Dental Focus Spring 2021

Dental Focus DRIVING LIFELONG PROSPERITY

Spring 2021

SPOTLIGHT ON PLANNING AHEAD

WOULD YOU LIKE TO RECEIVE OUR BUSINESS UPDATES VIA EMAIL? INSIDE → Capital allowances update → Off payroll working (IR35) - does it affect you? → Tax planning for 2021/22 → P11D and PSA - Reminder → Can you reduce your July tax payment? → Pension allowances

Hazlewoods LLP and Hazlewoods Financial Planning LLP produce regular updates, using our expert commentary to provide you with information about our services, events and topical premium business news.

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Capital allowances update

Off-payroll working (IR35) – does it affect you?

As you may be aware, during the 2021 Budget it was confirmed that the off-payroll workers rules will no longer be delayed and the changes set out in April 2020 took effect from 6 April 2021.

WHO DO THE RULES APPLY TO? If you are a medium or large sized business, then you will be responsible for determining the employment status of workers who operate through their own intermediary (usually a company).

The new rules apply to all companies which meet two or more of the following conditions:

130% SUPER DEDUCTION FOR COMPANIES A new ‘super deduction’ was announced at Budget 2021 for companies investing in qualifying capital expenditure from 1 April 2021 for a two-year period.

The relief The new relief gives an enhanced 130% deduction for qualifying expenditure on new plant and machinery incurred between 1 April 2021 and 31 March 2023. For example, if a company were to purchase new machinery after 31 March 2021 costing £100,000, capital allowances will be available on an enhanced figure of £130,000. At the current rate of corporation tax of 19%, this will result in total corporation tax relief of £24,700, £5,700 of which is an additional tax reduction. The relief is only available to companies and not unincorporated businesses. The reason behind this appears to be to effectively offer c.25% tax relief on new capital investments now, prior to an increase in the corporation tax rate to 25% from 1 April 2023 for companies with profits in excess of £250,000, which was also announced in the Budget.

Qualifying expenditure Typical expenditure which will qualify for the enhanced rate includes dental chairs, cabinetry, x-ray equipment, ventilationfiltration systems, computer equipment, reception furniture etc. Specifically excluded expenditure includes purchases of second-hand assets, cars, long life assets and plant and machinery which would qualify for special rate capital allowances (e.g. integral features such as electrical, heating and lighting systems).

A 50% first year allowance (rather than the current 6% writing down allowance) was also announced for special rate expenditure on integral features which is not eligible for the new ‘super deduction’. However, it is likely to be more beneficial for most companies to instead claim the annual investment allowance (AIA). The AIA provides 100% relief for expenditure incurred up to £1 million until 31 December 2021, before reducing to £200,000 thereafter. The 50% allowance could become of use if the AIA for the relevant period is exceeded, which may be relevant for large groups and/or significant new capital projects.

Disposals If enhanced tax relief is claimed and the relevant asset is later disposed of, a balancing charge may arise and the rules on this

are fairly complex. The rules differ depending on when the disposal takes place and specifically whether it is in an accounting period that commences pre or post 1 April 2023.

Broadly, the balancing charge will be based on 130% of the proceeds for disposals pre April 2023 and for disposals taking place during an accounting period straddling 1 April 2023, the proceeds will be apportioned to 130% for the proportion prior to 1 April 2023, tapering down to 100% by 31 March 2024.

ELECTRIC CARS Electric cars can provide a tax efficient company car option.

The purchase of a new, fully electric or low emission car (CO2 emissions of less than 50g/km) qualifies for a 100% first year capital allowance in the year of purchase. As an example, if a zero emission fully electric car was purchased for £50,000 by cash, bank loan or hire purchase agreement, based on the current corporation tax rate of 19%, it would qualify for £9,500 of tax relief. The net cost of the car to the company would therefore be £40,500.

There would, however, be a benefit in kind for the personal use of the car. Based on current tax rates, zero emission cars would have a benefit amount of 1% of the list price of the car when new; this will increase to 2% for 2022/23. Cars with emissions between 1 and 50g/km (e.g. hybrids) would have a benefit ranging between 2% and 14% of the list price dependent on the electric range of the car.

