The building blocks of accountancy
is for tax
An update following the Budget and how it may affect you and your business
Julia Burn continues with her A-Z of top tips. This month she turns to the letter T.
Despite all the leaks, last month’s Budget still contained some surprises. My review at that time on Independent Practitioner Today’s website summarised the key points affecting doctors in private practice.
Now the dust has settled, here is more detail about the practical aspects of these new measures.
During the pandemic, the Government has offered various support for businesses.
The following changes to the key support measures were noted in the Budget speech:
Coronavirus Job Retention Scheme (Furlough)
The furlough scheme which was due to come to an end has now been extended again to September 2021.
This is a welcome measure for businesses who have had to close their doors and continues to give assistance to businesses 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.
Now that lockdown is gradually easing, businesses can start to return to some normality and hopefully begin to take staff off furlough as and when normal services can resume.
The 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.
This is a welcome measure for practices who have had to close their doors to face-to-face consultations and goes a little way to sheltering the losses they may have encountered.
Additional funding may also be available through the Recovery Loan Scheme, but we await the details of eligibility criteria and how to apply.
The previous Coronavirus Business Interruption Loan Scheme (CBIL) and bounce-back loan schemes closed to applications at the end of March 2021.
The tax-free personal allowance at £12,570 has been frozen from April 2021 to 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 pace 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.
Businesses should start to regenerate now that lockdown is easing, but it will take the economy a long time to recover. There will still be an element of inflation expected between now and 2026, so people will feel the pinch of this with the cash they have available to spend.
The 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, NHS consultants – 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.
This point is highly relevant to doctors who have a substantial amount of funds tied up in the NHS defined benefits scheme.
The current pensions lifetime allowance is £1,073,100. This is a limit on the amount of accumulated pension savings which can be held without triggering a pension charge.
Now would be an appropriate time to consider your options and discuss the best way forward for you with your independent financial adviser.
The Government had re-introduced a tiered rate of corporation tax. The rate for small companies, with profits 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%, which 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 earning profits of over £250,000 will be taxed at the full 25% rate.
Thankfully, these measures are not coming into effect until April 2023.
Where the pension lifetime allowance has not been reached, it may be worth considering companies making a pension contribution on behalf of its employees as part of their remuneration package.
The pension payment is an allowable deduction from profits chargeable to corporation tax and could therefore mitigate some of the additional tax suffered by those companies falling under the new 25% charge.
The Chancellor announced that companies will be able to carry back losses of up to £2m against profits made in the prior three years.
This can be a welcome relief to businesses who have made large losses due to the pandemic but have been previously profit-making and would create a cash injection at a potentially crucial time.
It is, though, worth careful consideration where companies are going to enter the higher corporation tax band of 25% in 2023, whether to carry back any losses, therefore saving taxes at 19% and receive cash now or carrying them forward to 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.
Companies that acquire new plant and machinery assets qualifying for capital allowances will be entitled to a tax deduction of either 50% or 130% for expenditure incurred between 1 April 2021 and 31 March 2023, with the 130% rate expected to apply to the majority of qualifying assets.
Where companies have made future plans to invest in new capital equipment, it is a good time to consider whether it is possible to bring this investment forward to enable them to benefit from these enhanced reliefs.
Careful consideration needs to be made if it is likely that these assets will be disposed of in the future as this would create an additional tax charge.
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.
Capital 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.
This is likely to be welcome news for those practitioners looking to dispose of their companies in the near future and wanting to take advantage of this relief.
Stamp Duty Land Tax
The Stamp Duty Land Tax (SDLT)holiday has been extended to the end of June. After that, property sale 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.
This will be especially relevant to practitioners who currently own properties that they are looking to dispose of.
The cost to the economy of the pandemic cannot be underestimated, and the measures Rishi Sunak 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 that this had become more expensive for the Government in recent weeks.
Undoubtedly, further tax rises are coming, but some of the predictions that have been made about other tax rises did not happen in this Budget – for example, the muted increase in Capital Gains Tax. But surely this will be revisited in future Budgets.
Julia Burn (right) is a director at Blick Rothenberg and part of the team that advises medical practitioners