What will Chancellor Jeremy Hunt’s Spring Budget mean for you? Richard Norbury highlights the main areas affecting Independent Practitioner Today readers and suggests some action points.
For doctors, the announcements on pension legislation is likely to be welcome news, although the changes will not remove the issues of annual allowance tax for all.
But the higher annual allowance level will help many doctors reduce or extinguish their annual allowance tax liabilities.
The Government announced that, from the 6 April 2023, the Lifetime Allowance (LTA) charge would be removed and that in 2024 it would be abolished altogether.
Many of you may have different forms of lifetime allowance tax protection and although the LTA tax no longer applies, there is a limit on the maximum tax-free lump sum that can be taken, which from 6 April 2023 is £268,275 – 25% of the current LTA.
Currently, if the tax-free lump sum is exceeded, the excess is taxed at 55%, but from 6 April 2023 onwards, the excess will now be taxed at an individual’s marginal rate of tax.
For those of you that are considering partial retirement and pensionable return under the new rules, you should consider that the LTA may well be resurrected in the future by a Labour administration.
The annual allowance limit is set to increase from £40,000 to £60,000 from 6 April 2023.
This is good news, but the issue of tapering of the annual allowance may still arise.
Be mindful that tapering – only to be applicable if taxable income exceeds £200,000 – can still reduce the £60,000 annual allowance. The lowest tapered value increases from £4,000 to £10,000.
In addition, if your 1995/2008 pension scheme grows by less than inflation, the new rules will allow an offset against the 2015 scheme growth.
It had been announced last year that corporation tax would increase from 19% to 25% from 1 April 2023. Companies with profits between £50,001 and £250,000 will have their rates apportioned such that the overall rate is lower and companies with profits of up to £50,000 will continue to pay 19% tax.
For investment companies, corporation tax is 25% irrespective of the level of profits.
In scenarios where company accounting year-ends are not 31 March and profits exceed £50,000, an apportioned tax rate will be applicable.
Childcare working parents
This has been extended to children from nine months to school age, but this will be delayed until April 2024 and then there will be a staged implementation.
The ‘cliff edge’ threshold of £100,000 still applies, meaning any parent having adjusted net income over this amount results in ineligibility for the scheme. Tax planning opportunities exist and should be discussed with an accountant.
From 1 April 2023 to 31 March 2026, full expensing has been introduced. Basically, this allows companies to write off eligible capital expenses immediately against profits.
For special rate expenditure, which does not qualify for full expensing, a 50% first-year allowance can be claimed instead. Capital allowances can be claimed on the balance of expenditure in subsequent accounting periods.
Although this only applies to limited companies, self-employed individuals and partnerships continue to have a similar type of relief known as the Annual Investment Allowance.
Previously, it was announced that the tax-free dividend allowance from 6 April 2023 will drop from £2,000 to £1,000 and in the following tax year to £500.
The Government increased the individual tax on dividends when the National Insurance rates increased by 1.25% due to the ‘health and social care levy’ and has decided to keep the rates of 8.75% for a basic-rate taxpayer, 33.75% for a higher-rate taxpayer and 39.35% for an additional-rate taxpayer.
Announced last year, the threshold at which the 45% rate of tax applies drops from £150,000 to £125,140. This is also the threshold where individuals will now pay the 39.35% tax rate on dividends.
Capital gains tax
The capital gains exemption threshold was previously set at £12,300, meaning any capital gains above this amount in a particular tax year were subject to tax.
From 6 April 2023, this threshold has been reduced to £6,000 and the plans are for this to be halved from 6 April 2024, meaning only £3,000 of gains are exempt from tax after this date.
Change of basis of taxation
Although not officially part of the Budget, sole practitioners or partnerships with non-31 March or 5 April year-ends will undergo a transition in the tax year 2023-24, whereby the ‘current year basis of assessment’ will be changed to a fiscal year basis.
The financial year-end of accounts can still be retained, if so desired, but adjustments made to tax profits on a fiscal year basis.
If the change in taxation increases tax as a consequence, then provisions are in place to allow this additional amount to be paid over five tax years.
The additional tax would have always been payable arising on retirement from a partnership or cessation of private practice, but at least now there is the welcome opportunity to spread it over five years.
Given the significant changes, it is an opportune time to review your affairs and trading structure with a specialist medical accountant to ensure your current trading structure is still the right strategy for your private practice going forward.
Richard Norbury (right) is a partner with Sandison Easson specialist medical accountants