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GP Forum – 28 February 2013Luke Bennett & Stuart CowenPracticeManagement
Programme   11.30          Profit maximisation in times of income constraint   12.30          Lunch   1.30           The N...
Speakers   Luke Bennett – Truro office         luke.bennett@francisclark.co.uk   Stuart Cowen – Plymouth office         st...
Profit Maximisation in Times ofIncome Constraint   •    Changes in funding 2013/14   •    Controlling expenses   •    Prof...
“Times of Income Constraint”- A Crystal Ball   •    Backdrop of “austerity measures”   •    Public and government reaction...
The Squeeze is on   •    Income is rising slower than costs   •    QoF income being reduced   •    Any uplift in April 201...
Inflationary effect   Illustrative GMS practice 2010/11   Gross income (100%)                          £238k   Costs      ...
Effect on take home pay by 2013/14   Illustrative GMS practice   Income                + 1% per annum         £245k   Cost...
Overall effect   •    Reduction in take home pay over 3 years       o    £7k which is 11% of £62k       Reduction        ...
Changes from 1 April 2013   1. Quality and Outcomes Framework (QOF)   2. Directed Enhanced Services   3. Local Enhanced Se...
Changes from 1 April 2013QOF points changesPoints per domain 2012/13             Points per domain 2013/14Domain          ...
Changes from 1 April 2013QOF threshold changes – 2011/12 example       CHD6 The percentage of patients with coronary heart...
Changes from 1 April 2013QOF threshold changes – 2013/14 example       CHD6 The percentage of patients with coronary heart...
Changes from 1 April 2013   •       Directed enhanced services                       up to £15,000       •     Risk profil...
Changes from 1 April 2013                   Luke’s guess at impact on average practice                                    ...
Changes from 1 April 2013             Luke’s guess at impact on average full-time GP                                      ...
Maximising profits   •    Manage your business: Discipline / planning / control   •    Before each year:           Identi...
Maximising profits   •    Identify who is responsible for ensuring targets are achieved, and        when / how they will r...
Maximising income   •    Assume you are doing the “givens” – e.g. maximising QOF points   •    QOF typically about 15% of ...
Maximising income   •    Use your weekday space effectively – if a GP is not in for 10        sessions per week consider i...
Maximising income   •    List size per GP is major determinant   •    Use your Friends and Patient Participation Group   •...
Maximising income   •    NHS fees are largely fixed so maximise revenue from non-NHS        work: letters, insurance repor...
Maximising income   •    Understand the criteria for each enhanced service: select those        cost-effective to chase   ...
Controlling expenses   Typical surgery cost profile:   Staff wages / on-costs                     41%   Salaried GPs, locu...
Controlling expenses   •    “Other costs mostly fixed” cannot be ignored   •    Sourcing effective cleaning, telephone cha...
Controlling expenses - staff   •    Pay reviews   •    Benchmarking   •    Flexible working – T.O.I.L. not overtime   •   ...
Controlling expenses –Salaried GPs and locums   •    Budget / monitor   •    Set budget before financial year – GP partner...
Management accounts   •    Historically limited uptake in GP practices   •    Understandably so for smaller practices   • ...
Profit forecasts, drawings and cash flow   •    In theory, profit forecast prepared each year for superannuation        pa...
Practice financing   •    Loans v Overdrafts           Rates including arrangement fees           Flexibility          ...
Profit maximisation   •    Profits and drawings under pressure   •    Set targets and monitor   •    Clear responsibilitie...
Lunchwww.francisclark.co.uk
NHS Pension Scheme –Impact of Changes   •    1995 v 2008 sections   •    Annual allowance   •    Lifetime allowance   •   ...
www.francisclark.co.uk
NHS Pension Choice                              1995 Section            2008 SectionNormal retirement age              60 ...
NHS Pension Choice                                1995 Section               2008 SectionLump sum                     Norm...
Restriction of Tax Relief –Annual Allowance   •    £50,000 maximum   •    Reducing to £40,000 from 2004/05   •    Special ...
Restriction of Tax Relief –Annual Allowance                 Establish position at 31 March 2011 Simplified example (member...
Restriction of Tax Relief –Annual Allowance                 Establish position at 31 March 2012 Simplified example (member...
Restriction of Tax Relief –Annual Allowance            Annual pension input (growth in benefits) Simplified example (membe...
Restriction of Tax Relief –Annual Allowance   •    Unused relief from previous three years can be carried forward   •    A...
