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WHILST NOT AS painful as the dreaded root canal surgery, managing tax as a self-employed associate dentist can be a challenging task – especially when it comes to understanding tax deductible expenses.

In today’s Shipleys Tax article, we will set out a basic guide to various deductible expenses, including travel, subsistence and accommodation: and we look at some problem scenarios.

Travel Expenses

Travel expenses can be a significant cost for associate dentists who need to visit different practices, attend professional courses, or participate in conferences. The good news is that these expenses can be tax-deductible if they are deemed necessary for the business. Here are some guidelines for deducting travel expenses:

a. Ordinary commuting costs between your home and a fixed workplace are generally not deductible. However, travel expenses between different workplaces or temporary work locations are deductible.

b. Expenses related to attending professional courses or conferences, including registration fees, can be claimed if they are relevant to your work as a dentist.

c. If you use your personal vehicle for business purposes, you can claim either the actual expenses incurred (such as fuel, maintenance, and insurance) or a standard mileage rate as set by HMRC.

Remember to keep accurate records of your travel expenses, including receipts, invoices, and a log of your business-related trips.

The good news is that these expenses can be tax-deductible if they are deemed necessary for the business.

Subsistence Expenses

Subsistence expenses, such as meals and beverages, can be deductible if incurred while away from your regular place of work for business purposes. Keep the following guidelines in mind:

a. The expense must be “reasonable” and not lavish or extravagant. HMRC have specific rules and limits on the amount you can claim for meals in certain circumstances.

b. The cost of meals during regular working hours is generally not deductible unless you are away from your usual place of work for a business purpose.

c. If you attend a professional conference or course that includes meals as part of the registration fee, you can claim the entire fee as a deductible expense.

Accommodation Expenses

Accommodation expenses incurred while traveling for business purposes can be tax-deductible. However, specific criteria must be met:

a. The trip must be primarily for business purposes, and the accommodation must be necessary for you to carry out your work-related duties.

b. The cost of the accommodation should be reasonable and not extravagant. HMRC have specific guidelines on the maximum amounts that can be claimed.

If you attend a professional conference or course that includes meals as part of the registration fee, you can claim the entire fee as a deductible expense.

c. Generally, if the trip includes personal activities or vacation time, you must allocate the expenses between the business and personal portions of the trip. Only the business-related portion of the accommodation expenses can be claimed as a deduction.

Some problem scenarios

Let’s look at a few oft recurring travel scenarios that self-employed associate dentists seem to encounter and how the rules for tax deductions might apply:

Scenario 1: Combined Business and Personal Travel

You plan to attend a three-day dental conference in another city. After the conference, you decide to stay for two additional days to explore the city and visit friends.

In this scenario, you must allocate the accommodation expenses between the business and personal portions of the trip. You can claim the accommodation expenses for the three days of the conference as a tax deduction, but the expenses for the additional two days of personal activities are not deductible.

Scenario 2: Accompanying Spouse or Family Members

You are invited to speak at a dental seminar in another country. Your spouse and children accompany you on the trip, but they do not participate in any business-related activities.

In this case, you can claim only the portion of the accommodation expenses attributable to your own stay. If you have to pay extra to accommodate your spouse and children, you cannot claim that additional cost as a tax deduction.

Scenario 3: Business Trip with Side Trips for Personal Reasons

You attend a week-long dental course in another city. During your stay, you decide to take a day trip to a nearby tourist attraction for personal enjoyment.

In this situation, you can still claim the accommodation expenses for the entire week as a tax deduction, as the primary purpose of your trip remains business-related. However, you cannot deduct the expenses related to your side trip, such as admission fees to the tourist attraction or additional transportation costs.

However, you cannot deduct the expenses related to your side trip, such as admission fees to the tourist attraction or additional transportation costs.

Scenario 4: Prolonged Business Stay with Periods of Personal Time

You need to work at a temporary dental practice in a different city for three months. During this time, you rent an apartment for accommodation. On weekends, you often engage in personal activities, such as sightseeing or visiting friends.

In this case, you can generally claim the full cost of the apartment rental as a tax deduction, as the primary purpose of your stay is business-related. The fact that you engage in personal activities during your free time does not disqualify the accommodation expenses from being deductible.

Computer says no…?

All good and well you may think. Not quite unfortunately. The UK tax system has a sneaky habit of throwing a rule or two to scupper your expenses claim, in this case the principle of “duality”. The duality principle refers to the idea that an expense can only be tax deductible if it is incurred wholly and exclusively for the purpose of the trade, profession, or vocation. HMRC frequently uses this rule to deny expenses claims.

