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How to minimise your practice's tax bill

Accountant Paul Samrah stresses the crucial importance for a practice of minimising tax

Accountant Paul Samrah stresses the crucial importance for a practice of minimising tax

It is a truism to say that one way of maximising income is minimising loss. Minimising tax loss is particularly vital. Here are some useful tips:

Childcare vouchers

With practices ever mindful of increasing staff costs, offering childcare vouchers to employees with young children can be a very useful motivational tool and at the same time save the practice money.

Childcare vouchers can be offered in addition to salary. More commonly they are offered as a "salary sacrifice".

This means that employees sacrifice a specific amount of their salary and instead receive that amount in childcare vouchers.

Childcare vouchers (up to a limit of £55 a week, or £243 a month) are exempt from tax and NIC, so an employee will only pay tax and NIC on the reduced level of their salary.

This effectively saves them money on childcare costs. For a basic rate taxpayer, this could save more than £900 a year on childcare costs.

If the employee pays 40% tax, the saving could be over £1,200 a year. Each employed parent can claim the exemptions.

A two-parent family could save more than £2,000 (basic rate tax bracket) or £2,400 (higher rate tax bracket).

For the practice, you have saved 12.8% on the salary sacrificed – so if you have given £55 a week in vouchers for the year, rather than as salary, you will have saved £366.08 in Employer's National Insurance.

Relocation costs

Any practice taking on a new partner, practice manager or other employee where he or she has to move home to be near the new job can save tax.

Up to £8,000 can be paid, tax and NIC free, to cover the costs associated with the move.

The costs can include hotel or other temporary accommodation, travel between the old and new locations, and costs of selling a former home or buying a new one.

The latter includes legal fees, agent's fees and Stamp Duty Land Tax.

There are conditions attached, so make sure the detailed rules are obeyed. The exemption only applies if the employer bears the costs, either directly or through reimbursement.

So even if the employer did not intend to pay the relocation costs, consider a lower salary in the first year topped up with a relocation package.

Capital expenditure allowances

Capital expenditure incurred in an accounting period usually qualifies for Capital Allowances (CAs) – these will effectively reduce your taxable profits for the period.

For tax purposes, the expenditure (on equipment, plant & machinery, cars etc) is incurred when the obligation to purchase becomes unconditional.

In certain circumstances an unconditional order can be made late in an accounting period and the Practice is able to claim CAs for that period, even if payment is not made until after the Balance Sheet date.

It is always worthwhile considering the eligibility of any building work for CA relief.

On average, 35% of cost is eligible for CAs. In the case of new practice building projects, taking account of tax considerations at the planning specifications stage can now generate significant savings in an increasingly complex area of taxation.

Significant changes to CAs, introduced from 6 April, include:

The introduction of an annual Investment Allowance of 100% for the first £50,000 of expenditure on most plant and items of surgery equipment (excluding cars);

The list of items qualifying for Enhanced Capital Allowances (@ 100%) has been extended.

These new additions include waste water recovery and reuse systems, compressed air master and flow controllers, heat pump dehumidifiers and white LED lighting.

Further details can be found on www.eca.gov.uk.

Cars with CO2 emissions of 120 g/km or less qualify for 100% CAs.

However from 6 April 2009, the exhaust emissions threshold reduces to 110 g/km.

For details of cars and their CO2 emissions, go to www.vcacarfueldata.org.uk.

The effect of these changes will vary from practice to practice.

It is therefore very important to be able to identify all items of expenditure to ensure that maximum tax reliefs are obtained.

The changes to Capital Gains Tax (CGT) has seen an 18% flat rate of CGT being introduced alongside the maximum £1m Lifetime Entrepreneurs' Relief (LER), which is taxed at 10%.

To qualify for the LER, conditions include being an officer or employee for at least the last year and having a minimum 5% stake in the trading entity.

For partners owning a share in the surgery premises, this is an especially valuable relief.

Paul Samrah is a partner with accountants Kingston Smith LLP

Accounts balance sheet

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