Restriction of Tax Relief –Annual Allowance   Likelihood of being affected when annual allowance £50,000www.francisclark.c...
Restriction of tax relief –Lifetime allowance   •    Lifetime pension savings limit reduced from £1.8 million to £1.5     ...
Restriction of tax relief –Lifetime allowanceExample for member of 1995 Section                                         £C...
Restriction of tax relief –Lifetime allowance       Benefit of extra year’s membership            If lifetime    If lifeti...
Increasing employee contribution rates                         2011/12   2012/13   2013/14   2014/15 (possible)Up to £15k ...
Reduced monthly drawings fromApril 2013?     Pensionable profit   Before tax   After tax     £60,000                £120  ...
Hutton Report   •    Link normal pension age to state pension age   •    Final salary schemes replaced by career average e...
Government offer   •    New scheme from 1 April 2015   •    Those within 10 years of retirement at 1 April 2012 stay in ex...
Protection                         Age at 1 April 2012   Switch to new                         (if member of 1995      sch...
New NHS Pension Scheme   •    Career earnings for all members (GPs already on career earnings)   •    Dynamisation continu...
Protection for accrued benefits                          Value of new scheme compared with 1995 Section        100%       ...
Accountancy/Tax advice                               IFA advice    Annual allowance calculation     Stop paying into NHS S...
National Employment Savings Trust   •    All employers compelled to offer either a Qualifying Workplace        Pension Sch...
NHS Pension(average earnings £100,000 per annum)                         Lifetime        Retirement   Pension   Lump sum  ...
NHS Pension Personal Pension(average earnings £100,000 per annum)                         Lifetime        Retirement   Pen...
Tax Planning   •    Impact of tax / NIC thresholds   •    Incorporation   •    Income shifting   •    Capital allowances  ...
Tax / NIC thresholds for theself-employed   •    2013/14 thresholds for tax and NIC largely aligned            Income from...
Income tax rates 2013/14                          Effective marginal tax rate (%)70%60%50%40%30%20%10%0%               £9,...
Tax rates   •    The tax / NIC at 62% is not an “official rate”   •    It is the effect of withdrawing £1 personal allowan...
Net retained earnings 2014/15   •    £100 additional gross   •    Assume marginal NIC 2%   •    Superannuation 27.5%   •  ...
Incorporation   •    For some non-GPs, incorporation offers potential to convert some        income into CGT (effective ra...
Incorporation   •    Key to potential savings are:    Whether higher rate taxpayer needs to draw the company’s profits   ...
Incorporation   •    For main GP practice    GMS contracts cannot involve limited company    PMS / APMS can in certain c...
Incorporation   •    For certain areas of work incorporation can still be worthwhile – but        individual circumstances...
Income shifting   •    HMRC has attempted to legislate against “income shifting”   •    At its simplest, creating structur...
Capital AllowancesTax allowances in respect of (e.g) Equipment (BP monitors, computers) Vehicles (GPs’ cars) “Integral ...
Capital Allowances   •    In accounts, buy equipment and write down (“depreciate”) over        useful lives   •    In tax ...
Annual Investment Allowance “AIA”   •    Currently capped at £250k p.a.   •    But 95% of UK businesses invest less than £...
Writing Down Allowance 2013/14 - cars   •    All following rates multiplied by % business use   •    Note effect on Vehicl...
Integral features  •    Electrical wiring  •    Cold water systems  •    Heating/air conditioning  •    Lifts  Not all of ...
Tax efficient investments   •    Restrictions on pensions relief for some higher earners /        contributors   •    ISAs...
Individual Savings Accounts “ISAs”   •    Income not taxed in receipt* but no relief on investment itself   •    No CGT on...
Venture Capital Trusts “VCTs”   •    Government encouraging investment in fledgling businesses   •    Hence higher risk   ...
Enterprise Investment Schemes “EISs”   •    Higher risk, illiquid   •    Need to stay invested in trading EIS for 3 years ...
Seed Enterprise Investment Schemes“SEISs”   •    Smaller companies (assets < £200k, employees < 25)   •    Full CGT reinve...
CGT planning   •    CGT annual allowance 2012/13 £10,600   •    Transfers between spouses up to / including year of separa...
Entrepreneurs relief   •    Reduces CGT payable to 10% effective rate (still get annual        allowances)   •    Availabl...
CGT on sale of share in premises   •    CGT payable on excess of sale proceeds over costs   •    Costs may represent an am...
