Financial measures put in place during the pandemic made it inevitable the Government would make changes to the tax system to reduce its debt by seeking higher taxes from individuals and companies. With private medicine now seeing a surge in demand, Partner, Ian Tongue believes it is a good time to consider whether your current trading structure is still tax-efficient.
The main changes
For individuals
For political reasons, the headline rates of income tax were left alone, but National Insurance (NI) rates for individuals and employers are increasing from 1 April 2022.
Politically, NI is portrayed as money which pays for health and social care, but clearly those services cost more than the NI paid and it is a tax in all but name.
The increased NI will be paid on both employment earnings and the profits of the self-employed. Additionally, an employer also pays more. The increase is 1.25% across the board.
Recognising that many choose to extract funds by way of dividends (investment income) rather than employment or trading income, from 1 April 2022 the income tax rates on dividends also increase by 1.25%.
For companies
The biggest tax changes relate to limited companies, as corporation tax rates will see a significant increase from 1 April 2023.
Instead of there being a flat rate of 19% payable on all earnings, the tax rate payable will be 19% on the first £50,000 of taxable profits increasing to 25% for those earnings more than £250,000.
The jump in these rates creates a zone between £50,000 and £250,000 where the effective tax rate is 26.5%.
This seems excessive, but the principle here is to gradually increase overall tax paid such that you approach a rate of 25% as you near £250,000 of earnings.
For example, earnings of £200,000 would attract £50,000 of tax at 19% and £150,000 at 26.5% which is £49,250 of tax on £200,000 of earnings – an effective rate of 24.6%.
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Hopefully, this year staff Christmas parties can go ahead and thoughts turn once again to gifts for staff.
Whether you are a partner in a GP practice, a consultant with a limited company, or practicing as sole practitioner or indeed as a partnership, so long as you have employees, which may include yourself, say, a director of a limited company or family member, then carrying on reading what benefits are available.
Social Functions & Parties
The Revenue allow social functions and parties that cost £150 or less per person. The cost is tax deductible for you as the employer and not taxable on your staff.
To be eligible it must be available to all staff and be an annual event like Christmas or summer barbecue.
It need not all be spent at once and can be spread to other functions and if for some reason Covid hits Christmas again it can apply to online or virtual parties.
More details can be found here.
Trivial Benefits
In addition to the above, a tax deduction is allowed for gifts given to your staff, provided they cost £50 or less to provide, are not a reward for their work performance and are not included in any contract. These gifts are not taxable upon your staff. Gifts could include non-cash vouchers that can be used for a turkey or a Christmas hamper and even alcohol. Normally, the Revenue restrict tax relief on alcoholic products for businesses.
Major online platforms provide gift vouchers.
Multiple vouchers can be given to an employee in a year with the only restriction being directors of ‘close’ companies being limited to £300 in any year.
A ‘close’ company would include the majority of practitioners with limited companies.
More details can be found here.
The partners, associates and all staff at Sandison Easson & Co hope that the above will bring some festive cheer and should you have any questions please feel free to get in touch.
Sajid Javid has agreed to GP’s delaying the declaration of earnings over £150,000 after mounting pressure from GP bodies.
Thankfully, sense has prevailed, at least for the short term. This controversial requirement to published earnings over £150,000 was seen by many, including professional advisors, as unnecessary intrusion of privacy allowing the tabloid press to fuel more unwarranted anti-doctor sentiment.
The requirement to declare was originally published on 5 October 2021 and led to confusion amongst many accountants as to whether outside earnings was to be declared also as the guidance did not correlate with the published Statutory Notice.
The requirements to publish earnings, its timing and guidance were ill conceived.
The partners and associates of Sandison Easson & Co are more than happy to assist in whatever way possible and can be contacted below.
The Budget announcements were FAB in the sense that the Fizz of champagne would be taxed less, Airport passenger duty for domestic flights would be reduced and the tax on Banks effectively cut compared to other businesses.
Other main beneficiaries from the Budget were the NHS getting an additional £5.9 billion and individuals on income support by way of the universal credit taper.
Most of changes that will affect you next year and beyond had already been announced previously by way of additional 1.25% national insurance and dividend tax to take effect from April 2022 and the corporation tax rates increasing from 19% to 25% for investment companies from April 2023 and trading companies rate of corporation tax increasing from 19% to 25% in a step wise fashion as profits progress from £50,000 and under to £250,000 and over.
Thankfully, entrepreneurial relief for disposal of business assets and winding up of companies remains unaltered as do the rates of capital gains tax and inheritance tax.
In the run up to Christmas, thoughts will be diverted to obtaining presents that may be difficult to source what with lorry driver shortages and issues of containers ships unable to offload goods. Once the present list has all hopefully ticked off then some attention can be addressed to tax planning.
There are still plenty of tax planning opportunities ranging from:
- Electric vehicles and limited companies whereby there are tax advantages
- Setting up PAYE scheme for spouse and children who already undertake work for you. You never know furlough may be reintroduced but separate from that there are benefits from increasing State Pension entitlements and other benefits from such schemes
- Extracting dividends before the additional 1.25% additional tax kicks in next year
- New equipment may be entitled to super accelerated capital allowances of 130%
- If not already done so, you may look at incorporation of your private practice
- For those of you with limited companies, check if you have alphabet shares
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