Wealth check needed after tax changes

By Robin Stride

Independent practitioners are advised to seek a wealth check to assess their financial future following last month’s Budget and Spending Review, and earlier announcements.

Accountants warn that, as a result of the Chancellor’s changes, they will see big income changes due to a range of measures including:

 Cost rises due to inflation, a labour supply shortage and supply chain disruption;

 A 1.25% increase in National Insurance for them as employees, and as employers;

 A 1.25% rise on all dividends, even for shareholders with personal allowance basic-rate bands; 

 A freeze on tax-free personal allowances – so more is taxed in tandem with the increases. 

 A higher corporation tax rate for any business earning over £50,000. 

Vanessa Sanders

Vanessa Sanders, of specialist med­ical accountants Stanbridge Associates, gave an example of a consultant with a private practice, paid £100,000 in the NHS with a spouse earning in the doctor’s firm only. 

She told Independent Practitioner Today: ‘With a turnover of, say, £200,000 with expenses typically at 30% including secretarial costs of £25,000, the result due to all potential increases could mean they find themselves with up to £12,000 less in cash terms.

‘This will hit consultants both in employment and in independent private practice and the costs should be reviewed together with the increase to corporation tax announced for April 2023.’

Forward planning

Other areas she highlighted for the business’s forward planning agenda include:

Income tax basis periods will be reformed, meaning that business profits of sole traders and individual members of partnerships will be assessed to tax in the tax year they arise, regardless of accounting date. 

This may mean a review of your accounting date ahead of tax digitisation to ensure no more returns  are made than necessary and to spread the costs of bringing the tax liability forward. 

For example, if a business has a year-end date of 30 April, tax will be assessed for 23 months in one year to bring the business into alignment.

The Chancellor plans to introduce top-up payments of 20% in respect of contributions made by low-earning individuals saving in a pension scheme under a Net Pay Arrangement. This may be the time to consider pension arrangements for any family member employees on lower salaries.

From 27 October 2021, the deadline for reporting and paying capital gains tax after selling UK residential property extended from 30 days to 60 days after completion.

A hike in the earliest age from which most pension savers can access their pension savings without incurring a tax charge. From April 2028, this goes up from 55 years to 57, affecting those born after 5 April 1973.

Qualifying expenditure for tax relief on research and development will extend to include data and ‘cloud’ costs. Some doctors developing new ways of working could qualify for relief under the research and development rules. 

Advice may also be needed on pensions tax and inheritance tax issues.

The main corporation tax rate rises to 25% from April 2023 for businesses with profits above £250,000, but remains at 19% for those with profits under £50,000, and a marginal taper for profits between £50,000 and £250,000.

Mrs Sanders said: ‘For most doctors, running private practices using a company remains an efficient option. 

‘This is primarily because of the ability to control the extraction of profits to shareholders and the opportunity to grow the company asset base for use in the future – for example, adding to retirement income when income tax may be paid at lower rates.’