CGT on sale of share in property   •    Payable in Jan following tax year of sale   •    If sale can be split, can use mor...
Summary – tax planning   •    Pensions relief useful for higher rate earners but care needed re        AA / LTA   •    Pen...
Disclaimer & copyright       (c) copyright Francis Clark LLP, 2013       You shall not copy, make available, retransmit, r...
Luke Bennettluke.bennett@francisclark.co.uk                01872 276477                 Stuart Cowenstuart.cowen@franciscl...
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Practice management feb 2013

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Practice management feb 2013

  1. 1. GP Forum – 28 February 2013Luke Bennett & Stuart CowenPracticeManagement
  2. 2. Programme 11.30 Profit maximisation in times of income constraint 12.30 Lunch 1.30 The NHS Pension Scheme – impact of current changes on GPs and practice staff 2.30 Tax planning to minimise liability under new higher tax rates and reduced allowanceswww.francisclark.co.uk
  3. 3. Speakers Luke Bennett – Truro office luke.bennett@francisclark.co.uk Stuart Cowen – Plymouth office stuart.cowen@francisclark.co.ukwww.francisclark.co.uk
  4. 4. Profit Maximisation in Times ofIncome Constraint • Changes in funding 2013/14 • Controlling expenses • Profit forecasting • Managing drawings and cash flowwww.francisclark.co.uk
  5. 5. “Times of Income Constraint”- A Crystal Ball • Backdrop of “austerity measures” • Public and government reactions to bankers’ bonuses • Support for restricting public sector final salary schemes – the Hutton Report • Health and Social Care Act has firmly pushed the NHS back in the political spotlightwww.francisclark.co.uk
  6. 6. The Squeeze is on • Income is rising slower than costs • QoF income being reduced • Any uplift in April 2013 to cover rising costs? • CPI January 2013 – 2.7% • Result = profit erosion • Compounded by higher tax / NI / pension • Lower net income whilst domestic costs rise toowww.francisclark.co.uk
  7. 7. Inflationary effect Illustrative GMS practice 2010/11 Gross income (100%) £238k Costs (58%) £138k Profit (42%) £100k Take home pay after tax and superannuation £62kwww.francisclark.co.uk
  8. 8. Effect on take home pay by 2013/14 Illustrative GMS practice Income + 1% per annum £245k Costs + 3% per annum £151k Profit (38%) £94k Take home pay after tax and superannuation £55kwww.francisclark.co.uk
  9. 9. Overall effect • Reduction in take home pay over 3 years o £7k which is 11% of £62k  Reduction 11%  Inflation say 9% cumulative  Erosion in spending power 20%  Excludes effects of higher rate taxes, excess over annual allowances, withdrawal of child benefitwww.francisclark.co.uk
  10. 10. Changes from 1 April 2013 1. Quality and Outcomes Framework (QOF) 2. Directed Enhanced Services 3. Local Enhanced Services 4. Uprating of investment to GMS contractors 5. Employer superannuation contributions for locums 6. Employee superannuation contribution rateswww.francisclark.co.uk
  11. 11. Changes from 1 April 2013QOF points changesPoints per domain 2012/13 Points per domain 2013/14Domain Points Domain PointsClinical 669 Clinical 610Organisational 254 Quality and Productivity 100Patient experience 33 Patient experience 33Additional services 44 Public health 157Total 1,000 Total 900100 points worth about £15,00037 points shifted to new clinical areas worth about £5,000Raising of thresholds expected to cost £11,000Hence loss to average practice £31,000www.francisclark.co.uk
  12. 12. Changes from 1 April 2013QOF threshold changes – 2011/12 example CHD6 The percentage of patients with coronary heart disease in whom the blood pressure reading (measured in the previous 15 months) is 150/90 or less. • Contractor index 1.214 • Achievement 250 out of 289 = 86.5% • Thresholds in 2011/12 40% to 71% • Points scored out of 17 17 • Disease prevalence 1.209 • Value of points 1.214 x 17 x 1.209 x £130.51 = £3,256.66www.francisclark.co.uk
  13. 13. Changes from 1 April 2013QOF threshold changes – 2013/14 example CHD6 The percentage of patients with coronary heart disease in whom the blood pressure reading (measured in the previous 12 months) is 150/90 or less.www.francisclark.co.uk
