Looking to 2024 – tax and other changes for medical professionals

It’s been a few months since the Chancellor presented his Autumn Statement in November 2023, providing an update on the financial changes and plans for the country.

Funding for general practice continues to be eroded by inflation, despite inflation figures reducing considerably over the past few months. This reduced funding had a significant impact on practice profits for 2023 year-ends, resulting in most practice’s profits decreasing substantially. This has been hard to adjust to for some and future uncertainty also adds pressure, meaning it is more difficult to make key decisions.

2024 will be a significant year and the Spring Budget should be an interesting watch. It’s likely that the Government is saving any major changes until then to provide a springboard into any planned general election.

Clearly practices will be keen to understand the implications of contract negotiations and whether funding will be enhanced to cover the shortfalls in recent years.

Below are some of the notable announcements from the Autumn Statement, that impact on the medical profession. There’s nothing ground-breaking, but a few boosts here and there.

National insurance contributions (NIC)

Self-employed

Class 2 NIC will be abolished from 6 April 2024. This is currently paid by all self-employed individuals, where profits exceed £12,570 per year, at the rate of £3.45 per week, which had been due to increase to £3.70 a week from 6 April 2024. The abolishment  will create an annual saving of £192.40 for the 24/25 tax year, but this will not be felt in pockets until January 2026!

For those with self-employed profits below £6,725, voluntary contributions can still be made (at the rate of £3.45 per week – this amount has been retained at current levels) in order achieve a qualifying year for state pension benefits.

Those earning between £6,725 and £12,570 do not need to contribute and instead, will automatically receive their credit.

Self-employed individuals also pay Class 4 NIC on profits generated over £12,570. From 6 April 24, the initial rate will reduce from 9% to 8%. Income over £50,270 will continue to attract NIC at the rate of 2%. Again, the impact of this will not hit the self-employed until January 2026.

The savings on Class 2 and 4 will be £569.40 for anyone earning more than £50,270. A reasonable saving for locums and partners.

Employed

Class 1 NIC is paid by employees where income exceeds £12,570 per year.

Where income falls between £12,570 and £50,270, the rate is 12%. Where income exceeds £50,270, 2% is paid on the excess.

From 6 January 2024 (a part year change!), the initial rate of Class 1 NIC reduced to 10%. The highest rate (2%) will remain the same.

For an individual earning over £50,270 per year, this will equate to an annual saving of £754. An increased saving compared to the self-employed and no doubt a welcome addition to take-home pay.

Taxes

There weren’t any changes in relation to income tax, capital gains or inheritance tax.

As a reminder, the Spring Budget 2023 saw the planned reduction of various allowances as follows:

• Capital gains tax annual exemption – £6,000 in 23/24 and £3,000 in 24/25
• Dividend allowance – £1,000 in 23/24 and £500 in 24/25

There were also no further changes to corporation tax. The introduction of the 25% rate from 1 April 2023 for profits over £250,000 (marginal relief where over £50,000) remains.

As for other allowances and bands, such as the personal allowance (£12,570) and higher rate threshold (£50,270), these are currently due to remain the same for some years to come. As inflation increases wages and income, tax revenue naturally increases with the frozen allowances – a handy way for the Government to fund the other cuts on offer.

National living wage (NLW)

Many GP practices employ staff at the lower end of the pay scale. Staff pay is often linked to minimum and living wage, either to set the rate itself, or for increases to staff paid over those rates to retain the pay gap.

Over the past few years, those rates have increased substantially, and core practice funding has not kept pace. Those staff deserve a pay-rise for their hard work and dedication, but the lack of funding is clearly a key issue for practices.

From April 2024, the NLW will increase by 9.8% to £11.44 an hour. There are other notable rises for staff aged under 25.

Practices have advance warning of this and should ensure they budget appropriately for the increased cost. Can more income be generated to outweigh the cost, or can other costs be reviewed?

Capital allowances

In the Spring Budget (2023), a full expensing deduction was introduced on certain capital expenditure meaning 100% tax relief was available. This was only intended to be a temporary measure until the end of March 2026. This added to the annual investment allowance (AIA), a 100% tax deduction up to £1m/year. However, this new relief was only available to companies. So practices will not be able to benefit from this.

In the Autumn Statement, the Government confirmed this would be a permanent relief.

Whilst full expensing is not available to partnerships or sole traders, they are still able to benefit from the AIA (£1m of 100% deductions), first year and writing down allowances. Unless spend is more than £1m on qualifying* capital expenditure, full relief is still available.

*Qualifying capital expenditure would be plant, machinery, and equipment and not the majority of spend in relation to buildings.

Pensions

The Spring Budget 2023 came with some bonus announcements for NHS pension members. The abolishment of the lifetime allowance (LTA), whilst under a Conservative government, and an increase in the annual allowance from £40,000 to £60,000. This was all welcome news and has certainly helped pension members.

The Autumn Statement was virtually silent on pensions, other than providing confirmation that the LTA removal will become legislation from April 2024.

With a general election impending this year, along with a likely change in government, pensions will be a hot topic over the next year. Given the values involved any change, good or bad, will have a substantial impact on members.

Self-assessment

Historically, individuals with annual income from employment over £100,000 have been required to complete a self-assessment tax return each year. This was increased to £150,000 earlier in the year for those looking to complete 2023/24 tax returns.

The Autumn Statement saw the removal of this, meaning for the 2024/25 tax year, if your only income source is that of employment, there is no requirement to submit a tax return (regardless of the level of income).

Individuals should take care when considering whether they need to submit a return, as the receipt of bank interest, dividends, child benefit or having over £2,500 of deductible expenses, may all be reasons why a tax return is still required.