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Autumn Budget 2018: Implications for the Healthcare sector

Autumn Budget implications for the Healthcare sector

KPMG assess the implications of the Autumn Budget 2018 on the Healthcare sector.


Partner, Infrastructure Government and Healthcare

KPMG in the UK


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At the time of year that the headlines are focused on winter pressures, it was good to hear the commitment to mental health which has been a poor relation for a long time. Investing in a mental health crisis centre and providing mental health support in A&Es could go a long way to creating the proactive sustainable systems the NHS needs to transform itself into providing care at the point of need; instead of reacting when it’s too late.

Likewise the additional funding for social care is extremely welcome – local authorities’ financial positions have been deteriorating at a pace for a long time, with many having to eat in to reserves.

However the biggest questions perhaps remain – those of workforce and technology. There are huge gaps in the NHS workforce as well as funding to bridge skill set gaps and training needs. This is particularly relevant as the NHS has also previously committed to significant spend on new technology. To make this investment, along with the Budget’s announcement worthwhile, a radical reform is needed to the way change is implemented within the NHS; with areas like technology and social care for both the young and the old to be considered in conjunction instead of in silo as separate problems.

Increase to NHS Budget

  • The NHS budget will increase by £20.5 billion a year in real terms by 2023-24, an average real rate of growth in the NHS’s budget of 3.4% a year. This will take the NHS budget from £114.6 billion in 2018-19 to £147.8 billion in 2023-24. There has also been additional provision made to NHS pension costs of around £1.35bn a year.
  • Trusts to set out how they will meet these five financial tests in their plan for its future spending:
    1. the NHS (including providers) will return to financial balance;
    2. the NHS will achieve cash-releasing productivity growth of at least 1.1% a year (with a final number to be confirmed in the plan), with all savings reinvested in frontline care;
    3. the NHS will reduce the growth in demand for care through better integration and prevention (with a final number to be confirmed in the plan);
    4. the NHS will reduce variation across the health system, improving providers’ financial and operational performance; and
    5. the NHS will make better use of capital investment and its existing assets to drive transformation.

Increased spending on mental health care

  • Mental health services will receive a £2 billion a year real terms funding boost by 2023.
  • £250 million a year investment by 2023-24 into new crisis services to include:
    • 24/7 support via NHS 111; 
    • children and young people’s crisis teams in every part of the country; 
    • comprehensive mental health support in every major A&E by 2023-24;
    • more mental health specialist ambulances; and 
    • more community services such as crisis cafes
  • Prioritised services for children and young people, with schools-based mental health support teams and specialist crisis teams for young people across the country. 
  • Expanded access to the Individual Placement Support programme to help those with severe mental illness find and retain employment, benefitting 55,000 people by 2023-24.

Increased spending on social care

  • An additional £240 million in 2018-19 and £240 million in 2019-20 for adult social care transitioning from hospital into a care setting that best meets their needs, freeing up hospital beds needed over winter.
  • A further £410 million in 2019-20 will be provided for adults and children’s social care. Where necessary, local councils should use this funding to ensure that adult social care pressures do not create additional demand on the NHS. Local councils can also use it to improve their social care offer for older people, people with disabilities and children.
  • Additional funding to be provided to local councils for social care to help older people with care needs and help children to live safely at home. 

Other announcements

  • The Government has made additional provision for NHS pension costs of around £1.35bn a year until 2023-24.
  • £10 million of capital funding in England to support air ambulance trusts.

However, in terms of any announcements of reforms or changes in relation to tax or pensions, there was little of significant benefit to the Health sector.

Looking at the announcements of reforms or changes in relation to tax and pensions: 


On the face of it the Budget was a quiet one for the pensions industry. However for organisations participating in public service pension schemes it is of more relevance.

Firstly, the possibility of a change in pensions tax relief was well trailed, but did come through on this occasion. Given that around 75% of the tax savings would have come from extending the Annual Allowance to more public servants, many of whom work for the NHS, the wider consequences may have been problematic. However, this is a change waiting to happen and in the meantime the Annual and Lifetime allowances continue to impact more members of public service pension schemes.

Secondly, in the detail of the Budget is confirmation that the Treasury’s discount rate used for valuing the unfunded public service pension schemes will reduce to CPI + 2.4% (from CPI + 3.0).  The change in the discount rate means that the employer contribution rates are due to increase significantly (e.g. 7% of pay for the Teachers’ Pension Scheme).  For post-92 universities, FE Colleges and independent schools in particular this is a very significant change as there will be no financial support provided by the Treasury. Other employers are being subsidised to some extent in 2019/20 with future years being part of the spending review settlement. The NHS on the other hand is getting full support for 5 years, meaning that in effect, this move is raising funds for the benefit of the NHS. 

Finally, other more minor mentions for pensions include: 

Pensions dashboards – There will be some additional funding and a consultation later this year on detailed design. It will be a challenge to include public service pension schemes in this exercise and this is something to be monitored.

Lifetime Allowance – This is to rise in line with formula to £1,055,000 for tax year 2019/20.

Cold calling This consultation response confirms that the Government will proceed with regulations and guidance quickly.

DC charge cap – The Government to consult in 2019 on the function of the charge cap to ensure it does not unduly restrict use of performance fees.

Investment – The FCA is to consult by the end of 2018 on updating the permitted links framework to allow unit-linked pension funds to invest in an appropriate range of patient capital assets (including innovative companies and infrastructure).