The duality principle refers to the idea that an expense can only be tax deductible if it is incurred wholly and exclusively for the purpose of the trade, profession, or vocation. HMRC frequently uses this rule to deny expenses claims.

This principle emphasises the need to accurately allocate expenses between business and personal activities for complex travel and accommodation scenarios. Proper understanding of this rule will also help overcome HMRC challenges and maximizes tax deductions for your dental self employment.

Please note that the information provided in this article should not be considered tax or legal advice. It is always recommended to consult with a tax professional or accountant to receive personalized advice tailored to your specific circumstances and to ensure compliance with the latest tax regulations.

If you are affected by any of the issues above and would like more information, please call 0114 272 4984 or email info@shipleystax.com.

Please note that Shipleys Tax do not give free advice by email or telephone.

A very happy Eid Mubarak to all those celebrating the end of the fasting month of Ramadan from the Shipleys Tax Team.

Hope you have a great few days!

WE CHERISH OUR partners for a multitude of reasons, yet tax planning rarely ranks among the top. Nevertheless, in light of the unprecedented tax burden faced by taxpayers today, planning with shares and spouses can be a valuable tool for both individuals and businesses to manage their tax liabilities effectively.

In today’s Shipleys Tax article, we explore some of the basic considerations for tax planning with shares and spouses and the traps that one should avoid.

Shares and Spouses

One of the most common tax planning strategies involving shares and spouses is the transfer of shares between spouses. This can be done to take advantage of lower tax rates or to transfer ownership of a company or business. By utilising tax free allowances by paying a spouse a small salary, usually up to the primary threshold, so as to incur no PAYE or NICs but still maintain entitlement to state benefits and the state pension. The company gets corporation tax relief on the salaries, and earnings are then topped up by dividends.

However, it is essential to understand the tax implications of such transfers and to ensure that they are done correctly.

One of the most common tax planning strategies involving shares and spouses is the transfer of shares between spouses

Firstly, when transferring shares between spouses, it is important to consider the capital gains tax (CGT) implications. In the UK, CGT is a tax on the profits made from selling assets, including shares. The current CGT allowance for individuals is £12,300 for the tax year 2022/23. However, when transferring shares between spouses, the transfer is not subject to CGT. Instead, the transfer is deemed to take place at market value, and the new owner of the shares takes on the original cost of the shares for future CGT calculations.

Secondly, it is important to consider the income tax implications of transferring shares between spouses. Dividends from shares are subject to income tax, and if a higher-earning spouse transfers shares to a lower-earning spouse, they may be able to take advantage of the lower tax rates. However, there are rules in place to prevent spouses from using this strategy to avoid tax. The so-called “settlements legislation” applies to situations where income is transferred between spouses in order to take advantage of lower tax rates. In such cases, the income will be taxed as if it had been earned by the higher-earning spouse.

The Traps to Avoid

When it comes to tax planning with shares and spouses, there are several traps that individuals must avoid. These include:

1. Failing to properly document the transfer of shares between spouses – It is essential to document any transfers of shares between spouses to ensure that the transfer is valid and to avoid any disputes with HMRC.
2. Failing to consider the long-term implications of the transfer – Transferring shares between spouses can have long-term implications, such as future CGT liabilities, and individuals must consider these implications before making any transfers.
3. Failing to comply with the rules on settlements – The settlements legislation can be complex, and individuals must ensure that they comply with the rules to avoid being subject to additional tax liabilities.

Dividends from shares are subject to income tax, and if a higher-earning spouse transfers shares to a lower-earning spouse, they may be able to take advantage of the lower tax rates

• Alphabet share schemes – companies may issue so-called “Alphabet shares” to spouses, which restrict shareholders voting rights, and/or their right of income to dividends, or capital on a winding up, based on performance or some other metric. Gifting or issuing such shares to such key individuals could be argued by HMRC to be “substantially a right to income”, and therefore would fall foul of settlements legislation above.

If however such shares issued under a carefully drafted alphabet share scheme, have equal and full minority voting rights applied, then broadly HMRC would not be able to attack this arrangement as a “settlement”, as always there are exceptions to this however and it is best to take professional advice.

Conclusion

Tax planning with shares and spouses can be a valuable tool for managing tax liabilities effectively. However, individuals must be aware of the potential traps and pitfalls that can arise when using this strategy. By properly documenting any transfers of shares, considering the long-term implications of the transfer, and complying with the rules on settlements, individuals can avoid these traps and ensure that their tax planning strategies are effective and compliant with tax rules.