  14. 14. Changes from 1 April 2013 • Directed enhanced services up to £15,000 • Risk profiling and care management for frail older and high risk patients • Dementia case finding scheme • Improving on-line patient access to services • Remote care monitoring for patients with long-term conditions • Local enhanced services ??? • Kernow Clinical Commissioning Group • Uprating of investment for GMS contractors 1% ? • Employer superannuation contribution for locums ???www.francisclark.co.uk
  15. 15. Changes from 1 April 2013 Luke’s guess at impact on average practice £ Changes to QOF Loss of 100 points (15,000) New clinical indicators (1,000) Rising thresholds (6,000) (22,000) Earned from new DES 10,000 General pay rise 6,000 Reduction in income for average practice £ (6,000)www.francisclark.co.uk
  16. 16. Changes from 1 April 2013 Luke’s guess at impact on average full-time GP £ Reduction in income per GP (2,000) Tax, NI and superannuation saved 1,091 Increased employee superannuation (2,400) Tax relief on increased superannuation 960 Reduction in take-home pay £ (2,349)www.francisclark.co.uk
  17. 17. Maximising profits • Manage your business: Discipline / planning / control • Before each year:  Identify controllable items: e.g. QOF, enhanced services, wages costs  Identify factors that drive income or expense  Use these to set targets – probably not financial targets in the first instancewww.francisclark.co.uk
  18. 18. Maximising profits • Identify who is responsible for ensuring targets are achieved, and when / how they will report to partner group • SMART targets • Pre-arranged partners’ meetings – chaired, with targets on agendawww.francisclark.co.uk
  19. 19. Maximising income • Assume you are doing the “givens” – e.g. maximising QOF points • QOF typically about 15% of gross income • 2011/12 average QOF points 969 = 3.1% lost • Pay particular attention to disease prevalence indicators • Exception reporting will become more important in 2013/14www.francisclark.co.uk
  20. 20. Maximising income • Use your weekday space effectively – if a GP is not in for 10 sessions per week consider if his / her room has an alternative use • Rearrange rooms to make minor surgery clinics viable • Weekend minor surgery / other clinics • Rent space to alternative health providers (but beware PCT clawbacks)www.francisclark.co.uk
  21. 21. Maximising income • List size per GP is major determinant • Use your Friends and Patient Participation Group • “Market” in the community  Articles about local health issues  Profiles on GPs and staff  Do your patients realise you would like more patients, or do you give the impression of being too busy?www.francisclark.co.uk
  22. 22. Maximising income • NHS fees are largely fixed so maximise revenue from non-NHS work: letters, insurance reports, etc. • Your reception staff may fail to apply charges unless they can fall back on a pre-printed tariff (“£X / letter”)www.francisclark.co.uk
  23. 23. Maximising income • Understand the criteria for each enhanced service: select those cost-effective to chase • Identify one GP specifically to maximise the enhanced services identified • Identify likely crunch points (e.g. X date for Y% of childhood immunisations) and identify nominated GP or PM to report before then on achievement / any action required.www.francisclark.co.uk
  24. 24. Controlling expenses Typical surgery cost profile: Staff wages / on-costs 41% Salaried GPs, locums, drugs, consumables 23% Other costs mostly fixed 26% 100%www.francisclark.co.uk
  25. 25. Controlling expenses • “Other costs mostly fixed” cannot be ignored • Sourcing effective cleaning, telephone charges, heat and light etc. are all important • But not at expense of ignoring largest costs: Peoplewww.francisclark.co.uk
  26. 26. Controlling expenses - staff • Pay reviews • Benchmarking • Flexible working – T.O.I.L. not overtime • Multi-tasking e.g. reception • “Squeezing” hours e.g. some staff may prefer 35 hours per week • Budget and monitorwww.francisclark.co.uk
  27. 27. Controlling expenses –Salaried GPs and locums • Budget / monitor • Set budget before financial year – GP partners’ holidays = locum requirements • Monthly report to partners, current + cumulativewww.francisclark.co.uk
  28. 28. Management accounts • Historically limited uptake in GP practices • Understandably so for smaller practices • Just as useful to monitor and report on “controllables” – QOF, enhanced services, staff and salaried GP / locum costs – the profits and cash will followwww.francisclark.co.uk
