Encouraging practices to invest
Measure: The government has increased investment allowances to stimulate spend.
Verdict: Many thought this form of company tax relief would be phased away but it has actually been given a new lease of life. The change results in practices being able to deduct from their taxable profits up to £1m of new investment per annum, a fivefold increase on the previous level. However, this temporary increase will only last until December 31, 2020.
Income tax relief
Measure: Lowering of personal allowances designed to get people spending.
Verdict: This certainly was good news for everyone as the Chancellor brought forward by 12 months an increase of £650 to the tax-free personal allowance. All taxpayers would therefore have an extra £130 in their pockets for the tax year starting from April 6, 2019. Additionally, there was an increase in the starting level of 40% higher rate tax to £50,000, worth an extra £730 to higher rate taxpayers. Taken together, anyone earning over £50,000 in the next tax year will have their income tax bill reduced by a total of £860, a tidy sum to remind your patients of when they are thinking of buying new frames.
High Street regeneration
Measure: Business rates temporarily slashed by a third for a reported 90% of retail properties.
Verdict: During the Chancellor’s speech small high street practices were told they would receive a 33.3% reduction in business rates for two years in an attempt to regenerate the high street and stave off the online juggernaut. As always the devil is in the detail so we await the Chancellor’s Red Book to discover how this will work and whom this benefit will affect. Early signs are that it will only apply to retail stores where the rateable value is less than £51,000. A simple ready reckoner would be to multiply the rateable value by 47.9% providing a maximum qualifying annual rates bill of £24,429.
IR35
Measure: Off payroll working tax rules reform in 2020 for larger chains using locums.
Verdict: The IR35 anti-avoidance measures are intended to attack service companies used by contractors to ‘tax disguise employment’.
A blanket purge of public sector contractors has already been expanded to private sector optician practices utilising locums. Many of the practice owners and locums reading this will already have experience of having to reply to an HMRC online questionnaire to determine whether a professional locum used in a practice should be taxed ‘on the books’ as employed.
However, the expansion of the IR35 public sector legislation to the private sector will only start from April 2020, and the Chancellor stated that the measures will not affect ‘small businesses’ defined as having turnover of less than £10.2m and less than 50 employees. This should therefore exclude single practices and small groups of optician practices but will certainly affect the mid-sized groups with over 20 practices and multiples.
In essence the aim of the legislation is to leave locums who organise their tax affairs through a limited company with the worst of both worlds – a tax bill the same as regular employees but without the accompanying employment rights. The single biggest antidote to the widening IR35 net remains for the contracting entity to be willing and able to provide a client practice with a suitably qualified ‘substitute’. This person must have the same level of professional expertise to carry out the services where circumstances prevent the locum from attending in their own right and most importantly of all, must be acceptable to the client practice on that basis. This is a complicated area and requires a detailed review of the legislation and determining factors separating disguised employees from bona-fide self-employed professional locums.
Entrepreneurs’ relief
Measure: An extension to the minimum period of business investment before relief.
Verdict: This tax relief affects both practice owners and those employees with share options when a practice or group is sold. The Chancellor has now made it tougher to qualify for the reduced capital gains tax rate of 10% that Entrepreneurs’ Relief brings on the sale of shares in a qualifying business and two new conditions have been introduced.
The time period for holding an interest or qualifying shares in a business has increased to two years, from 12 months previously, before the reduced rate of CGT applies.
Minimum 5% interest in the optical business will need to have been held throughout in order to halve the CGT when selling business interests.
VAT
Measure: Threshold to stay the same for a further two years up until April 2022.
Verdict: No budget summary for opticians would be complete without a few words on VAT. The budget speech itself was relatively quiet on VAT and the major announcement was that the VAT registration threshold for new and existing practices would remain at £85,000 per annum for the next two years.
What the IR35 changes could mean for you
Regulations and taxation of locums was a talking point in optics long before Fiscal Phil stepped into 11 Downing Street.
In 2015, an Optical Workforce Study by the College of Optometrists found 17.5% of optometrists and 9.1% of dispensing opticians worked primarily as locums.
Asked about this week’s proposed changes to IR35, College head of research Martin Cordiner believed the trend towards eye care professionals seeking flexible work would continue.
‘Although there are financial implications for working as a locum, our OWS shows that 45.7% of optometrists chose flexible working as their main career preference, so it’s hard to say if this will stem the flow as many may simply prefer flexibility or variety in working arrangements,’ he said.
However, a leading recruitment consultant told Optician in September that those locums working within the NHS, already subject to IR35, faced ‘significantly less income’.
When new rules enter the private sector the responsibility for operating them moves from the individual to the employer or agency from 2020, although ‘small organisations’ were promised exemption.
Jonathan Foreman, MD of Observatory Wardale Williams, would fall under this bracket but has nonetheless favoured the option of offering fixed employment.
He added: ‘I had been aware of the need to ensure the status for some time, and each year the accountant would ask about certain things. Key questions that he asked were: Any obligation? Could they send a substitute? Did they send an invoice each month itemising days worked? Any pictures or reference on websites, or business cards? When we did the checklists the key area that assured me was the part about substitution.
‘In the last couple of months we have ensured contracts are in force and up to date, whether via a limited company or not. And two people are becoming employed.
‘So with the contracts, which are of course essential, and the two going employed, I am relaxed about this for my company. Certainly their lawyers know it is all changing so the conversations have been very easy. There will be extra costs to the business in the case of the employed people of course, and I hope to more than offset that by being able to really engage and work closely together with them, with the full support of the training and other rewards we can give. I would be feeling very anxious if we weren’t on top of this, especially now HMRC are sending out letters to opticians with a 30-day deadline.’
Luke Elias, managing director of Vivid Optical, added: I have previously given a number of warnings on the implications of IR35 when introduced into the private sector and, with this coming into effect in 2020, the impact will be huge in the optical sector. The “long term locums” with regular days at one company will be no more.
‘More and more locums will have to go employed and the whole job market as we know it will change. The time has now come to really assess and analyse what the future will be bring and the last thing anyone wants is to look for a role in a changing climate. Right now in a number of areas across the UK, employed optoms are a precious commodity but once the market changes, your value will decrease and so will your salary potential.’