If you are affected by any of the issues above and would like more information, please call 0114 272 4984 or email info@shipleystax.com.

Please note that Shipleys Tax do not give free advice by email or telephone.

AFTER THE PREVIOUS blockbuster Budgets, today’s Spring Budget 2023 announcement was bit of a damp squib. While the Chancellor’s may not have been the most exciting event, it did have some notable highlights worth mentioning.

The main focus of the speech was on incentives for working parents, older individuals, and carers, rather than on tax changes. However, it was confirmed that the corporation tax increase previously announced in 2021 will go ahead from April 1, 2023, with the main rate increasing to 25%.

In today’s Shipleys Tax  note we look at the main Budget 2023 announcements.

Incentives for Working Parents, Older Individuals, and Carers

The Chancellor’s Spring Budget 2023 placed a significant emphasis on providing support for working parents, older individuals, and carers. Several measures were announced with the aim of incentivizing these groups to continue working and contributing to the economy. See here..

Pensions

Pensions were a major topic, with changes to both the annual allowance (AA) and lifetime allowance (LA) thresholds. The AA, which is the maximum amount of tax-relieved contributions that can be made in a pension input period, will increase from £40,000 to £60,000 starting in 2023/24. The LA charge will be removed for 2023/24 and completely abolished from 2024/25, instead of increasing to £1.8M as previously rumoured. The money purchase annual allowance will also increase from £4,000 to £10,000 from 2023/24.

The changes to the annual and lifetime allowances for pensions have been controversial, with some critics arguing that they primarily benefit the very wealthy. However, the removal of the lifetime allowance charge from 2023/24 is seen as a positive development for some GPs and dentists.

Many GPs and some dentists have been affected by the lifetime allowance charge, which can result in a significant tax bill for those with large pension savings. The removal of the charge is expected to provide relief for these individuals, who may have been considering early retirement or reducing their working hours to avoid the charge.

Despite the positive impact for GPs and some dentists, there is ongoing debate over the fairness and effectiveness of the pensions reforms, with some calling for further measures to address pension inequality and encourage more widespread saving for retirement.

Changes to System of Capital Allowances

In terms of businesses, there will be changes to the system of capital allowances. From April 1, 2023, until March 31, 2026, companies will be entitled to a 100% first-year allowance for capital expenditure on IT equipment and plant and machinery. The 50% deduction for special rate expenditure will also be extended during this period.

Expanding Cash Basis for Unincorporated Businesses

• There will be a consultation on expanding the cash basis for unincorporated businesses.
• This may lead to relaxations of restrictions on loss relief and the cap on deductible interest payments (currently £500).

Other announcements

Individuals:

Qualifying care relief

The income threshold at which qualifying carers begin paying tax on care income will increase to £18,140 per year plus £375-450 per person cared for per week for 2023/24. These levels will then be index-linked.

Fuel duty

The planned increase of 11p in fuel duty this year will be cancelled. For the next 12 months, rates will be kept the same.

Trusts and estates

An existing income tax concession for low-income trusts and estates will be extended. Further changes will simplify calculations and reporting. HMRC also intends to remove non-taxpaying trusts from reporting requirements by modifying inheritance tax regulations.

Businesses:

R&D tax relief

From 1 April 2023, there will be an increased rate of relief for loss-making R&D intensive SMEs. Eligible companies will receive £27 from HMRC for every £100 of R&D investment.

A company is considered R&D intensive where its qualifying R&D expenditure is 40% or more of its total expenditure.

Previously announced restrictions on some overseas expenditure will now come into effect from 1 April 2024 instead of 1 April 2023.

Cultural tax reliefs

The higher rates of the theatre, orchestra and museums and galleries tax reliefs will be extended for two years.

Creative tax reliefs

From 1 April 2024: 

• A new Audio-Visual Expenditure Credit will replace the current film, high-end TV, animation and children’s TV tax reliefs
• A new Video Games Expenditure Credit will be introduced

Tax avoidance measures

• A further £47.2m investment to support HMRC’s capability to collect tax debts
• Legislation to close an avoidance loophole that can leave HMRC out of time to assess tax due on capital gains when an asset is disposed of under an unconditional contract
• From the 2024/25 tax year, changes to the self-assessment tax return forms requiring amounts in respect of cryptoassets to be identified separately

A full overview of the announcements is available here.