Newsletter Nov 2021 – Ballards

Tax Hikes – What Can You Do?

There are already planned tax rises in the pipeline and prospects of more. The question is can we do anything about this?

Health Care Levy

Firstly, the recently announced health and social care levy of 1.25% aims at providing up to £36 billion over the next 3 years. This levy will be on both Consultants’ NHS income and private practice profits through national insurance, as well as potentially on dividends from private practice through a Limited company vehicle.

Assuming an NHS salary of say £110,000 p/a and dividends/private practice earnings of £40,000 p/a the additional “tax” from this levy will be approximately £2,000.

The health care levy will also increase the costs of secondary NIC paid on employees’ salaries of 1.25%.

Tax Planning

There is some tax planning which can be undertaken including:

1. For the unincorporated Consultants it is worth considering whether now is the time to set up a company structure.
2. If you already have a company, consider extracting additional dividends before 5^th April before the levy comes into force, or to refrain from dividends until the levy finishes. This tax will not be payable on retained profits within the company.

This option would not be available to the self employed.

Of course, there are always other factors to consider in any tax planning such as whether taking an additional dividend prior to 5^th April would take income for the year above £100,000 and result in loss of some personal tax allowances. Alternatively, it may push total income to over £150,000 and again result in additional tax liabilities.

As always tax advice is personal and bespoke, and we would encourage you to contact us for a free initial consultation to discuss and review your affairs.

Corporation Tax increases

The next tax rise to consider is the planned increase in corporation tax rates for companies earning profits between £50,000 and £250,000 from 2023.  The effective rate of tax is increasing from 19% to 26.5%. (Profits up to £50,000 taxed at 19%, profits over £250,000 taxed at 25%. Profits between £50,000 to £250,000 taxed at marginal rates). These tax thresholds may be reduced if there are other group or associated companies.

Tax Planning

For many Consultants the company profits will be less than £50,000 and therefore not impacted by this increase. If profits are at this level, then it is worth undertaking a detailed review of expenditure to try and increase the claim.

Other tax planning opportunities would be to take advantage of the super deduction of 130% on capital asset purchases. You could also take advantage of the tax reliefs available for the purchase/leasing of fully electric cars.

Again, this advice needs to be personal and bespoke to be effective

In conclusion I have no doubt that further tax rises and changes will also be on the horizon and that continual planning will be required to try and mitigate the impact of these.

If you would like to discuss any issues raised in this article or any other accountancy or taxation matters, please feel free to contact Matthew Watson on 01905 794 504 or email matthew.watson@ballardsllp.com for a discussion at no cost nor obligation.