in The Know Inside find out about... Retirement Planning Page 5 Medical Page 6 The locum trap Summer 2018 70 years of the NHS Page 8 Is the hokey cokey really what itês all about? Following the submission of the 2016/17 superannuation certificates, NHS pensions should shortly be issuing annual allowance statements to GP members. Dentists, consultants and other officer members should have already received their statements. We have also had a handful of GPs who also received them at the beginning of the year, but these have been incorrect as they have been based on estimated earnings, recorded incorrectly as final. This does assume, however, that the superannuation certificates have been processed by PCSE. Over recent months, we have been aware of practices experiencing problems with contributions not being collected properly due to forms not being processed, particularly old certificates and when members are opting out and back in. So why is this important? The annual allowance statements show whether a member has pension growth which exceeded the 40,000 annual allowance limit in the 2016/17 tax year, together with the amount of unused relief available from the previous three tax years. If the unused relief is insufficient to offset any excess growth, then an annual allowance tax charge will arise and an entry is required on the 2016/17 tax return. Any tax due was payable on 31 January 2018, so if the charge has not already been declared, it will be due immediately with interest. As ever with tax, itês not quite that straightforward, as those with taxable income (less expenses and some reliefs) in excess of 110,000 may have a tapered annual allowance limit, which could be as low as 10,000. Clients of Dodd & Co should already have been advised of any charges and paid over the tax due, so the statements simply require checking to make sure the calculations agree. Continued... By Ann-Marie Tulloch Healthcare Manager
2 in The Know Medical Continued from front page... For those who unexpectedly receive a statement it is important that immediate action is taken. The reason for this is that it may be possible to ask the NHS Pension to pay any tax arising, however, to do this an election must be submitted to them before 31 July 2018. This is also not straightforward for those who donêt have an annual allowance limit of 40,000 as there is a maximum amount which NHS Pensions will pay, i.e. some annual allowance tax could still be due on the 2016/17 tax return. Hokey Cokey Where members have exceeded the annual allowance charge in 2016/17, if circumstances remain the same for 2017/18, it is likely that an annual allowance charge will arise for that year too. This is also likely to be more substantial as unused allowances will have been used up and inflation rates produce higher growth. It is not possible to take any action to mitigate the 2017/18 tax liabilities now, but action can be taken to reduce the 2018/19 liabilities that may arise. One way to achieve this is to opt out of the pension scheme and come back in after a certain time period, necessary to reduce the annual allowance tax charge - hence the term Hokey Cokey. This has the affect of reducing the pay which is pensioned during the tax year. The Hokey Cokey is not without risks and needs careful planning, particularly for those with non- March year ends, where opting out of the scheme at the wrong time can potentially make an annual allowance tax charge worse. The tax liability (and potentially the exposure to a tapered annual allowance limit) will also increase as the pension contributions paid will be lower. It also affects the level of pension and other benefits, such as death in service and survivor pension, so it is really important that financial advice is sought before any action is taken. If you have received an annual allowance statement or have been affected by an annual tax charge and would like to discuss this further, please get in touch with Claire Hebdige or Linette Hall. Know how Celebrating 70 years See Page 8
in The Know Medical 3 Partnership expenses HMRC have recently updated their guidance on doctors expenses (Helpsheet 231). The guidance explains how to reflect: Expenditure incurred by a partner on behalf of the partnership; Dealing with capital allowances on an asset owned by a partner; How to reflect the allocation of partnership profits between partners. Calculation of profits The partnership is a single entity for tax purposes, regardless of the number of partners involved. Therefore the Partnership Tax Return must contain all of the information needed to calculate the taxable profits arising in any accounting period. This effectively means that individual partners are not entitled to make any adjustments to the amount of partnership profits allocated to them in a period, i.e. their profit on the partnership pages of their Personal Tax Return must be the same as that shown on the Partnership Tax Return. Treatment