Using the fully electric, zero emission car in the above example, this would equal a benefit of only £500 for 2021/22 which would then be subject to income tax at your relevant personal tax rate. For basic rate taxpayers this is only £100 and for higher rate taxpayers it is £200 of tax – which is very low compared to traditional petrol/diesel cars. The company would also pay class 1A national insurance at 13.8% of the value of the benefit.

The tax position for sole traders and partners is different to that of companies. Whilst a 100% first year allowance is still available, it is restricted to the proportion of business use of the vehicle, which is often very low for dentists.

Please get in touch if you would like to discuss a possible car purchase and the available tax relief.

→ Turnover of more than £10.2 million → Balance sheet total assets (before deducting any liabilities) of more than £5.1 million → More than 50 employees.

If you are not operating as a limited company or limited liability partnership, a simplified test is used, so the rules apply if your turnover is more than £10.2 million.

If you are a small business then you will not have to decide the employment status of your workers; this will remain a responsibility of the worker’s intermediary.

WHAT YOU NEED TO DO You will need to assess the employment status of every worker who operates through their own intermediary.

You can use the HMRC employment status checker to assist you: https://www.gov.uk/guidance/checkemployment-status-for-tax If you operate using standard BDA type associate contracts, then you are unlikely to fall foul of the IR35 rules. However, the contract terms must be adhered to, as it is the substance of the working relationship which determines status, particularly if this is different from the contract terms.

You should communicate your determination of status to your worker and keep details of why you came to the decision, regardless of whether the off-payroll rules apply or not. If you are an associate and disagree with a determination you can appeal against it.

Whilst we believe the off-payroll rules are unlikely to have a significant effect on the dental sector, it is worth having an understanding of the subject and this is an ideal opportunity to review contracts between practices and their workers.

Tax planning for 2021/22 Now that the new tax year is upon us, here are some potential tax planning ideas to help ensure you are structuring your business in the most efficient manner:

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As the personal allowance is reduced by £1 for every £2 of taxable income over £100,000, where income falls between £100,000 and £125,140 it is taxed at an effective rate of up to 60%. If you believe your income will be close to the £100,000 threshold, it is worth considering ways to reduce your taxable income. This could be achieved by making pension contributions (subject to the annual allowance), charitable donations, deferring income into 2022/23 (if possible) or transferring income producing assets to your spouse.

→ As you may be aware, the Chancellor has increased the basic rate tax band to £50,270 of income. However, whilst the basic rate tax band has increased, the limit for the High Income Child Benefit Charge remains at £50,000. Therefore, care should be taken if you are in receipt of this as there could be a situation whereby you remain in the basic rate tax band but are still losing part of your child benefit.

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A common tax planning measure for shareholders of owner managed companies is to withdraw a combination of salary and dividends up to the basic rate tax band. It may be worth considering the tax position of your spouse and if they have spare basic rate tax band available it could be tax efficient to transfer shares in your company so that they can be paid a dividend.

Under current legislation, transfers of assets to your husband, wife or civil partner are on a no gain no loss basis for capital gains tax purposes. This then provides the opportunity to utilise two basic rate tax bands, potentially generating up to £100,000 of combined personal income whilst only paying basic rate tax and preserving child benefit. Careful consideration is needed to ensure any transfers and the structure work, depending on your circumstances.

Can you reduce your July tax payment?

As with many other industries, COVID-19 has had a big effect on the dental sector. Practice closures during the first lockdown, increased fallow times and additional costs may have led to a decrease in profits for the 2020/21 tax year for many dentists.

The second tax payment on account for 2020/21 is due on 31 July 2021. If you believe your profits decreased in 2020/21 it would be a good idea to ensure your personal tax return is submitted before 31 July 2021. If your tax liability has decreased, you may be able to reduce the payment due by 31 July 2021, if you have not already made a claim to do so. This will ensure you are not overpaying and assist with cash flow, which is very important in the current climate.

Preparing your tax return early also provides you with longer to plan and save for upcoming liabilities, whilst avoiding any unexpected last-minute surprises!

