GPs could face damaging rise in income tax next year, accountants warn

Changes to tax rules could trigger a sharp rise in income tax for GPs next year, creating 'catastrophic' cashflow problems and a spike in pension annual allowance charges, accountants have warned.

The government has set out plans for a 'simplification of the income tax system', ahead of broader plans to shift to a more digital process.

Under the proposals, all businesses including GP partnerships would in future 'simply be taxed on profits arising in a tax year'. The current system under which around one in three businesses have year-ends for accounting purposes at dates other than 31 March or 5 April would cease from 2023/24.

To implement the changes, the 2022/23 financial year would become a 'transition year' - a year in which the government has warned that businesses could 'experience higher than normal profits' and as a result, increased tax liabilities.

GP tax bill

Accountants have warned that individual GPs could face significant extra tax bills in the transition year - as well as potentially facing annual allowance charges as unexpectedly high pensionable income drives up their pension contributions.

Laurence Slavin, a partner at specialist medical accountants Ramsay Brown, said the significant impact of the changes during the transition year could force GPs to consider measures such as opting out of the NHS pension scheme, or forming a limited company to take over their practice contract.

He explained that the impact will be greatest for practices whose current financial year-end comes soon after the standard 31 March/5 April end of a tax year.

A GP partner with taxable profits of £178,240 - the average amount for a partner represented by Ramsay Brown - could see this figure rise to £266,092 in the transition year if their practice's current year end was in June, he said.

Increased costs

This would push the GP over the annual allowance threshold of £200,000, and leave them facing a substantial additional pension tax bill on top of the increase in income tax - although the income tax element could be spread over five years.

The sharp rise comes because as the government consultation document makes clear, 'the move to the tax year basis would potentially bring forward tax liabilities'.

A GP whose current financial year end is in June would pay tax in the transition year on the full 12 months of their normal accounting year, plus the remaining nine months of the tax year up to the end of March 2023. This figure would then be reduced to account for any 'overlap profits' carried forward from the point when they first joined a partnership.

This overlap profit is normally carried forward until retirement, the closure of a business, or until a business changes its accounting year, or 'basis period' - but now will be brought forward to 2022/23 for anyone with overlap relief to claim.

Commenting on the overall changes, Mr Slavin said: 'This proposal will have a catastrophic effect on GPs' cashflow for 2022/23 and will accelerate a pension annual allowance charge at a time when the profession is recovering from penal tax charges on their pension.

'It is critical that GPs get good and early advice to mitigate the effect of the tax charges caused by the change in tax basis periods.'

Have you registered with us yet?

Register now to enjoy more articles and free email bulletins

Register

Already registered?

Sign in

Follow Us:

Just published

BMA demands emergency meeting with government over GP abuse

BMA demands emergency meeting with government over GP abuse

BMA leaders have requested an emergency summit with the government to discuss ‘unacceptable...

Millions of pounds lost to general practice as flagship recruitment scheme falls short

Millions of pounds lost to general practice as flagship recruitment scheme falls short

Tens of millions of pounds in funding from a flagship recruitment scheme set up to...

Man charged with assault after attack on Manchester GP surgery staff

Man charged with assault after attack on Manchester GP surgery staff

A man has been charged with assault after four members of staff at a GP surgery in...

General practice in Cornwall 'on the brink of crisis', says LMC

General practice in Cornwall 'on the brink of crisis', says LMC

General practice in Cornwall is 'on the brink of a crisis' and may not cope this...

Flu vaccine deliveries to start from this week, supplier confirms

Flu vaccine deliveries to start from this week, supplier confirms

GP practices will begin to receive delayed flu vaccine supplies this week after supplier...

Coronavirus: Key guidance GPs need to know about COVID-19

Coronavirus: Key guidance GPs need to know about COVID-19

GPonline provides an overview of the key guidance relating to coronavirus, including...