When asked to help a client with their Net Pensionable Earnings Declaration, we discovered that not all of the pensionable earnings were being claimed and that the principal was under-declaring their own pensionable earnings by approximately £40,000. Consequently they had been under-paying superannuation contributions and their pension fund was lower than it should have been. If this continued it would have had a huge effect on their final NHS pension entitlement.
Conversely, their associate’s pensionable earnings were over-stated by £15,000. The associate had therefore been contributing higher amounts of superannuation than required.
Incorrect pensionable earnings can also affect sick pay, maternity/paternity pay, death in service lump sum and survivor benefits.
Whilst preparing a new client’s annual accounts for the first time, we discovered that they were incorrectly deducting superannuation on their associate pay schedules. They were deducting the superannuation from the NHS fee income, before applying the associate 50% licence fee. This meant that they were paying half of the associate’s superannuation! At the time we discovered the error they were about to take on a new associate and begin paying them in the same way. Our findings saved the client over £3,000 per annum.
Capital allowance claims
After checking whether capital allowances claims had been previously made on a new client’s practice property, we investigated whether claims could now be made on the “integral features” of the property. Integral features include items such as plumbing, heating and lighting systems. We calculated that an additional £23,000 of capital allowances had not previously been claimed, which saved the client a significant amount of tax.
The amount of capital allowances available in respect of integral features often depends on the type and size of the practice and the tax saving will depend on the individual’s rate of tax.
Since April 2014, for the buyer of a dental practice property to make a capital allowances claim the vendor must have made a claim themselves, which makes this a very important area to review.
A sole trade client was making average taxable profits of around £100,000 per annum, with an average tax liability of £35,000 per year. After detailed consideration of the pros and cons of incorporation, we helped them to incorporate their dental practice six years ago. The overall tax savings to date, after considering the Capital Gains Tax on incorporation, are more than £118,000 and we anticipate that they will continue to make a tax saving each year until they sell/retire.
Whilst the rules regarding incorporation changed in December 2014, reducing the tax benefits associated with the sale of the practice goodwill on incorporation, there are other reliefs available such that the Capital Gains Tax liability on incorporation could be avoided. With corporation tax rates due to drop to 17% in 2020, the ongoing tax savings may still make incorporation worthwhile. A regular review of your circumstances by a specialist is essential.