March Budget Update 2024

As the healthcare landscape continues to evolve, it is crucial for GPs to stay informed about financial changes that may impact both personal and professional aspects.

In the recent Spring Budget for 2024, several significant adjustments were announced, affecting areas such as National Insurance, Capital Gains Tax, Furnished Holiday Lettings and Child Benefit.

Here's a brief overview to help you navigate these changes:

National Insurance

The Spring Budget has introduced adjustments to National Insurance (NI) rates, with the aim of bolstering the healthcare system and supporting social care initiatives.

So, for those of you classed as employees, you will have already noticed the benefit of reduced class 1 NI contributions that came into effect in January whereby the rate had gone down from 12% to 10%. What was announced in the budget was a further 2% reduction, from 10% to 8%, so that equates to a 1/3 reduction overall, saving an individual about £750 a year or £63 a month.

Also, for those of you who are treated as self-employed, which includes any partners in practices, the rate of class 4 NI has also been reduced. Based on the budget announcements made last year, there had been an expectation that the rate with effect from 6 April 2024 would go down from 9% to 8% on profits between £12,570 and £50,270. However, it has in fact been reduced to 6%, so a 3% cut overall. Therefore, anyone with profits over £50,270 will see a saving of around £1,130. So, everybody seems to be winning as far as NI is concerned right now.

This all seems to imply that the Prime Minister opted to take up the Chancellor’s suggestion of cutting NI rather than tax, as the PM initially preferred, since the overall cost to the economy would be around £4.5bn as opposed to £7bn, which seems sensible enough.

Income Tax

Now, whilst it is true that the standard personal allowances and the basic rate tax band have not been changed, and the loss of personal allowances where your taxable income exceeds £100,000 has not altered, one thing to come out of last year’s budget was a reduction to the level at which you begin to pay 45% tax. Previously, this only affected you where your total taxable income exceeded £150,000, but this was brought down to £125,140 with effect from 6 April 2023, which was and remains the level at which you would have lost your full personal allowances. So now, on that part of your total income between £125,140 and £150,000, it is going to cost you an additional 5% tax, so approximately £1,250. So, essentially wiping out your NI saving.

Capital Gains Tax (CGT)

There has also been a reduction in the highest rate of Capital Gains Tax payable on the sale of a residential property that was not your own private residence (so buy-to-let properties or second homes), whilst last year’s budget also announced further reductions to the annual CGT annual exemption. Thankfully, the lower rate of CGT remains at 18% and, if your total taxable income does not exceed £50,270, then some of this 18% tax band can be applied to any capital gain. An individual’s annual CGT exemption is £6,000 and the chargeable gain will attract CGT on any gain over that level. As things stand, the highest rate of CGT is currently 28% but, with effect from 6 April 2024, that rate reduces to 24% but, with the annual exemption also reducing to £3,000, this could potentially offset any tax saving. Overall, if you intend selling a residential property in the immediate future, you may wish to discuss this with us as it may be more beneficial to delay any potential sale until after 5 April 2024.

However, these rules do not apply to business properties, so there remains the potential to claim business asset disposal relief (formerly known as entrepreneur’s relief), which would bring the tax rate down to just 10%.

Furnished Holiday Lettings

For those of you involved in the rental of furnished holiday lettings, the Spring Budget had brought an important change to the tax regime as the government tries to address the shortage on the property rental market. The change has been brought in to encourage owners of second homes, particularly in coastal or holiday-type areas, to let their properties on a more long-term basis, rather than as holiday lets.

Basically, the furnished holiday lettings regime is being abolished from 6 April 2025 so, for the next tax year, nothing changes. With furnished holiday lettings being considered a “trade” by HMRC, there are more tax breaks than you would get if it were considered a standard income from a property source, particularly the option to apportion between spouses/partners in favourable splits rather than the standard 50:50. There are also expenses that you can set against furnished holiday lettings that you can't do against rental income. There are also strict rules about how long over a tax year the property must have been available for letting and, of course, how long it is actually let out for. However, as previously mentioned, this regime is being abolished from 2025/26.

