(Time to read: 3 minutes)
By Russell Finn
April saw accountants throughout the country wishing everyone a happy new tax year! But what do the tax changes mean to staff in GP practices? We take a look.
Income tax and National Insurance
Income tax changes in England and Wales include the standard increase in the personal allowance, now up to £11,850, with the 20% band increased to £46,350 to reflect the increases in inflation.
Changes to National Insurance include similar adjustments to the bands to reflect inflation, but the expected change regarding the eradication of class 2 National insurance for GP locums and GP partners (paid on the tax return) has been delayed, so this will reappear on the tax return for another year.
For employees, the Upper Earnings Limit of the 12% National Insurance band has been increased to £46,350, which actually increases the number of people paying a higher tax rate.
So let’s see how this plays out, with a rough example showing the staff working in a GP practice, including the doctors themselves:
Income | 12,000 | 25,000 | 41,000 | 70,000 | 100,000 |
Part-time employed | Full-time employed | Practice manager employed | Salaried GP employed after pension | Self-employed partner after pension | |
2017/18 | |||||
Income tax | 100 | 2,700 | 5,900 | 16,700 | 28,700 |
National Insurance | 460 | 2,020 | 3,940 | 4,924 | 4,563 |
560 | 4,720 | 9,840 | 21,624 | 33,263 | |
2018/19 | |||||
Income tax | 30 | 2,630 | 5,830 | 16,360 | 28,360 |
National Insurance | 429 | 1,989 | 3,909 | 5,024 | 4,640 |
459 | 4,619 | 9,739 | 21,384 | 33,000 | |
Difference | 101 | 101 | 101 | 239 | 263 |
However, a much larger change comes into effect if you are a Scottish tax payer, with five new tax rates:
Starter rate: | £1 – £2,000 | 19% |
Basic rate: | £2,001 – £12,150 | 20% |
Intermediate rate: | £12,151 – £31,580 | 21% |
Higher rate: | £31,581 – £150,000 | 41% |
With the top rate of tax now increased to 46%.
Dividends
This year, the Dividends 0% band reduces from £5,000 to £2,000, so GP partners or locums who draw money from a limited company will see a £975 tax rise if they are taxed at higher rates.
In many cases the difference in tax savings made between limited companies and sole traders can be very slim, so this increase could well tip the balance. If doctors find themselves in this kind of situation, they should really talk to their accountants.
Pensions changes
NHS pension contribution rates enter the last year of the current band agreements, so there will be no change this year to employee contributions.
There is no change to the employer’s rate of 14.38% which was introduced last year.
Pension tax on annual allowances remains the same by taxing pensions’ growth over £40,000, subject to reductions for high-earning individuals.
There is an increase in the lifetime allowance up to £1,030,000 to reflect inflation, but if individuals are considering retirement then they really need to explore this with their financial advisor, as what a pension fund is worth and the amount paid in can look very different.
By Russell Finn
Specialist Medical Accountant at Harold Sharp
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May 4, 2018 at 8:21 am
Any advice or comments for GP Practices in Scotland??
May 8, 2018 at 1:30 pm
So in the above example the lowest earning would be another £20 better off, the 25,000 income would only be a slight increase and all other earners would see an additional 1% increase in tax.