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Taxation can be complicated for professionals such as doctors, dentists, and engineers in the United Kingdom. Therefore, awareness of the current tax regulations and considerations relevant to your profession is crucial. This article will explore several key tax considerations for UK professionals in these fields, focusing on pension tax implications, locum doctors, new tax rules for dentists, and IR35 implications for engineers who work as contractors.
Tax on Pension: Pension contributions provide a tax-efficient way for professionals to save for retirement. For doctors, dentists, and engineers, pension contributions are generally made to the NHS Pension Scheme, General Dental Practitioners Scheme, or a private pension scheme, respectively. Contributions to these schemes are usually tax-deductible, reducing your taxable income and, consequently, your overall tax liability.
The annual allowance limits the yearly pension contributions, with tax relief available up to a certain amount. As of 2021/22, the yearly budget is set at £40,000, tapering down for those with adjusted income over £240,000. The lifetime allowance is another limit which caps the total value of pension benefits that can be drawn without incurring tax charges. The lifetime allowance for 2021/22 is set at £1,073,100.
Tax Implications for Locum Doctors: Locum doctors are temporary medical professionals who fill in for absent or unavailable staff. As a locum doctor, you may be classified as self-employed or an employee, depending on your contractual arrangements. This classification determines your tax and National Insurance Contributions (NIC) responsibilities.
Self-employed locum doctors are required to register with HMRC and submit a Self Assessment tax return detailing their income and expenses. Income tax and Class 2 and 4 NICs are calculated based on the profits from their locum work.
On the other hand, if you are considered an employee, your employer will deduct your tax and NICs at source through the Pay As You Earn (PAYE) system. In this case, you would only need to complete a Self Assessment tax return if you have other sources of income.
New Tax Rules for Dentists in 2023: HMRC introduced new tax rules in 2023, specifically targeting dental professionals. These rules primarily focus on the tax treatment of dental associates who are considered self-employed. Under the new regulations, dental associates must meet certain criteria to maintain their self-employed status.
The criteria include the level of control and autonomy in their work, provision of equipment, and financial risk. If a dental associate fails to meet these criteria, they may be reclassified as an employee, resulting in different tax and NICs obligations.
Dental associates must review their working arrangements to ensure they meet the criteria for self-employed status. Additionally, they should consult with an accountant or tax advisor to ensure compliance with the new rules and avoid potential penalties.
Engineers Working as Contractors and IR35 Implications: IR35, also known as the off-payroll working rules, is a piece of legislation aimed at addressing tax avoidance by contractors who work through personal service companies (PSCs). Engineers working as contractors are often affected by these rules, which were reformed in April 2021.
Under the reformed IR35 rules, the responsibility for determining the contractor’s employment status for tax purposes shifted from the contractor to the end client. If a contractor is deemed to be within IR35, they are considered an employee for tax purposes, and their income and NICs will be deducted at source by the fee-payer, usually the agency or the end client.
IR35 Rules for the Public Sector: IR35 rules have been in place for the public sector since April 2017. Public sector clients must determine the employment status of contractors providing services through their PSCs. If a contractor is found to be within IR35, the public sector client, agency, or other third parties responsible for paying the contractor must deduct income tax and employee NICs before making the payment to the PSC. The fee-payer is also responsible for paying employer NICs.
IR35 Rules for the Private Sector: The IR35 rules were extended to medium and large-sized private sector clients in April 2021. This means that private sector clients are now also responsible for determining the employment status of contractors working through their PSCs. Like the public sector, if a contractor is within IR35, the fee-payer must deduct income tax and employee NICs before paying the contractor’s PSC. However, the fee-payer is not liable for employer NICs, and the contractor has to pay through his PSC payroll.
To comply with the IR35 rules, public and private sector clients should conduct an employment status assessment for each contractor, considering factors such as control, financial risk, and the nature of the working relationship. The government provides an online tool called the Check Employment Status for Tax (CEST) to help clients determine a contractor’s employment status.
Understanding tax considerations is crucial for UK medicine, dentistry, and engineering professionals. It is essential to stay informed about the latest tax regulations and ensure compliance with the relevant tax rules for your profession, whether you are a locum doctor, a dentist affected by the new regulations, or an engineer working as a contractor under IR35. Engaging the services of a qualified accountant or tax advisor can help you navigate the complexities of taxation and avoid potential financial pitfalls.
If you need help to plan your taxes, please contact Tax Accountant at 0800 135 7323 or email info@taxaccountant.co.uk for expert advice.