  29. 29. Profit forecasts, drawings and cash flow • In theory, profit forecast prepared each year for superannuation payments on account • But simplistic since retro-corrected • Financial pressures now mean drawings and cash flows deserve more attention • For many practices drawings will need to reduce – not least because of increased superannuation contributionswww.francisclark.co.uk
  30. 30. Practice financing • Loans v Overdrafts  Rates including arrangement fees  Flexibility  Sustainablility  Personal loans v practice loans  Rates  One size (doesn’t?) fit all  Fixed v Variable rateswww.francisclark.co.uk
  31. 31. Profit maximisation • Profits and drawings under pressure • Set targets and monitor • Clear responsibilities: SMART • Concentrate on controllables • Targets may be non-financial, but must be regularly and formally monitoredwww.francisclark.co.uk
  32. 32. Lunchwww.francisclark.co.uk
  33. 33. NHS Pension Scheme –Impact of Changes • 1995 v 2008 sections • Annual allowance • Lifetime allowance • Increasing contribution rates • Hutton report • National Employment Savings Trustwww.francisclark.co.uk
  34. 34. www.francisclark.co.uk
  35. 35. NHS Pension Choice 1995 Section 2008 SectionNormal retirement age 60 65Benefits 1.4% earnings plus lump 1.87% earnings minus sum lump sumSurvivor pension 50% 37.5%www.francisclark.co.uk
  36. 36. NHS Pension Choice 1995 Section 2008 SectionLump sum Normally 3 x pension Minimum 4.2% of earnings up to 31/03/2008 Maximum 5.36 x pension Maximum 4.28 x pensionAdded years contributions Continue Cease but benefit to date transferredwww.francisclark.co.uk
  37. 37. Restriction of Tax Relief –Annual Allowance • £50,000 maximum • Reducing to £40,000 from 2004/05 • Special rules for defined benefit schemes • Measured against growth in benefits • 16 x growth in pension + growth in lump sumwww.francisclark.co.uk
  38. 38. Restriction of Tax Relief –Annual Allowance Establish position at 31 March 2011 Simplified example (member of 1995 Section) Career earnings at 31 March 2011 £2,000,000 “Regulation 72 fraction” Years in NHS pension scheme 20 1.250 Years as a GP 16 Pension = 1.4% of career earnings x Reg 72 fraction 1.4% x £2,000,000 x 1.250 £35,000 Increase by CPI (September 2010) 3.1% £36,085www.francisclark.co.uk
  39. 39. Restriction of Tax Relief –Annual Allowance Establish position at 31 March 2012 Simplified example (member of 1995 Section) Career earnings at 31 March 2011 £2,000,000 Dynamisation factor for 2012 (CPI to Sep 11: 5.2% + 1.5%) 6.7% £134,000 Pensionable earnings in 2011/12 £110,000 Career earnings at 31 March 2012 £2,244,000 “Regulation 72 fraction” Years in NHS pension scheme 21 1.235 Years as a GP 17 Pension = 1.4% of career earnings x Reg 72 fraction 1.4% x £2,244,000 x 1.235 £38,808www.francisclark.co.uk
  40. 40. Restriction of Tax Relief –Annual Allowance Annual pension input (growth in benefits) Simplified example (member of 1995 Section) Value of pension at 31 March 2012 £38,808 Value of pension at 31 March 2011 (after allowance for inflation) £36,085 Growth in pension in year £2,723 Growth in lump sum in year (3 x pension) £8,169 Annual pension input = 16 x pension growth + lump sum growth 16 x £2,723 + £8,169 £51,737 Excess over annual allowance taxed at marginal rate £1,737 x 40%? £695www.francisclark.co.uk
  41. 41. Restriction of Tax Relief –Annual Allowance • Unused relief from previous three years can be carried forward • Added years contracts complicate calculations and increase pension growth • Private pension contributions to be factored in • NHS Pensions required to calculate figures for 2011/12 and 2012/13 by October 2013 • Self assessment tax return for 2011/12 was due January 2013!www.francisclark.co.uk
  42. 42. Restriction of Tax Relief –Annual Allowance Likelihood of being affected when annual allowance £50,000www.francisclark.co.uk
  43. 43. Restriction of tax relief –Lifetime allowance • Lifetime pension savings limit reduced from £1.8 million to £1.5 million on 6 April 2012 • Further reduction to £1.25 million planned for 6 April 2014 • Calculation based on 20 x pension + lump sum (+ value of any private pension funds) • Option to elect for fixed protection  Maintains lifetime allowance at £1.5 million  No contributions after 5 April 2014  Election must be made by 5 April 2014www.francisclark.co.uk
