‘Blogs’

Calling all GP practices – Don’t let quarterly tax returns take you by surprise

Thursday, March 9th, 2017

Tax is going digital. James Gransby* explains why and what you can do to be prepared

In the March 2015 Budget the then Chancellor George Osborne announced the end of the personal tax return. Now, his successor Philip Hammond seems set on taking this forward.

Come forth ‘Making Tax Digital’ (MTD) which will mean that all GP practices will be required to make quarterly submissions to HM Revenue and Customs (HMRC).

Practices also face significant changes to the way they interact with HMRC as digital reporting and digital tax accounts become a reality.

What is HMRC proposing?

The vision for MTD is to have a digitalised tax system that is more effective, efficient and easier for taxpayers.

Digital records

Businesses will be required to maintain their records on apps or software that are compatible with HMRC’s interfaces. Any practices still keeping records manually, or using a spreadsheet such as Excel, are likely to be forced to change.

Quarterly reporting and the year-end declaration

While it was widely publicised that the Government was looking to scrap the annual tax return, it now appears that it will simply be replaced using four quarterly ‘updates’ and one final year end declaration.

Voluntary pay-as-you-go

Businesses will be able to opt into a pay-as-you-go system for the collective payment of taxes.

It has been stated that quarterly tax payments will not be made mandatory during this Parliament but with discussions of an early general election, given the current political environment, this may come sooner than expected.

The cash flow effect of this being introduced could be very damaging when it happens.

Why is it changing?

  • HMRC’s aim is to reduce the burden for taxpayers and provide greater certainty over tax bills through direct prompts from HMRC.
  • Businesses will not have to wait until the end of the year to know how much tax they will pay.
  • Tax payers will be able to send and receive information from HMRC at the click of a button with alerts to help businesses with advice and queries.
  • It will make it easier for businesses to comply with their reporting obligations and deliver accurate information to HMRC.

Who will Making Tax Digital apply to?

At this stage, the MTD proposals only apply to sole traders and partnerships and so GP surgeries will certainly be caught by this.

When will Making Tax Digital start?

There is a detailed timeline in the MTD roadmap. Key events are:

  • On the current schedule, GP surgeries will be expected to update HMRC with business information at least quarterly from April 2018.
  • Reporting information is to be brought closer to real-time which is likely to mean submission of figures within one month of the quarter ends.

These are very significant changes and there are many details yet to be decided. Consultation on these issues is ongoing. HMRC will be using an agile approach to development.

This means that changes can be introduced, as the result of feedback from users, on an ongoing basis during the development phase.

How will Making Tax Digital work?

MTD will not require GP practices to file four tax returns every year. Instead, businesses will send summary data to HMRC about their business each quarter, or more often if the business prefers.

The summary data will consist of total income and total expenditure, with the expenditure broken down into categories such as travel and advertising.

Businesses will need to send this information from online accounting software. HMRC has confirmed that it will not be providing its own bookkeeping/accounting software and that the use of ‘digital record keeping software that links to and updates businesses’ digital accounts with HMRC’ will be mandatory, except for taxpayers who are exempt from MTD (typically those with incomes below £10,000).

Each business will have a proposed nine months after the year end to file an ‘end of year declaration’, submitting final figures. If this takes effect then the filing deadline for GP practices with a March year end would be 31 December rather than 31 January, falling right into the Christmas and New Year period.

Here are a few details of note as specified by HMRC during this consultative phase:

  • The business won’t have to keep any additional paper records.
  • If the business is registered for VAT, one report may cover both income tax and VAT reporting requirements.
  • Allowances and reliefs, such as Annual Investment Allowance on the purchase of surgery equipment or cars, could also be notified to HMRC either in-year or at the end of the year. For instance, if an asset has been bought, the suggestion is that HMRC could be told at the time the asset is bought that it’s going to be eligible for Annual Investment Allowance.
  • HMRC believes that the cash basis of accounting should be extended to larger businesses, as this will be simpler for them to use. It has suggested doubling the current entry threshold, which matches the VAT registration threshold – so a business
  • Would be able to begin using the cash basis of accounting if it has income below £166,000, using today’s VAT registration threshold. This will not be of benefit to GP practices with incomes above this level who will have to continue to account for their figures on the accruals basis (adjusting for income received after the quarter end but which relates to the quarter being submitted, for example QOF).

