Pharmacy: news and updates

 

This news page is designed to keep you updated on Mark Tenby, Director, martin aitken’s regular column on all things accounting, finance and tax for Scottish Pharmacist magazine

 

Scottish PharmacistIf you have any queries on any of the issues raised in the articles, or if you are looking to discuss your financial and tax situation with a specialist pharmacy accountant, get in touch with Mark by email: This email address is being protected from spambots. You need JavaScript enabled to view it.

Articles have been reproduced below.

Click on the links below to read more. 

 

Cloud meeting

Surprised by your recent tax bills?  Three potential reasons why your tax bill may have increased and what you can do about it >read more

 

Cloud meeting

Out with the old tax year and in with the new. Tax planning tips and 5 things you need to know about the new tax year >read more

 

MACO business

 

Budget 2018: the key impacts on pharmacists >read more

Cloud technology

 

MTD for VAT: are you ready for 1 April 2019 >read more

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Surprised by your recent tax bills?

Three potential reasons why your tax bill may have increased and what you can do about it. 19942 MACO Tax Planning 31

Surprise 1: Changes to legislation have resulted in higher pension tax bills for some.

Measures designed to limit the cost of pensions’ tax relief to the Treasury are having some unwelcome consequences as some senior health professionals have found their earnings are getting swallowed up by the tax system.

The problems primarily stem from the implementation of the pension annual allowance tapering rules. These have two key trigger points.

  1. Threshold income: broadly speaking, total income from all sources less personal pension contributions exceeding £110,000.
  2. Adjusted income: broadly speaking, total income from all sources plus employer pension contributions exceeding £150,000.

If both levels are crossed, the standard annual allowance for pension contributions of £40,000 is reduced by £1 for each £2 by which ‘adjusted income’ exceeds £150,000, subject to a minimum annual allowance of £10,000.

The all-or-nothing nature of the triggers can mean that just an extra £1 of earnings brings the taper rules into play. That additional £1 could therefore result in an additional tax bill of much more than £1.

To complicate matters further, £110,000 sits almost in the middle of the band of income between £100,000 and £125,000 at which the personal allowance is tapered away, creating an effective marginal tax rate of up to 61% in Scotland (60% in rest of the UK). Added to that will usually be 2% national insurance contributions.

If you have been ‘surprised’ by your pension tax bills, it could indicate that you’ve not received any financial and tax advice on how the pension taper rules, introduced from April 2016, would affect you.

This serves as a reminder of the importance of regular financial reviews to avoid – or at least be aware of – the growing range of tax traps in the UK’s labyrinthine tax legislation.

Surprise 2: If you are a buy-to-let investor, your tax bill in January may have been larger than usual.19942 MACO Tax Planning 38

When George Osborne announced in his Summer 2015 Budget a variety of tax changes aimed at discouraging buy-to-let (BTL) investment, they came as a surprise.

To ease their impact, the then Chancellor phased in the most significant reform, a revised treatment of interest relief, over four years and deferred its start date to April 2017.

Anecdotal evidence suggests some BTL investors did not know what had happened until they found a larger than expected tax bill in January.

The start of the third year of the phasing process began in April meaning that three quarters of any interest paid on BTL borrowing will be eligible for a 20% tax credit with only the balance of interest being fully deductible from rental income.

Sales by BTL investors could increase this year due to the interest relief changes and perhaps poor short-term prospects for capital growth.

There is also another tax incentive to sell on the horizon.

From April 2020, capital gains tax (CGT) on residential property (at 18% and/or 28%) will have to be paid within 30 days of sale, whereas the current rules effectively give a minimum of ten months’ grace.

Surprise 3 – The dividend tax allowance fell in April last year but the effects weren’t felt until January this year.

The dividend tax allowance fell from £5,000 to £2,000 which meant that any dividends you took in excess of the allowance attracted an income tax liability and could have resulted in an increased tax bill on dividend income.

If you haven’t already considered changing the way in which you balance your income and dividend payments, consider the following.

Married couples and civil partners should, where possible, make sure they spread their taxable portfolios between them to ensure they fully utilise each of their dividend allowances, personal allowances and basic rate bands.

The tax increase on dividend income makes sheltering taxable investments in an ISA all the more important as unlimited dividends can be withdrawn from an ISA tax-free and there is no CGT to pay in an ISA.

Tax Planning for Life 2019-20Icon Strip

We have just published our annual guide on our website which navigates you through a wide range of tax planning opportunities for all stages and facets of life, work and business.

It’s designed to give you ideas on how you can arrange your investments and wider financial and business affairs to reduce your own and your family’s current and future tax liabilities.

With Scotland now having its own set of income tax rates and bands and property transaction taxes which are diverging from the rest of the UK there will be additional issues to be considered.