We will be happy to help, should you have any queries regarding a possible reduction or with the preparation of your tax return. Please get in touch with a member of the team.

Pension allowances The lifetime allowance is the maximum amount that an individual can have across all pension savings, with amounts above this taxed at punitive rates. The lifetime allowance is currently at £1,073,100 and it will be frozen at this level until 5 April 2026.

The pension annual allowance is currently £40,000. Gross pension contributions to a defined contribution scheme and any growth in value of a defined benefit scheme count towards this annual allowance. If you work as an NHS dentist and are part of the NHS pension scheme, the annual growth in your NHS pension benefits from both the 1995/2008 and 2015 schemes combined will count towards this. Details of the growth can be found on your NHS Annual Allowance Pension Savings Statements, usually (although in our experience not always!) issued in the autumn. You should, where applicable, receive one statement for each scheme.

P11D and PSA – reminder If you are unsure whether the expenditure you have incurred should be reported on a P11D or PSA, then please get in touch for further information.

As a brief reminder, the deadlines for the submission of PAYE settlement agreements and P11D forms to HMRC are the 5 and 6 July 2021 respectively.

→ P11D – where an employee or director has been

provided with a benefit in kind, for example a company car, interest free loan or private medical treatment, the employer is required to complete a form P11D.

→ PSA - A PAYE settlement agreement allows you to

make one annual payment to cover all the tax and national insurance due on minor or irregular expenses or benefits for your employees. Examples include expenses such as staff entertainment (which is not exempt), or small gifts/vouchers which are not covered by the trivial benefit exemption.

You are able to carry forward any annual allowance you did not use from the previous three tax years. You will have a reduced (tapered) annual allowance if your threshold income is over £200,000 and your adjusted income is over £240,000.

Should you breach the annual allowance, there will be an annual allowance charge at your marginal rate of income tax.

If you are in the NHS Pension Scheme, there is a scheme pays option. A scheme pays election for the 2019/20 tax year needs to be made before 31 July 2021. Independent financial advice will be needed to assess the implications of this before a decision is made.

Meet the team With over 25 years of dental expertise, we understand the challenges and opportunities you face. As a principal, associate, or limited company, you will receive insightful and customised advice from our team of specialist dental business advisers and chartered accountants.

Our team has developed enviable knowledge and understanding of the sector which has enabled us to stay at the cutting edge of developments, both through transactional work and the relationships with our retained clients.

Whether you are a newly qualified dentist or a large dental corporate group, you will have access to a breadth of experience covering all aspects of buying and selling practices, tax planning, accounting, and business performance. Our team has all perspectives covered and are here to help you to build your future the way that you want.

JAMES MORTER Partner james.morter@hazlewoods.co.uk

NIGEL UTTING Director nigel.utting@hazlewoods.co.uk

CLAIRE LAW Associate Director claire.law@hazlewoods.co.uk

ELISE MENELAOU VAVOULI Senior Manager elsie.mv@hazlewoods.co.uk

LEE BRINKWORTH Manager lee.brinkworth@hazlewoods.co.uk

GLENN COLLINGBOURNE Tax Director glenn.collingbourne@hazlewoods.co.uk

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Hazlewoods LLP and Hazlewoods Financial Planning LLP produce regular updates, using our expert commentary to provide you with information about our services, events and topical premium business news.

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Staverton Court, Staverton, Cheltenham, GL51 0UX Tel. 01242 680000

www.hazlewoods.co.uk / @Hazlewoods This newsletter has been prepared as a guide to topics of current financial business interests. We strongly recommend you take professional advice before making decisions on matters discussed here. No responsibility for any loss to any person acting as a result of the material can be accepted by us. Hazlewoods LLP is a Limited Liability Partnership registered in England and Wales with number OC311817. Registered office: Staverton Court, Staverton, Cheltenham, Glos, GL51 0UX. A list of LLP partners is available for inspection at each office. Hazlewoods LLP is registered to carry on audit work in the UK and regulated for a range of investment business activities by the Institute of Chartered Accountants in England & Wales.