The move to cloud accounting

Looking at all of these changes being introduced, it really pushes GP practices down the route of using cloud based accounting systems if they are not already using them. I am sure we will shortly see a flurry of software providers making sure that their software will be MTD compatible.

Surgeries should either talk to their software provider, or accountant, to ensure that the method they are currently using for keeping practice records will not cause a headache quarterly when it is time to submit information digitally.

If you decide to look at a cloud accounting package for your surgery so you are ready for the Making Tax Digital initiative, you need to ensure that three criteria are met:

  • The package should be user-friendly and straightforward to operate.
  • Your chosen cloud accounting package needs to be compatible with HMRC.
  • It is important that the package provides the ability to accurately report on the period required.

What do you need to do?

Start talking to your AISMA accountant about how your practice will be affected and what you can do to understand and embrace the changes as soon as possible. Change is coming and by taking proactive steps now you will be fully prepared for what lies ahead.

Ends

*James Gransby is a partner with MHS MacIntyre Hudson (Kent) LLP

This article first appeared in the Winter 2016/17 issue of AISMA Doctor Newsline, the newsletter of the Association of Independent Specialist Medical Accountants.

Tax is a complicated area so if you would like further specialist help on tax or any other accountancy issue please contact Des on t. 0800 019 1714

Top Tax Tips for medical professionals

Tuesday, February 7th, 2017

5 top tax tips for 2017

Not paying a penny more in tax than you should and making your money work harder should be on your list of New Year’s resolutions. Faye Armstrong** has five tips to get you started

1. Look at Lifetime ISAs

Lifetime ISAs are a very tax efficient way of saving and also have the added benefit of being topped up by the Government. Everybody aged between 18 and 40 can open a Lifetime ISA and contribute up to £4,000 a year, which the Government will top up by another 25%.

Any contributions to a Lifetime ISA will count towards the maximum amount that an individual can put into any type of ISA of £20,000 a year.

Although you have to be under 40 to open a Lifetime ISA, once you have done so you can carry on contributing until you are 50. The money can be taken out after the age of 60, when it will be tax free and won’t count towards your pension lifetime allowance.

Alternatively a Lifetime ISA pot can be used to buy your first home, so it is also a good way to encourage your children to save to get on the property ladder.

2. Give a gift

Take a perk from your limited company, or give a gift to your staff. Small gifts to employees and company directors are now taxed much more generously under the new ‘trivial benefit rules’.

The gift must be a genuine gift, so the employee cannot be entitled to receive it, nor should it be given in recognition of work done. The gift cannot be in cash, but could be in the form of a gift card and has to be under £50 a time.

If all these requirements are met, the employee pays no tax when they receive the gift, but the employer gets tax relief on the cost of giving it. You can make unlimited gifts to unconnected staff, but there is a limit of £300 a year for gifts to most company directors and their family members.

3. Beware of the forgotten taxes

Some of the most painful tax problems come from taxes which get forgotten about. A good example is Stamp Duty Land Tax (SDLT), which most people remember has to be paid when purchasing property, but which tenants often forget is also potentially payable when they are granted a new surgery lease.

The amount of SDLT depends on the length of the lease and the amount of rent and any premium paid, but can be fairly easily calculated.

The other tax often forgotten about is VAT, and as practices get larger it is very easy to unknowingly trip over the VAT registration threshold (currently £83,000) due to the level of private fee, medico-legal, non clinical work done for CCGs and other ad hoc work.

4. Plan for surgery sales

Practice mergers or reorganisations often result in the sale of surplus surgery buildings, and it is important to plan well ahead to minimise the capital gains tax due on these disposals.

The tax charge is based on the increase in value during the partner’s ownership, and is not affected by any loans secured on the surgery as is often thought.

In any tax year the first £11,100 of gains are tax free, and capital gains tax rates have fallen so the full rate paid by higher rate tax payers on sales of commercial property will only be 20% compared to the previous rate of 28%.

The tax liability can be minimised further by transferring a share of the surgery to a spouse. This allows you to take advantage of their capital gains tax annual exemption, and potentially have some of the gain taxed at 10% rather than 20% if the spouse is a basic rate tax payer.