No more surprises, please

If you don’t want any more surprises from HMRC - tax rebates aside (!) - then get in touch to arrange a consultation and I’ll help you to look at the potential tax impacts on your financial and business affairs and the planning opportunities that may be available to you.

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Out with the old tax year and in with the new Cloud meeting

 
Before you get out your party hats and streamers to celebrate the end of this tax year on April 5 and to herald the arrival of the next on April 6 (or maybe this is just in my house!), there are a few things worth considering in order to minimise your corporate and personal tax bills and to avoid making unnecessary overpayments.
 
Tax year end planning: 5 tips
 
(1) Bringing expenditure into this financial year, or deferring to the next, can have a significant impact on your tax position and financial results. If you are considering a significant new purchase, it is worth a discussion with your accountant to see when is best financially and from a tax perspective to make the entry in the ledgers.
 
(2) Maximise and use all allowances, credits and exemptions you are entitled to. For instance, capital allowances can represent a valuable tax deduction for your pharmacy. They can be claimed on a wide variety of capital assets including plant, machinery, equipment, fixtures & fittings and vehicles >Tax saving ideas: Capital Allowances
 
(3) If you are thinking about selling a business asset and a gain is likely to accrue – before you do, make sure you tax advantage the sale. For instance, tax due on an asset sale can be delayed by reinvesting the proceeds in another qualifying asset.
 
(4) Any dividends you currently take in excess of the £2,000 dividend allowance will attract an income tax liability. Any dividends above that threshold but still in the basic rate tax band will be charged at 7.5%. Those in the higher rate band will be charged at 32.5% and those in the additional rate band at 38.1%. If you haven’t considered changing the way in which you balance your income and dividend payments in this tax year, make it a priority for the next.
 
(5) From 1 April 2019, all UK pharmacy businesses that are VAT registered with turnover above the £85,000 VAT threshold will be required to maintain a digital record of their VAT transactions and submit VAT returns to HMRC using MTD compatible software.
If you haven’t already done so, you should contact your existing accounting software supplier to find out if they will be MTD approved before the deadline. If you are using basic spreadsheets at the moment, you should get in touch with your accountant to discuss a MTD-compliant alternative.
 
We have a few getting ready for MTD webinar videos on our website that also include demos of Xero, Sage 50 Cloud and Clearbooks Micro. If you are looking for a digital solution then they are worth a watch. >Preparing for MTD webinars
 
New tax year: 5 things you need to know  TPL fc 2018 19
 
(1) The personal allowance will increase to £12,500, however the 3% increase to the higher rate threshold announced by the Chancellor in the Budget statement will not be implemented in Scotland. The higher rate threshold (41%) in Scotland will be £43,430 and in the rest of the UK it will be £50,000.
 
(2) The tax-free amount for inheritance tax (IHT) will remain at £325,000 but the residents’ nil-rate band will rise to £150,000. For a married couple, this will give a tax-free band of up to £950,000. The £1m IHT free allowance heralded by George Osborne in his 2015 Budget will arrive in the 2020-21 tax year.
 
(3) The pensions’ Lifetime allowance will be increased by £25,000 to £1.055 million, however in reality this will have very little impact. What we are seeing though is a number of people actively considering more diversified retirement portfolios as they look to mitigate the effects of the recent reduction in the Annual allowance such as investments in Venture Capital Trusts (VCT) – an indirect investment in a small company which enables the taxpayer investor to benefit from 30% income tax relief on investments of up to £200,000, as well Enterprise Investment Schemes (EIS) and Seed EIS schemes which can offer up to 30% and 50% income tax relief respectively. Conditions do apply with VCT and EIS investments but they are worth a thought.
 
(4) Auto-enrolment contributions will increase to 3% employer and 5% for employees. Be sure to factor this in to your pharmacy expenditure projections for the year ahead.
 
(5) If you are thinking about buying a pharmacy, take note that you are likely to pay more tax. The upper rate of non-residential LBTT in Scotland is increasing from 4.5% to 5% and the threshold is being reduced from £350,000 to £250,000.
 
And finally… Brexit no deal brexit icon
 
Whether there is a “no deal”, a brief delay in the UK’s departure and a “deal” or a longer period of transition, we are advising all of our SME business clients to research all scenarios and to plan for the worst and hope for the best.
 
To aid this process, we have produced a Brexit planning checklist which is available to download from our website: www.maco.co.uk. I have also been assisting clients with ‘what if’ scenario planning, and the associated financial projections that reveal the reds and the blacks that may unexpectedly appear in the sales, stock and purchase ledgers as we have worked through some of the potential impacts. >UK "No Deal" Brexit Planning Checklist
 
It’s a worthwhile exercise which I would encourage you to consider. Send me an email if you would appreciate a discussion about this, or if you are looking to get on the front foot with your taxes, I would be delighted to hear from you.
 