  44. 44. Restriction of tax relief –Lifetime allowanceExample for member of 1995 Section £Career earnings at retirement £4.7 millionPension: 1.4% of career earnings £65,800Multiply by factor of 20 1,316,000Lump sum (3 x pension) 197,400Value of pension 1,513,400For retirement between 6 April 2012 £13,400 x 25% £3,350and 5 April 2014 charge on excessover £1.5 million Pension reduced by 1/20th of lifetime allowance charge Pension therefore reduced from £65,800 to £65,632www.francisclark.co.uk
  45. 45. Restriction of tax relief –Lifetime allowance Benefit of extra year’s membership If lifetime If lifetime allowance allowance not exceeded exceeded £ £ Pensionable pay 100,000 100,000 Employer’s and employee’s contributions 27,500 27,500 Tax relief (40%) (11,000) (11,000) Increased lump sum (4,200) (4,200) Net cost 12,300 12,300 Annual pension 1,400 1,400 Lifetime allowance charge - (403) Tax (40%) (560) (399) Net benefit 840 598 Effective annuity rate 6.83% 4.86%www.francisclark.co.uk
  46. 46. Increasing employee contribution rates 2011/12 2012/13 2013/14 2014/15 (possible)Up to £15k 5.0% 5.0% 5.0% 5.0%£15k to £21k 6.5% 5.0% 5.3% 5.3%£21k to £27k 6.5% 6.5% 6.8% 6.8%£27k to £49k 6.5% 8.0% 9.0% 9.75%£49k to £70k 6.5% 8.9% 11.3% 12.5%£70k to £110k 7.5% 9.9% 12.3% 13.5%£110k and over 8.5% 10.9% 13.3% 14.5%www.francisclark.co.uk
  47. 47. Reduced monthly drawings fromApril 2013? Pensionable profit Before tax After tax £60,000 £120 £72 £80,000 £160 £96 £100,000 £200 £120 £120,000 £240 £144 £140,000 £280 £168www.francisclark.co.uk
  48. 48. Hutton Report • Link normal pension age to state pension age • Final salary schemes replaced by career average earnings schemes • Implement changes by 2015www.francisclark.co.uk
  49. 49. Government offer • New scheme from 1 April 2015 • Those within 10 years of retirement at 1 April 2012 stay in existing scheme • Date of joining new scheme delayed for those between 10 and 13.5 years of retirement at 1 April 2012www.francisclark.co.uk
  50. 50. Protection Age at 1 April 2012 Switch to new (if member of 1995 scheme scheme) <46.5 1 April 2015 47 1 April 2016 47.5 1 April 2017 48 1 April 2018 48.5 1 April 2019 49 1 April 2020 49.5 1 April 2021 50 N/Awww.francisclark.co.uk
  51. 51. New NHS Pension Scheme • Career earnings for all members (GPs already on career earnings) • Dynamisation continues at inflation + 1.5%  Inflation equals CPI?  Normal pension age linked to state pension age  State pension age = 67 or 68?www.francisclark.co.uk
  52. 52. Protection for accrued benefits Value of new scheme compared with 1995 Section 100% 98% 96% 94% 92% 90% 88% 86% 84% 82% 45 46 47 48 49 50 Age at 1 April 2012 Assumes member joined scheme at 25 and retires at 60www.francisclark.co.uk
  53. 53. Accountancy/Tax advice IFA advice Annual allowance calculation Stop paying into NHS Scheme? Lifetime allowance calculation Take early retirement? Prediction of NHS pension Elect for fixed protection?www.francisclark.co.uk
  54. 54. National Employment Savings Trust • All employers compelled to offer either a Qualifying Workplace Pension Scheme (e.g. NHS) or NEST • Will affect non-NHS employing bodies • Employer contribution 3% to 4% • Employee contribution 3% to 4% • Opt-out option for employee • Phased introduction up to 2017www.francisclark.co.uk
  55. 55. NHS Pension(average earnings £100,000 per annum) Lifetime Retirement Pension Lump sum contributions age £ £ £1995 Section 752,500 60 45,573 188,1252008 Section 860,000 65 56,883 215,000New scheme? 1,182,500 68 55,775 295,625www.francisclark.co.uk
  56. 56. NHS Pension Personal Pension(average earnings £100,000 per annum) Lifetime Retirement Pension Lump sum contributions age £ £ £1995 Section 752,500 60 45,573 188,125 14,7422008 Section 860,000 65 56,883 215,000 20,711New scheme? 1,182,500 68 55,775 295,625 32,086www.francisclark.co.uk
  57. 57. Tax Planning • Impact of tax / NIC thresholds • Incorporation • Income shifting • Capital allowances • Tax efficient investments • CGT planningwww.francisclark.co.uk
  58. 58. Tax / NIC thresholds for theself-employed • 2013/14 thresholds for tax and NIC largely aligned Income from Tax rate NIC Combined / to £9,205 0% 0% 0% £41,450 20% 9% 29% £100,000 40% 2% 42% £118,410 60%* 2% 62% £150,000 40% 2% 42% £150,000 + 45% 2% 47%www.francisclark.co.uk
  59. 59. Income tax rates 2013/14 Effective marginal tax rate (%)70%60%50%40%30%20%10%0% £9,205 £41,450 £100,000 £118,410 £150,000 £200,000 www.francisclark.co.uk