Your tax saving has to be weighed up against the legal cost of arranging the transfer, and if there is a loan secured on the surgery, the bank will need to be on board with the process.

Another opportunity to explore with your accountant is whether any of the gain qualifies for Entrepreneurs’ Relief on the basis that an owner has recently dropped sessions and reduced their interest in the partnership.

5. Maximise The Residence Nil Rate Band

6 April 2017 will see the introduction of the Residence Nil Rate Band (RNRB). This is an additional inheritance tax exemption, and will apply to estates that include a residential property as long as the property has been occupied by the deceased as their home at some point.

The exemption will be £100,000 from 6 April 2017, thereby increasing the amount that can be passed on without paying inheritance tax to £425,000. The exemption will increase by £25,000 each year until it reaches £175,000 on 6 April 2020.

Two of the key points to remember if you hope to benefit from the relief are:

  • The property must pass to direct lineal descendants (such as children, grandchildren) so check your will to make sure the property will be inherited in a way that makes the exemption available.
  • The RNRB will be tapered where the death estate (before reliefs and exemptions) exceeds £2m. But, any gifts given during your lifetime are not included in the £2m limit, however long there is between it being made and the death of the donor. So gifts can be given close to the end of life to maximise the exemption.

Ends

** Faye Armstrong is a partner with Dodd and Co

This article first appeared in the Winter 2016/17 issue of AISMA Doctor Newsline, the newsletter of the Association of Independent Specialist Medical Accountants.

Tax is a complicated area so if you would like specialist help on tax or any other accountancy issue please contact Des to make an appointment t. 0800 019 1744 e. dmm@barringtons.co.uk

Your Christmas Party with help from the taxman!

Friday, December 23rd, 2016

CHRISTMAS PARTY TIME – WITH HELP FROM THE TAXMAN

Last Christmas I looked at the subject of charitable gifting, and the nice stocking filler which the taxman gave you on top of this. This year I will look at another Christmas present.

The company Christmas party season is coming up. Many of us are aware of the £150 allowance per year for annual events such as this.

Jones Limited is owned by Griff. He has 8 employees, plus himself, all of whom attend the party, with the meal, free bar and hotel all thrown in. It is a good night, greatly boosting team morale. The total bill came to £1,440, which is more than £150 each. Not a big deal, Griff thinks, as the excess is only £10 over the allowance, so tax on that won’t be too bad.

However, Griff gets a nasty shock when he is told that the full £160 is taxable on each employee, and he is faced with the prospect of either telling all the employees of this extra tax charge – and so destroying most of the goodwill built up at the party – or the company paying the tax itself on a ‘grossed up’ basis, which is even more expensive than he first thought.

To avoid any embarrassment with his staff, the company picked up the Income Tax and National Insurance bill, which was in excess of £1,000. That’s most of the budget for next year’s party, and, so, the employees will just get a turkey next year.

Smith Limited is owned by Mel. She also has 8 employees, plus herself, all of whom attend the party, and again it is all expenses paid. Another wonderful night, and the total bill comes to £2,240. Surely, a nasty tax bill awaits Smith Limited as well.

However, it turns out there is no tax charge on anyone, and the cost is still a tax allowable expense for Smith Limited. Has Mel’s accountant had too much Christmas spirit when he told her this?

No, he was perfectly sober and perfectly correct. The difference compared to Jones Limited, was that Mel had invited partners to the party as well. Tom, well Tom never seems to get a girlfriend, and Sarah has just gone through a messy divorce, but everyone else brought partners to the event, making 16 attendees. So the average cost was £140 per person, and the £150 limit is ‘per head’ not ‘per employee’, so all within the permitted limit.

So, for other presents courtesy of the taxman please call Des Machin t. 0800 019 1744 or email dmm@barringtons.co.uk and let’s arrange a free of charge initial consultation

Are you maximising the use of your agricultural tax relief?

Wednesday, November 23rd, 2016

REAP WHAT YOU SOW

Autumn can be a busy time for farmers. Arable farmers have their harvest – often involving a host of temporary workers – to ensure the crop is collected at the exact right time. Dairy and beef farmers have to deal with the transition from outdoor grazing to winter housing and ensuring that there is enough feed to last through the winter.

