Tax planning for the care home sector - where are we now?

With the Spring Budget now behind us, the 5th April 2024 Tax Year End is now over, and with the likelihood of a General Election this Autumn, our specialist Health Care team at Bishop Fleming explores the evolving landscape of tax implications and the strategic opportunities arising for businesses in the sector. 

Spring Budget 2024 

Despite the emphasis on building a sustainable model and increasing efficiencies with technology, there needed to be more direct commentary on funding for the social care sector. Cost pressures continue to be a major concern for providers, with the National Living Wage increasing by 9.8% to £11.44 and the lowering of the age threshold from 23 to 21 increasing this pressure. With interest rates likely to remain higher for longer, operators are holding their breath to see what the local authority fee increases will be for funded residents. Anecdotally, we are hearing that private fees are increasing by 7% - 10% to compensate for the cost pressures. 

More will follow when the local authorities confirm their rises! 

Changes in National Insurance Rates 

As widely anticipated before the Budget, it was confirmed that the main rate of National Insurance for employees will decrease by 2% to 8%, with effect from 6 April 2024. This reduction follows a prior decrease from 12% to 10% on 1 January 2024, marking an additional relief for employees. The 8% rate applies to annual earnings ranging from £12,570 to £50,270, while earnings exceeding £50,270 continue to be charged at 2%. 

Similarly, for the self-employed, the National Insurance rate is set to reduce to 6% starting from 6 April 2024.  

However, despite these adjustments, the impact on employees within the sector is projected to be minimal, with the overall tax burden remaining notably high. It's important to note that there are no changes to Employers’ National Insurance rates. 

Corporation Tax 

The Spring Budget left corporation tax rates unchanged, with the lower rate of corporation tax starting at 19% rising to 25% on all profits when this hits £250,000 (the marginal tax rate between the lower limit and upper threshold is 26.5%). 

With the return of associated company rules, seeking advice around structuring for the care sector remains as critical as ever. More on this below. 

We wait to see what the next government will decide on regarding the direction of corporation tax, as it balances the need to pay the interest on an increasing debt burden against the backdrop of a faltering domestic economy. 

Tax rates don’t necessarily drive potential growth in the care sector as this is driven by demographics, and there is little argument that we have an ageing population – but they do impact, like interest rates on the ability to invest. Having certainty on these two factors would provide more confidence and enable the sector to look ahead and develop a sustainable business plan. 

Extension of Full Expensing to Leased Assets 

One positive from the Budget was the proposed consultation on extending full expensing to leased assets.  Currently, this expenditure is excluded from the 100% first-year allowance, referred to as full expensing, and the 50% first year allowance for special rate expenditure.  We will lobby for this to come into effect as soon as possible.  

5th April 2024 next! 

Remuneration planning for directors and employees 

With the end of the personal tax year upon us, attention has recently turned to those opportunities that are time-sensitive. Our conversations with clients include looking at dividends, salary and pension contributions. 

With personal tax allowances being frozen and with the additional tax threshold being held at £125,140 from 6 April 2024, coupled with the change to the child benefit clawback starting point (rising from £50,000 to £60,000 from 6/4/24) there is the real danger of losing your personal allowance and paying 62% tax!. Given this now is the time to reach out and check you are not paying too much tax or if you could structure your income more efficiently. 

One hot topic, back on the agenda due to the increasing rate of corporation tax, is whether increasing salary is more beneficial than taking dividends, given salary is tax deductible in the company whereas dividends are not. 

Pensions are a regulated area, and independent financial advice should be taken. Where contributions are made these can be deductible from profits and therefore help to reduce corporation tax. 

As we approach a new tax year, we recommend that clients undertake a review of any benefits-in-kind received from the business, including vehicles used privately, health insurances, salary sacrifice schemes and other flexible benefits provided to employees or directors. 

And then there is Election 2024 

We hope that whoever gets elected later this year will focus on sorting out funding in the sector to provide a sustainable adult social care model for our ageing population. 

As the Government looks at the financial structure, we will continue to advise our clients on how best to structure their business for a sustainable, viable financial future. 

Business Structures  

It is critically important that owners correct the structure of their care home businesses to minimise taxes and commercial risks throughout the business lifecycle. It is said that the first thing you should do when starting a business is plan your exit, and we couldn’t agree more.   

When working with our clients, we look at the wider picture and factor in the commercial protections a corporate structure provides, alongside the tax advantages that may flow from being part of a group. 

It is common to see the separation of freehold and leasehold assets from the care side in what is often called a PropCo (property company) OpCo (operations) structure or to have a Holding Company owning the individual care businesses in separate limited companies.  

Finally, it's always important to consider other non-tax planning matters when thinking about structure, such as loan funding and associated bank security requirements. Also, CQC and what this means for registration and not to be overlooked succession planning. 

At Bishop Fleming, our experts in our tax, health and social care teams are here to help you. Contact us today by clicking here.