  60. 60. Tax rates • The tax / NIC at 62% is not an “official rate” • It is the effect of withdrawing £1 personal allowance for every £2 earned over £100k • Given GP average earnings, it sits in a real problem bracket • And at a level where pension planning can become more restrictedwww.francisclark.co.uk
  61. 61. Net retained earnings 2014/15 • £100 additional gross • Assume marginal NIC 2% • Superannuation 27.5% • Assume marginal tax rate 40% • Net retained earnings £43.53 • At the 60% marginal rate the net is £28.35 • BUT Superannuation is “invested” not lostwww.francisclark.co.uk
  62. 62. Incorporation • For some non-GPs, incorporation offers potential to convert some income into CGT (effective rate 10% or less); and the rest taxable under Corporation Tax at 20% - 30% • Sale of NHS goodwill illegal so CGT advantage – for NHS work – disappears • But leaves potential CGT savings on non-NHS work and income tax savings on allwww.francisclark.co.uk
  63. 63. Incorporation • Key to potential savings are:  Whether higher rate taxpayer needs to draw the company’s profits  Or can allow a fellow lower-rate taxed shareholder to take dividends  Whilst ensuring the costs of setting up and running the company do not outweigh the benefits  With an eye on superannuationwww.francisclark.co.uk
  64. 64. Incorporation • For main GP practice  GMS contracts cannot involve limited company  PMS / APMS can in certain circumstances – but cannot just introduce  Introducing may mean PCT has to retender contractwww.francisclark.co.uk
  65. 65. Incorporation • For certain areas of work incorporation can still be worthwhile – but individual circumstanceswww.francisclark.co.uk
  66. 66. Income shifting • HMRC has attempted to legislate against “income shifting” • At its simplest, creating structures enabling income of one individual to be taxed on another • Such as limited company with GP and lower earning spouse • HMRC unsuccessful so farwww.francisclark.co.uk
  67. 67. Capital AllowancesTax allowances in respect of (e.g) Equipment (BP monitors, computers) Vehicles (GPs’ cars) “Integral features”www.francisclark.co.uk
  68. 68. Capital Allowances • In accounts, buy equipment and write down (“depreciate”) over useful lives • In tax return, HMRC rules may allow faster or slower claim back against tax • One of reasons why accounts profit figure differs from tax returnswww.francisclark.co.uk
  69. 69. Annual Investment Allowance “AIA” • Currently capped at £250k p.a. • But 95% of UK businesses invest less than £250k p.a. • Enables all tax relief to be gained “up front” • Excludes cars • Note effect on GP partners joining/leavingwww.francisclark.co.uk
  70. 70. Writing Down Allowance 2013/14 - cars • All following rates multiplied by % business use • Note effect on Vehicle Excise Duty too Emission (grams/km) Allowance rate Example <95 100% Fiat 500C >95, <130 18% Ford Focus 2.0TDCi >130 8% BMW 325Dwww.francisclark.co.uk
  71. 71. Integral features • Electrical wiring • Cold water systems • Heating/air conditioning • Lifts Not all of these previously qualified – so scope to re-open purchase of surgery and retrospectively identify/claim back taxwww.francisclark.co.uk
  72. 72. Tax efficient investments • Restrictions on pensions relief for some higher earners / contributors • ISAs – income not taxed in receipt but no relief on investment itself • EISs • VCTswww.francisclark.co.uk
  73. 73. Individual Savings Accounts “ISAs” • Income not taxed in receipt* but no relief on investment itself • No CGT on sale • 2012/13 limit £11,280 of which up to half can be in cash ISA * Except 10% dividend tax credit not reclaimedwww.francisclark.co.uk
  74. 74. Venture Capital Trusts “VCTs” • Government encouraging investment in fledgling businesses • Hence higher risk • Though many “planned exit” VCTs that concentrate on the tax returns rather than the trade itself • 30% tax relief going in • No income tax, no CGTwww.francisclark.co.uk
  75. 75. Enterprise Investment Schemes “EISs” • Higher risk, illiquid • Need to stay invested in trading EIS for 3 years to get benefits below • Can use to defer CGT on earlier gain • 30% income tax relief, no CGTwww.francisclark.co.uk
  76. 76. Seed Enterprise Investment Schemes“SEISs” • Smaller companies (assets < £200k, employees < 25) • Full CGT reinvestment relief in 2012/13 • New qualifying trade – not investment or property • 50% income tax relief (max £100k investment) • CGT exempt if held for 3 yearswww.francisclark.co.uk