It needs to be very carefully planned, or else a whole year of profits can be lost and we all know that agriculture is a precarious business at the best of times.

This is why working with an accountant with detailed knowledge of agriculture is vital.

Tax is an important cost to manage. In many ways the usual core tax principles apply. However, there is so much more on top.

Farmer’s averaging can be used to smooth fluctuating profits into the lowest possible tax rate. There is no point in paying a lot of 40% tax one year, and then wasting tax-free allowances the next.

Dairy farms and other farming businesses with a production herd need to consider the use of the Herd Basis. This values your cows or other mature animals at the original historic cost, and so prevents tax charges arising on the general increase in the value of livestock.

Farms tend to spend a lot on building work. This needs to be carefully reviewed to ensure that you are claiming tax relief on items which could properly be classed as repairs or that qualify for tax allowances. Basic buildings do not obtain tax relief, so your accountant needs to work hard to review this.

And, as I discussed in previous articles, there is more to an accountant’s advice than just tax. We all know that farming is an expensive business. Your relationship with the banks is vital.

Your accounts need to be reviewed to ensure that you are portraying everything in the best possible light. Land is included in accounts were appropriate, and possibly at the current value. Values used for equipment should not be too low. The bank understands that you have used the herd basis. And so on.

It is impossible to capture the core of what a farmer should expect from his accountant in such a short article. These are just a few basic ideas.

This is an important tax issue and it is best to discuss it all with you in more much detail so give Barringtons a call now. Call Des on t. 0800 019 1744 or email advice@barringtons.co.uk to arrange a free of charge initial consultation.

Barringtons is the first Xero Platinum Partner in Staffordshire

Friday, November 4th, 2016

screen-shot-2016-11-04-at-10-48-00

xero-picCelebration time for Xero Platinum Partner Barringtons

Champagne corks have been popping at Barringtons as we celebrate our new status as a Platinum Partner with the cloud accountancy software provider Xero.

This is the highest partner status available and what’s more we’re the first accountancy firm in the whole of Staffordshire, Cheshire and Shropshire to achieve it!

This status reflects Barringtons commitment to keep itself at the forefront of technology and to ensure that businesses in our area can not only benefit from the most up-to-date systems available but be prepared for any changes HMRC introduce in line with their ‘making tax digital’ strategy by introducing business-owners to the benefits of cloud-based accounting.

They’ve said goodbye to a mountain of paperwork, receipts and spreadsheets – and hello to a system which makes managing their finances fast, stress-free and super-efficient.

Barringtons MD Phil Wood said: “One great benefit is being able to keep tabs on how your business is performing on a daily basis instead of waiting months before a traditional set of accounts are prepared.

“A busy shop owner, for example, can send details of every till sale straight to their accounting records so the profit and loss can be seen at the end of every day.

“With all this up-to-the-minute financial information available, we can support, protect and advise our clients in real time.

“The bottom line is Xero adds value and frees up time to do other things – which is what we’re all about. We’re delighted to see so many of our clients embrace the concept.”

Xero, a global leader in cloud-accounting software, allows clients to store and access data from a virtual platform – anytime, anywhere. Any spend related to your business…. picture the receipt and send to your cloud account. No more wallets and purses stuffed with paper.

If you would like to know more about how your company can benefit from using Xero call our Xero Champion, Des Machin on t. 0800 019 1744 or email advice@barringtons.co.uk

A place in the Sun

Monday, June 27th, 2016

Our Place In The Sun

Let’s explore what you might need to consider if you own a holiday home which you let out for short periods to different people.

It is a topical issue, as what are known as ‘furnished holiday lets’ currently covers anywhere in the EU – from a fishing cottage in the Scottish Highlands to a place in the sun on the Mediterranean. Obviously this could all change in a few weeks……

Whilst the Income Tax rules are not as generous as they once were, the key benefit of qualifying as a furnished holiday let is the tax relief available on fitting out the property. We all know that it can cost a small fortune in terms of good quality furniture, kitchen equipment, bathroom fittings and so on. For a ‘standard’ rental property there is no tax relief on the initial cost of these.