Child Benefit

Changes to Child Benefit were also announced in the Spring Budget. Broadly speaking, where one spouse in a marital partnership has income of £50,000 or more and either he or she OR THEIR PARTNER receives child benefit, you have to pay back the child benefit on a scaled rate of 1% for every £100 by which your taxable income exceeds £50,000 until you reach the £60,000 level, at which point you're basically required to repay the whole amount back. The spring budget has announced that, for the year about to start on 6 April 2024, you now don't start paying back any child benefit until you have earned in excess of £60,000 and the rate at which you repay it will now be £1 for every £200 over £60,000, so you retain at least some of the child benefit until you reach total taxable income of £80,000.

It is understood that the Chancellor will be looking at ways of addressing the anomaly whereby a couple each earning say £49,999 are allowed to retain the whole of the child benefit whilst a couple where one spouse earns £60,001 and the other earns nothing must repay the whole amount. It is grossly unfair and there is talk of a “full household review” but, unfortunately, the situation hasn’t yet been looked at, but we believe the current measures may only be a temporary fix. We'll just have to wait and see what they come up with.

VAT

Although the majority of our clients will not be affected by this, it is something that GPs do need to be aware of when charging for services and procedures that aren't considered “for the benefit of the health of the patient”, such as some cosmetic surgery, botox injections, the like. Those are VAT-able items and the VAT registration threshold that has been set at £85,000 since 2017 has increased to £90,000 from 1 April 2024.

Limited Companies

For those of you operating through limited companies, just a note to confirm that the Corporation Tax (CT) rates have not changed. Current rates remain at 19% on profits up to £50,000, increasing to 25% on profits over £250,000. The marginal rate for profits of between £50,001 and £250,000 is 26.5%.

What also came into effect from 1 April 2023, was the new associated company rules. Anyone associated with more than one company needs to be aware that the CT rates mentioned above will be split equally between any companies over which the individual has an element of control. This would be particularly relevant where you operate through a company and are also a director/shareholder of your spouse’s company.

On the subject of limited companies, we are finding that the tax benefits of operating through a limited company and drawing funds via dividends is becoming less attractive and even more so, now that the NI rates for the self-employed have been reduced. The dividend allowance (DA), i.e. the amount of dividend that can be voted to an individual which would be taxed at 0%, continues to be reduced annually. Initially, the DA was £5,000 for 2016/17 and 2017/18. This was reduced to £2,000 for 2018/19 and remained at that level until 2022/23. In the current year, the DA is £1,000 and this will be reduced to £500 on 6 April 2024. Our suspicion is that the DA will be completely withdrawn in the next couple of years, but that remains to be seen.

Generally, there are now very few savings to be achieved by trading through a limited company vehicle as opposed to being self-employed unless you can leave funds untouched within the company. If you need the funds to live on, then they must be drawn out of the company in the form of salary and/or dividends and will be taxed accordingly.

That said, perhaps the one major benefit of having a limited company is the opportunity to buy a brand new, fully electric car using company funds and claim the whole value as an allowable capital expense against profits. On the downside, where the car is provided to the company’s director and is available for private use, then this is treated as a benefit in kind to the director and this has tax and NI implications, albeit that the taxable benefit is only 2% of the car’s original list price. Additional reporting requirements also come into play, as does the need for a PAYE scheme to be set up and processed, all of which adds to company administration time as well as further company costs.

Non-Domiciled Individuals

One other matter that may interest some clients is the change to the rules relating to non-domiciled individuals. The proposal is that individuals coming to UK and becoming UK-resident will not be required to pay tax on their foreign income for the first four years of residency. After that, however, they will be taxable on their worldwide income and this effectively brings their overseas assets into a UK charge earlier than was previously possible. There is going to be a two-year transitional period for those already resident to encourage those individuals to bring their wealth into the UK for investment purposes.

And finally…..

Other things to mention briefly include the introduction of a new British ISA, although, the details are yet to be finalised. This is an opportunity to invest a maximum of £5,000 into UK equities in addition to the current annual £20,000 ISA allowance which remains unaltered.

Also, fuel and alcohol duties have again been completely frozen.

And, with effect from October 2026, a tax on the liquids used in vapes will be introduced as a measure to discourage non-smokers from taking up the electronic cigarette habit.