At a time where incomes are being squeezed for a range of different reasons, it’s understandable that the number of queries we’re getting from our GP clients on how they can reduce their tax bills in the financial year ahead has been increasing.
In response to this growing trend, I’ve put together a list of ways in which you might look to minimise your tax liabilities, which can help ensure that your personal finances are in the best possible health. Figures are correct for the tax year 2013/4.
- Keep income under £118,880, or enjoy the lower rate on larger amounts - The net income limit for benefiting from the full personal tax allowance (£9,440) is £100,000, and there is also a band of income above that which is effectively taxed at 60%. Personal allowances are reduced by £1 for each £2 above £100,000, and once yearly income reaches £118,880 personal allowances are cut completely. Avoid having income in this narrow band if at all possible. However, the upper threshold for the 40% rate of tax is £150,000 and the rate for income above that figure has been reduced for 2013-14 from 50% to 45%.
- Record personal expenses in full - It is crucial to review carefully which expenses have been incurred privately and then being claimed against the net practice income – you need to know the kind of expenses you can legitimately claim, and for motor expenses, on what basis (i.e. a proportion, or on a mileage basis). HMRC is increasingly challenging these expenses and their legitimacy, quite often with some success. Record the correct details of your expenses in full during the course of the year to substantiate claims and avoid being challenged later.
- Choose a lower-emission car for tax relief - The Annual Investment Allowance does not include cars, but on low emission cars, there is a similar 100% first year allowance. For 2013-14, this relates to cars with up to 95 grams per kilometre, a reduction from 110 g per kilometre in the previous year.
- Invest in your children’s ISAs - The ISA investment allowance for 2013/14 is £11,520 and includes equal cash and stocks and shares maximums of £5,760. A junior ISA (annual investment limit £3,720) is also available. The invested funds will be locked in until the child reaches the age of 18, but both parents and other relatives can pay in.
- Reduced inheritance tax liabilities by re-writing your will - Changing property values means it is quite easy to exceed your current tax-free limit before inheritance tax is incurred (the nil rate band is £325,000, or £650,000 for a married couple) especially if you own part/all of your surgery. Plan for potential inheritance tax liabilities by using reliefs, such gifting £3,000 per annum plus smaller gifts up to £250, and gifts relating to marriage and gifts out of income.
- Form a limited company for any non-NHS income - Maximise the value of your resources over several years, rather than immediately, with income being extracted out of the company as and when required. Costs involved with forming a limited company include cost of setting up and the higher cost of filing accounts, and you would need sufficient private income to make the savings worthwhile. Note, the income you put into it should be ‘non-superannuable’ – from private activities such as carrying out medicals or preparing reports.
Richard Humphreys is a tax manager at RMT Accountants & Business Advisors’ healthcare group.