As an example, on a modest fitting out cost of £20,000, the tax relief on the first year on the cost of this could be as high as £9,000.

Capital Gains Tax is the second area where favourable rules apply. Usually the sale of property is just subject to Capital Gains Tax as usual, even if you use the proceeds to buy another property. So a gain of £100,000 would give a tax bill of up to £28,000.

However, if it qualifies as a furnished holiday let, then the tax bill could reduce to £10,000 – a massive saving. Alternatively you might invest the proceeds in another qualifying property and not pay any Capital Gains Tax at present.

There are also potential Inheritance Tax savings. If it can be seen that the furnished holiday let is run like a trading business, it will qualify for ‘Business Property Relief’. This means that the value of the property would not be taxed on your estate. On a £500,000 property, the Inheritance Tax saving would be an eye-watering £200,000.

As you would imagine, there are rules as to what qualifies as a ‘furnished holiday let’, or as a trading business. You might need to slightly change how you let out the property to get the best possible result.

Planning is required so please call Des on 0330 024 0498 or email dmm@barringtons.co.uk to arrange a free of charge initial consultation.

Author: Andrew Wilshaw

Director at Barringtons Chartered Accountants

Date: 13/06/2016

GPs’ and managers’ recruitment questions answered

Wednesday, June 8th, 2016

We hope that you find the following article useful. If it raises questions please contact Des Machin on t. 01782 713700 to make an appointment and we will be delighted to discuss how Barringtons can help your practice.

GPs’ and managers’ recruitment questions answered

Recruitment difficulties are bringing lots of questions to AISMA accountants’ doors
Andrew Burwood** answers some of the big issues

What are potential partners looking for when assessing a practice?

In no particular order:

  • An acceptable profit share and monthly drawing (including phased routes to parity)
  • A stable partnership now and for the foreseeable future
  • An achievable work/life balance
  • The potential to specialise
  • An ability to contribute to the decision-making process of the partnership
  • Variety
  • Whether there is a requirement to buy-in to the partnership assets
  • What the working capital requirement is
  • An ability to establish relationships with patients
  • Information on the size of the partnership and the likelihood of being able to work well together
  • The opportunity to train and teach
  • Maternity/paternity leave (agreed time off and financial arrangements)
  • Holiday/sabbatical leave.

How can we attract a new partner?

The simple answer is that it is becoming more and more difficult given the number of GP retirements and the fall in the numbers of trainees wishing to pursue a general practice career.

Location is a key starting point and unfortunately some areas of the country struggle to attract GPs more than others.

Areas to consider, to make the practice more attractive:

  1. Training practices do have the ability to assess GP registrars while they are employed by the partnership. If an individual shows a desire to remain in general practice and fits in with the practice ethos, there is an opportunity to ‘grab them’ before a rival practice shows an interest.
  2. Review your partnership deed to make sure it is fit for purpose. Are there any clauses included which would put a potential partner off?
  3. Encourage flexible working hours.
  4. Does an incoming partner have to buy-in? Newly-qualified GPs are likely to have large student debts, significant property mortgages and young families – or they are on the horizon.While interest rates remain low, surgery valuations continue to rise and the requirement to take out a further loan to finance a buy-in can be a deal-breaker. Surgery sale and leasebacks are a potential option but these require a considerable amount of thought and the decision should not be taken lightly.

    An alternative is to finance partnership assets by way of a single partnership loan. Banks remain keen to lend to GP partnerships and, while the incoming partner will take on a share of the debt, it is less daunting to do that as opposed to arranging a large personal loan.

  1. Partnerships have historically worked on a phased route to parity in profit-sharing arrangements. Given the shortage of candidates, it is likely this is no longer achievable (unless the practice is very profitable).
  1. ‘Super-partnerships’ are very topical right now but any change has pros and cons. Positives include potential economies of scale, opportunities to specialise and strength in numbers. Negatives include a potential loss of control, loss of patient relationships and a lack of cohesiveness.
  1. Advertising is incredibly expensive so you need it to make an impact. Focus not only on the practice but also the selling points of the location and its proximity to landmarks and places of interest.
  1. Interviews can be a stressful experience and you need to make the potential recruits feel at ease and wanting to join your practice. Freeing up partner time to carry out positive interviews is an absolute must and preparation is key. First impressions do count and it is vital to ensure that a good one is created.
  1. If cash-flow is having a detrimental impact on partner drawings, consider the use of a bank overdraft facility. Interest on the facility is deductible for tax and superannuation purposes and therefore the net cost per partner is unlikely to be punitive.
  1. Allow potential recruits to discuss practice finances with your accountant. Your accounts are complicated and having an expert demystify them for future partners is an excellent selling tool.