Article first published in Scottish Pharmacist March 2019
 
 

Budget 2018: the key impacts on pharmacists MACO business

The 2018 Budget delivered opportunities for pharmacists and health sector businesses which are intended to support and encourage them to invest. However, Mr Hammond’s generosity was not all it appeared as the personal allowance and higher rate threshold will both be frozen in 2020/21 and he also kept many tax thresholds and allowances unchanged.

The annual investment allowance (AIA) will increase from £200,000 to £1,000,000 for qualifying investment. The increased allowance only applies to investment between 1 January 2019 and 31 December 2020.

Quite simply, capital allowances can reduce your annual tax bill. They can be claimed for some types of capital expenditure but, generally speaking, anything that is used for a business purpose that has a useful life of two or more years may qualify. See table inset for examples of qualifying investment. They are treated like any other expense and can be deducted from your profits when calculating your taxable profits at the end of the financial year. Alongside this, a new structures and buildings allowance has been introduced which has been set at 2% on construction or conversion costs over 50 years, where all the contracts for physical construction works were entered into from 29 October 2018.

So if you are considering building a new outlet or converting existing premises into a pharmacy, or you plan to upgrade equipment and fixtures and fittings next year, get in touch to discuss what tax-efficient options are available to you.

A £650 increase in the personal allowance to £12,500 will come in next year, one year ahead of schedule. There will also be an increase in the higher rate threshold (and self-employment National Insurance on profits) to £50,000; however, we will have to wait until 12 December to find out if the latter will be implemented in Scotland. The pension lifetime allowance, widely tipped to be cut pre-Budget, was increased to £1.055m from April 2019.

However, the personal allowance and higher rate threshold will both be frozen by the UK Government in 2020/21. A good example of the impact of frozen thresholds is the personal allowance that will continue to be tapered from an income level of £100,000. This threshold has applied since April 2010 and it creates high marginal rates for some pharmacists.

Combined with the increase in the personal allowance, for income between the taper threshold of £100,000 and the starting point for additional rate tax of £150,000: the first £25,000 will be taxed at up to 60% (61.5% in Scotland); and the next £25,000 will be taxed at 40% (41% in Scotland). If you haven’t had any financial and tax planning advice recently, get in touch with me and I’ll arrange to a time to discuss your remuneration and personal/family financial planning with you.

Article first published in Scottish Pharmacist December 2018

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Making Tax Digital (MTD) April 2019 Deadline: Are you ready? Cloud technology

From 1 April 2019, all UK pharmacy businesses that are VAT registered and above the £85,000 VAT threshold will be required to maintain a digital record of their VAT transactions and submit VAT returns to HMRC using MTD compatible software.

Pharmacies that are VAT registered but fall below the VAT threshold will not have to register for MTD just yet and can continue to submit their VAT returns to HMRC as normal until April 2020. If your pharmacy will be using the MTD system next year, you must use approved accounting software which will enable you to send regular updates to HMRC.

If you haven’t already done so, you should contact your existing accounting software supplier to find out if they will be MTD approved before the deadline. If you are using basic spreadsheets at the moment, you should get in touch with your accountant to discuss a MTD-compliant alternative.

Keeping digital records will not mean pharmacies are required to use digital invoices and receipts but the actual recording of supplies made and received must be digital. It is likely that third party commercial software will be required for those not using MTD-compliant software come April next year. Software will not be available from HMRC.

The use of basic spreadsheets to store your records and manually entering and/or tweaking your submissions in HMRC’s website will also not be an option from 1 April 2019.

Moving to MTD-complaint software in advance of the deadline, or appointing an agent who is MTD-ready to submit returns on your behalf, will set your pharmacy in good stead when other taxes, such as Income Tax and Corporation Tax, fall within the MTD programme over the next couple of years.

The best time to make the switch to MTD-compliant software will, in part, be driven by your accounting year. If your accounting year follows the tax year and ends in March 2019 with your quarterly VAT returns following the calendar quarters March, June, September and December, you will need to MTD ready by 1st April 2019 as any transaction which takes place on or after this date will be included in your June 2019 MTD VAT submission.

If your accounting year ends on a different date (e.g. 30th November), you should consider switching software as soon as you can, in this instance from 1st December 2018. If you begin a new accounting year without a MTD solution in place, you may find that you will have to switch accounting systems part-way through an accounting year which can be done but is best avoided.

If you are having trouble understanding your options and what you need to do get MTD-ready, get in touch and we can chat through your options.

Article first published in Scottish Pharmacist October 2018

Watch our MTD webinars: what is MTD and what you need to do to prepare; MTD for VAT demos - Sage50 Cloud, Xero and Clearbooks Micro >watch now

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