of expenditure incurred by a partner on behalf of the partnership A partnerês expenditure only qualifies for relief if it is incurred wholly and exclusively for the purposes of the partnership. Therefore deduction for qualifying costs is given in the partnership. HMRC recognises that these costs do not have to be formally included in the partnership accounts but can be dealt with by way of an adjustment to the partners profit share. The costs will however need to be included in the appropriate boxes on the Partnership Tax Return. This is particularly important where partners leave on acrimonious terms and incur personal legal and accountancy fees contesting the income and expenses shown in the accounts. Such fees are unlikely to be considered wholly and exclusively for the purpose of the partnership trade, so even if they are included on the Partnership Tax Return via the last personal expenses claim, they would not be deductible for tax purposes. Expenses met by the NHS HMRC sets out that where costs are reimbursed by the NHS, the cost should be recorded in full in expenses and the reimbursed amount should be included as income. The only exception to this is where the practice receives a grant for capital expenditure and in this scenario only the net cost of the asset should be shown. For clients of Dodd & Co, the new guidance isnêt anything new, but if you have any queries, please contact Claire Hebdige or your usual tax allocation. Change of NHS pension scheme bank account for GP practices As of 1 May 2018, the bank account used by GP practices, to make payments of NHS Pension Scheme contributions has changed. Here are the account details. The old account has been closed. The payment reference should quote the GP Practice EA code and the contribution month being paid (for example A000 Feb 18). Bank transfer remittances should be sent to nhsbsa.eafinance@nhs.net on or before the date the payment is made. Bank name: National Westminster Bank plc Bank sort code: 60-70-80 Bank account number: 10004084 Bank account name: NHS Pensions www.doddaccountants.co.uk
4 in The Know Medical ItÊs all VERY taxing! As we are now well into a new tax year (where has the time gone!) it is worth recapping on what has changed in the world of tax, particularly as we are now preparing 2017/18 tax returns: Dividend Exemption The dividend exemption reduced from 5,000 in 2017/18 to just 2,000 from 6 April 2018, so higher rate taxpayers will pay 32.5% on any dividend income in excess of this limit. Properties Landlords have faced a raft of new changes from 6 April 2017, with the Chancellor trying to reduce the number of landlords to get more properties on the market for first time buyers. Changes to mortgage interest relief Mortgage interest relief is being phased out over the next 4 tax years and being replaced by a tax reducer, so in 2020/21 all interest relief will be by way of a reduction to tax, based on 20% of the mortgage interest paid. As with most things though, itês not that straightforward. The tax reducer is only available against tax on trading and rental income, so someone whose only taxable income is dividends and pension income will not get a credit. The reducer will also only bring the tax down to nil, with any excess being carried forward to future years. Property allowance The 1,000 property allowance came in from 6 April 2017 and works in the same way as rent-aroom relief, in that you can choose whether to claim actual costs or deduct 1,000 from the property income. This choice can be made each tax year. Property income only needs to be declared on the tax return if the relief is being claimed in full, e.g. if property income (with no expenses incurred) is 800, it would not need to be shown, however, if property income was 1,100, the property income and the allowance would need to be included on the tax return. Again itês not that straightforward and there are a number of things to watch for: It doesnêt apply to partnership property, so rental income from renting out a room in the surgery would not qualify, although for a sole trader it would. If a property is jointly owned (and there is no partnership return, accounts or agreement), both parties are entitled to the full 1,000 property allowance (unlike rent-a-room relief). No relief is available if the property income comes from an employer, such as a limited company paying a director for use of their home. Where someone has more than one property business (such as an overseas property and a UK rental property) only one allowance is available. Change to the cash basis Smaller landlords can look to change the way they account for rental properties. You can move from an accruals basis to a cash basis. This means that your accounts deal with income and expenses when they are received and paid rather than when they fall due. It sounds much simpler until you consider that if you use an agent and they received the money from your tenant in March 2018 but they didnêt pay this over to you until May 2018, the tax point is March 2018, in the 2017/18 tax year. So itês based on the day the rent is received by the agent and not the date you physically receive it. There are also issues with interest on borrowings which need to be considered if you are thinking of going down this route. Care should be taken if you are considering using any of these options to ensure that they are right for you. Trading allowances See Page 7