Should we employ a salaried GP?

This very much depends on practice circumstances. If you have an aging partnership and are looking at succession, a salaried GP may not be the best answer.

But if the appointment is salaried with a view to partnership, it does give both parties the opportunity to assess if it is a good fit.

With partner profits falling, the difference between the costs of employing a salaried GP and taking on a partner is now much smaller.

An employed individual will not only cost the gross salary and medical defence subscription, it will also incur employers’ National Insurance (13.8% for earnings over £8,112 a year) and employers’ superannuation (14.3%).

There will also be the usual contractual rights of holiday and sickness pay to factor in. And you need to consider the fact that the employee will have very little interest in the running of the business and will not have an active management role in it.

Of course, the number of GPs who now see themselves spending a significant proportion of their career at one practice are few and far between and so a salaried arrangement may be more attractive to a high number of potential recruits.

The key is to be flexible. If an individual is desirable, it is likely that you will have to be more accommodating than perhaps you have been in the past to make them choose your practice.

What is the average pay for salaried GPs?

There will be regional variances. In East Anglia, we would expect to see a full-time equivalent GP earn in the region of £75-80k a year (plus medical defence). Market forces do dictate the level of salary and the amount you pay will very much depend on your location.

How do we calculate the buy-in amount for a new partner?

The buy-in will normally cover the following components:

*A share of the surgery premises (based on a formal valuation by a qualified surveyor with experience of GP surgeries and rent reimbursement).

*A share of other fixed assets (usually based on written down values as shown in the partnership accounts).

*A share of the stock and working capital requirement (the amount of cash left in by the partners to cover day-to-day requirements).

It is possible that the partnership may also hold shares in a local consortium. If that is the case, the buy-in will also have to factor in a share of the value of these.

If any of the assets are financed through a partnership bank loan, the balance remaining on the loan is deducted from the value of the gross assets.

While not always the case, the share is usually based upon the individual’s working time commitment. So, for a six partner practice with two full-timers, two three-quarter timers and two half-timers, with the incoming partner being full-time, the share would be 2/9ths (1 out of 4.5 full-time equivalents in total).

And how about calculating the amount owed to a departing partner?

The partner will need to be paid for his/her share of the assets as mentioned above along with any undrawn profits to the date of retirement. These will be calculated by the partnership accountants in line with the terms of the partnership agreement and the payment terms will also be specified within the agreement.

We have not been able to replace a retired partner and are now due to pay him/her out; what do we do?

This is becoming a more common scenario. Basically the remaining partners can either acquire greater shares of the partnership assets, i.e. pay capital in to finance the capital owed to the retired partner, or arrange a partnership bank loan to pay the retired partner out.

The latter will put additional pressure on practice cash-flow and may necessitate a reduction in drawings; the practice accountant will be able to advise you on this.

We have been successful in recruiting a new partner; what forms do I need to complete?

Under a GMS contract, NHS England must have 28 days’ notice of a new partner joining.

A PMS contract is slightly different as contracts are held between NHS England and the individual practitioner rather than the partnership.

Taking on a new partner would be treated as a variation to the contract and so it will be important to discuss your plans to recruit a new partner before actually doing so.

Under both contracts, NHS England’s Local Area Team will need to be advised of the admission of a new partner and will also need an estimate of pensionable earnings to enable superannuation contributions to be deducted from gross practice income on a monthly basis.

Your accountant will be able to assist with the completion of forms required by HMRC. If you are a VAT registered practice, you will also have to complete form VAT2.

**Andrew Burwood is a senior manager at Larking Gowen specialist medical accountants

 

This article first appeared in the Winter 2016 issue of AISMA Doctor Newsline, the newsletter of the Association of Independent Specialist Medical Accountants.