rate of corporation tax.
The rate for small companies with a profit chargeable to corporation tax of less that £50,000 a year will remain at 19%.
For companies generating profits of £250,000 or more a year, the corporation tax rate will rise to 25%. It is a huge jump in tax rates.
Companies generating profits of between £50,000 and £250,000 will receive an element of taper relief, so only those earing profits of over £250,000 will be taxed at the full 25% rate.
Thankfully, this measure is not coming into effect until April 2023.
The Chancellor announced that companies will be able to carry back losses of up to £2m for three years.
This is likely to be a welcome relief to businesses who have made large losses due to the pandemic but have been previously been profit-making, and it would create a cash injection at a potentially crucial time.
But it is worth careful consideration, where companies are going to enter the higher corporation tax band of 25% in 2023, whether to carry back any losses. You could therefore save tax at 19% and receive cash now – or by carrying the losses forward, you could make savings in the future at 25%.
A super deduction for investment in innovation, of 130% of expenditure, has been introduced, which may be accessible for medical practitioners involved in clinical research or planning significant capital expenditure.
There have been no changes here and the inheritance tax threshold remains at £325,000, meaning more estates will be captured as the threshold has not increased in line with inflation.
4Capital Gains Tax
There have been no changes, even though these were expected to change. The annual exemption, which is currently £12,300, remains frozen until April 2026.
Also, there have been no changes to Business Asset Disposal Relief – previously known as Entrepreneurs Relief – which currently has a lifetime allowance of £1m.
5Stamp Duty Land Tax
The Stamp Duty Land Tax (SDLT) holiday has been extended to the end of June.
After that, completions occurring before 1 October 2021 will benefit from a reduced nil rate band.
This will mean that the first £250,000 of the price of a property will not attract SDLT. Currently, no SDLT is payable on the first £500,000 of the price.
The second holiday is up to £12,500 less generous to buyers, which will encourage people to complete on properties before 1 July 2021.
The cost to the economy of the pandemic cannot be underestimated and the measures that the Chancellor has put in place will start to compensate for the shortfall, but there will inevitably need to be additional measures in the future.
He also noted the cost of interest on these borrowings, acknowledging this had become more expensive for the Government in recent weeks.
Undoubtedly, further tax rises are coming, but some of the predictions that may have been made about other tax rises didn’t happen in this budget; for example, the muted increase in Capital Gains Tax.
But surely this will be revisited in future budgets.
Julia Burn is a director at Blick Rothenberg and part of the team that advises medical practitioners