in The Know Medical 5 Planning for your retirement Editor: Phil Jackson Some people see financial planning as buying / selling products, here at Dodd Wealthcare we like to do things a little differently. Phil Jackson from Dodd Wealthcare considers how GPs can be reassured about the future after retirement. One of the most important tools that I have at my disposal is cashflow modelling. This tool enables us, with the individuals specific needs in mind, to drill down on forecasting for a lifetime of financial planning. In my time at Dodd Wealthcare, I have dealt with a large number of healthcare specialists which typically means that there is an NHS pension in place with a variety of associated issues. While this type of pension provides a great deal of certainty in terms of known income when the time comes to become free from work, one of the biggest issues that I deal with is concerns and worries on whether the pension income will be enough to live on throughout their lifetime. There are usually a whole host of activities and adventures that people have planned when they can see the goal of becoming free from work. Typically what people want is peace of mind that they are able to do things without the need to worry about the impact of future finances. As I work closely with our tax specialists, we are able to bring real scenarios to life and we can then run through what cashflow the client could expect and when. This tool can also factor in any needs for capital in the future and what impact this could have on their financial position as well as any expected receipt of capital. There are a few things that need to be focused on when using the cash flow tool, which is the same as with any financial planning that is carried out. 1. Review all expenses on a regular basis. ItÊs important that you analyse all expenses and not just the large ones. While a couple of pounds here and there might not seem like a huge deal, it tends to be those small expenses that can quickly add up to become a big drain on income. 2. It will also be worth considering essential and non essential outgoings. 3. Regularly revisit your budget. Budgeting should be an ongoing process that changes with your circumstances. If you want to know whether your pension is going to be enough to fund the retirement lifestyle you are planning then contact Phil on 01768 864466 or email phil@doddwealthcare.co.uk. Dodd Wealthcare Limited is an appointed representative of Network Direct Limited, which is authorised and Regulated by the Financial Conduct Authority. www.doddaccountants.co.uk
6 in The Know Medical The locum trap The 2015 scheme annualises income to set the tier for the rate of superannuation that is applied to the income to calculate the contributions. The problem comes when you follow the rules for annualising locum work. Partners and Salaried GPs in the 2015 NHS Pension Scheme who decide to do the odd locum session need to be careful that it doesnêt cost them an eye watering amount in NHS pension contributions. If you have a break in service then your locum income will be annualised. A break in service is classed as a break of more than 3 months between locum posts. So if you work a locum session every month or every 3 months then it will not be an issue as your locum income will not be annualised. If however you worked one locum session in the year, then this would be annualised as you would be classed as having a break in service. The financial impact of this can be staggering. If for example you worked one days locum in the year for say 500, then the figure used to set the rate of pension deductions on this would be 365 x 500 x 1 = 182,500. This will immediately put you in the top tier for superannuation deductions of 14.5%. The real impact of this is on the superannuation due on your other income, as all your income is amalgamated to set your pension tier. So if you are a partner working 4 sessions paying superannuation at 9.3%, suddenly your practice profits are now subject to 14.5%! A GP partner with 47,000 of pensionable profit will suddenly find themselves paying 6,815 of employees superannuation contributions on their practice profits, compared to 4,371 if they hadnêt done the locum session. Helping someone out could become a very expensive day! Whilst the above example focuses on a GP partner, locum GPs also need to be aware that any break in service on more than 3 months will result in annualising of income and could be very likely to place them into the top tier for superannuation contributions. There are many scenarios that can be considered, but if you are concerned then get in touch with your usual Dodd & Co contact and they can help you. Planning your retirement See Page 5