  77. 77. CGT planning • CGT annual allowance 2012/13 £10,600 • Transfers between spouses up to / including year of separation CGT free • So approx. £22k gains p.a. tax free • Capital Gains form “top slice” and CGT payable at 18% for basic rate income tax payers, 28% for higher ratewww.francisclark.co.uk
  78. 78. Entrepreneurs relief • Reduces CGT payable to 10% effective rate (still get annual allowances) • Available against gains in assets used in proprietor’s business (most commonly for GPs – surgery premises) • Also for shares: shareholder with at least 5% of equity, employed or company officer at least one yearwww.francisclark.co.uk
  79. 79. CGT on sale of share in premises • CGT payable on excess of sale proceeds over costs • Costs may represent an amalgamation over years of various tranches bought / sold • Relief for any costs of sale – legal, valuation • No allowance for “indexation” (i.e. general increase in prices since purchased)www.francisclark.co.uk
  80. 80. CGT on sale of share in property • Payable in Jan following tax year of sale • If sale can be split, can use more than one annual allowance • Normally no Entrepreneurs Relief if rent has been received for use of building • HMRC not taken point re notional rent • ER – need to sell within 3 years associated with material disposal of business interestswww.francisclark.co.uk
  81. 81. Summary – tax planning • Pensions relief useful for higher rate earners but care needed re AA / LTA • Penal rates of tax / NIC for earnings £100k to £118k • Incorporation can work – but individual circumstances • ISAs, VCTs, EISs • CGT on property ownershipwww.francisclark.co.uk
  82. 82. Disclaimer & copyright (c) copyright Francis Clark LLP, 2013 You shall not copy, make available, retransmit, reproduce, sell, disseminate, separate, licence, distribute, store electronically, publish, broadcast or otherwise circulate either within your business or for public or commercial purposes any of (or any part of) these materials and / or any services provided by Francis Clark LLP in any format whatsoever unless you have obtained prior written consent from Francis Clark LLP to do so and entered into a licence. To the maximum extent permitted by applicable law Francis Clark LLP excludes all representations, warranties and conditions (including, without limitation, the conditions implied by law) in respect of these materials and /or any services provided by Francis Clark LLP. These materials and /or any services provided by Francis Clark LLP are designed solely for the benefit of delegates of Francis Clark LLP. The content of these materials and / or any services provided by Francis Clark LLP does not constitute advice and whilst Francis Clark LLP endeavours to ensure that the materials and / or any services provided by Francis Clark LLP are correct, we do not warrant the completeness or accuracy of the materials and /or any services provided by Francis Clark LLP; nor do we commit to ensuring that these materials and / or any services provided by Francis Clark LLP are up-to-date or error or omission-free. Where indicated, these materials are subject to Crown copyright protection. Re-use of any such Crown copyright-protected material is subject to current law and related regulations on the re-use of Crown copyright extracts in England and Wales. These materials and / or any services provided by Francis Clark LLP are subject to our terms and conditions of business as amended from time to time, a copy of which is available on request. Our liability is limited and to the maximum extent permitted under applicable law Francis Clark LLP will not be liable for any direct, indirect or consequential loss or damage arising in connection with these materials and / or any services provided by Francis Clark LLP, whether arising in tort, contract, or otherwise, including, without limitation, any loss of profit, contracts, business, goodwill, data, income or revenue. Please note however, that our liability for fraud, for death or personal injury caused by our negligence, or for any other liability is not excluded or limited.www.francisclark.co.uk
  83. 83. Luke Bennettluke.bennett@francisclark.co.uk 01872 276477 Stuart Cowenstuart.cowen@francisclark.co.uk 01752 301010

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