in The Know Medical 7 What is the new Trading Allowance? A 1,000 trading allowance was introduced from the start of this tax year, basically an individual can have 1,000 of self employed income tax free, you have a choice whether to claim the allowance or actual expenses. So as a GP if you earn some other income for ad-hoc work then you can consider utilising the Trading Allowance, but as ever itês not that straightforward and there are a number of pitfalls. Take the following two examples, that you would expect to be treated in the same way but are actually treated differently:- 1) If a self employed locum, earning 50,000 also receives 600 of income from private medicals, total earnings are above 1,000 so the Trading Allowances canêt be claimed against the private medical income. In this scenario, total expenses are likely to be far in excess of 1,000, so the Trading Allowance would not be claimed as a deduction. 2) However, if the person is instead a partner in a practice or an employee, and not a locum, and also receives 600 of private medical income. In these scenarios the 1,000 allowance could be claimed and the private medical income would not need to be shown on the tax return. The accountant would still need to be told about this income as there are pension implications. These examples highlight again how tax isnêt simple. Please contact us if you would like to discuss any of these changes in more detail. Individual Protection 2016 Applications for final valuations of the NHS pension can be made from 1 June 2018, however, unlike previous Lifetime Allowance protections the only deadline for applying to HMRC is that it must be done before the pension is drawn. If the value of your total pension benefits (NHS and private) were above 1.25m at 5 April 2016, it is acceptable to use the value taken from your 2015/16 Total Reward Statement (please note though, that this is not shown on the statement and has to be calculated). Where the value of total pension benefits is below 1.25m, it is necessary to obtain a valuation from NHS Pensions, but this cannot be done until the 2016/17 superannuation certificates have been processed. The easiest way to check this has been done is to check that the TRS has been made up to 2016/17. However, NHS Pensions have advised that the statements will be updated in late August 2018, so you may need to wait until then. NHS Pensions are changing the way the TRS statements are accessed and this is expected to be completed imminently. We will provide further details of the new system when this is up and running. We are currently contacting all clients who we believe are affected with further instructions, so if you donêt receive an email from us by the end of June 2018 and think you need IP16, please get in touch with Claire Hebdige or Linette Hall on 01768 864466. www.doddaccountants.co.uk
8 in The Know Medical Congratulations to the NHS on its 70th anniversary For the last 70 years we have been safe in the knowledge that the NHS has been there to guide, support and care for us in times of need, for which we are extremely grateful, thank you. A lifetime of knowledge is available from Dodd & Co too as we know only too well how invaluable that support is personally and within the world of business and finance. Like the NHS our team has grown and developed over the years to ensure our expertise is optimised and our knowledge on NHS finance is second to none. We look forward to supporting you in the coming years through all the challenges and opportunities that come your way. #TeamDoddies are proud to be specialist healthcare advisers to all our clients who work within the NHS. Enjoy the 70 year celebrations! Knowledge that lasts a lifetime This newsletter is designed as an informative guide for clients and their advisors. The articles cannot deal with any particular point in depth and they should not be used as a substitute of full professional advice. Accordingly, no responsibility for any loss or damage can be accepted by Dodd & Co Limited as a result of any person or organisation acting upon material contained in this newsletter. Email us at hello@doddaccountants.co.uk You are receiving this newsletter as you have previously agreed to receiving communications from us. Full details of our privacy policy can be found at www.doddaccountants.co.uk/privacy. For queries please contact our Information Partner Jeanette Brown at Dodd & Co Clint Mill, Cornmarket, Penrith, CA11 7HW or email jeanette@doddaccountants.co.uk FIFTEEN Rosehill Montgomery Way Rosehill Estate CARLISLE CA1 2RW T: 01228 530913 F: 01228 515485 Clint Mill Cornmarket PENRITH CA11 7HW F: 01768 865653 No 8 Willow Mill Fell View Caton LANCASTER LA2 9RA T: 01524 849588