Self-employed – There will be a Government paper this winter on its approach to boosting pensions saving.

Corporation tax

Corporation tax is not, of course, a significant issue across the Health sector, as NHS bodies and Foundation Trusts are not within the charge to corporation tax.  However, there are some changes that may be relevant to Trust’s commercial vehicles such as subsidiaries.

In terms of capital allowances for subsidiaries with substantial capital assets, the announced changes could be important.  These include:

  • Introduction of a new 2% capital allowance in respect of expenditure on new non-residential structures and buildings, where all contracts for the physical construction works are entered into on or after 29 October 2018;
  • An increase in the Annual Investment Allowance to £1 million, from £250,000, for expenditure on qualifying plant and machinery in the period from 1 January 2019 to 31 December 2020
  • A reduction to 6%, from 8%, of the special rate allowance (for integral features), from April 2019; and
  • The phasing out of the Enhanced Capital Allowances regime from April 2020.

Where non-charitable entities have significant capital losses, the proposed restriction from April 2020 of the offset of such losses to 50% of annual capital gains (to bring them in line with the treatment of income losses) may be an important consideration.

Finally, there are a couple of proposals that will need to be monitored as they move towards implementation, for any impact that they may have on the sector, being:

  • The introduction of Digital Services Tax – information to date would indicate that this new 2% tax will be targeted at “tech giants” performing certain specific digital intermediation activities (e.g. search engines, social media platforms and online marketplaces), and then only in relation to companies with annual global turnover of at least £500m. Exemptions for online sales of goods and services will be available.
  • Proposed changes to the intangible fixed assets regime, including a reform of de-grouping charges – it will be necessary to consider how these may affect spin-out operations. The changes to Entrepreneurs’ Relief that were announced, including an extension of the qualifying period, and the qualifying interest that needs to be held by the entrepreneur will, of course, need to be considered by any relevant clinicians holding, or intending to hold shares in those spin-out companies.


There were very few announcements on VAT included in the Budget.

As expected, the Budget confirmed that in certain circumstances, construction services will become subject to reverse charge VAT whereby the purchaser of the services accounts for VAT rather than the supplier. This will apply where a contractor buys in services which are then used in a further supply of construction services.  It will for example apply where, as is common practice, a construction contractor sub-contracts elements of its work to other entities.  If an NHS Trust or an NHS subsidiary buys in construction services and makes an onward supply of construction services it may apply.  Subject to approval of the Finance Bill, the measure will be effective from 1 October 2019.

Making Tax Digital ('MTD')

Although announced by HMRC ahead of the Autumn Budget, we welcome the delay in the implementation of ‘Making Tax Digital’ until October 2019 for complex organisations such as the NHS. It is not yet apparent that this extension will apply to wholly owned subsidiaries, as such Trusts and their group companies should be aware that arrangements may be required to be made ahead of the April 2019 implementation date as would be the case for normal businesses.

Further information on this issue can be found in the links here and here.

Employment taxes

Off payroll working in the private sector

As expected, the Chancellor announced that the public sector reforms will be extended to the private sector although this will not take effect until April 2020. 

The rules in 2017 covered public bodies as defined by the Freedom of Information Act and therefore excluded most housing associations.  This will change from April 2020 as all businesses excluding small businesses will be covered (broadly where two out of the following three conditions are met: turnover not more than £10.2 million; balance sheet of not more than £5.1 million; and not more than 50 employees).

In line with the public sector rules, these changes will see responsibility for determining whether an engagement falls within the ‘IR35’ regime moving from the worker’s Personal Service Company (PSC) to the end user.  Where an employment relationship is deemed to exist, the end user of the services would be responsible for operating PAYE/NIC on payments made to those PSCs if it pays them directly.

Short Term Business Visitors (STBVs)

From April 2020 the administrative treatment of individuals who come to work in the UK from an overseas branch of a UK company will be eased – key features are an extension of the special annual PAYE scheme to cover individuals who spend up to 60 days in the UK, and moving the annual reporting deadlines from 19 April to 31 May, aligning them with the main STBV reporting deadline.

National Insurance Contributions (NIC)

Employer’s NIC will apply to termination payments to the extent they exceed the £30,000 threshold from April 2020, rather than from April 2019 as was originally announced, and the Employment Allowance (£3,000 per year offset for employer’s NIC) will be targeted at smaller employers from April 2020.

Legislation will be introduced to impose the previously announced Class 1A (employer only) NIC charge on termination payments made after 6 April 2020 to the extent the £30,000 threshold is exceeded.  

The NIC Employment Allowance will be restricted to employers with a total employer’s NIC liability of less than £100,000 in the previous tax year from April 2020.

National Living Wage and National Minimum Wage update 

Following the recommendations of the independent Low Pay Commission, the National Living Wage will increase from £7.83 to £8.21 from April 2019. In addition:

  • The rate for 21-24 year olds will increase from £7.38 to £7.70 per hour;
  • The rate for 18-20 year olds will increase from £5.90 to £6.15 per hour;
  • The rate for 16-17 year olds will increase from £4.20 to £4.35 per hour; and
  • The apprentice rate (for apprentices aged under 19 or in the first year of their apprenticeship) will increase from £3.70 to £3.90 per hour.

Personal Allowance and Higher-Rate Treshold

The Government has brought forward its manifesto pledge to raise the income tax Personal Allowance to £12,500 and the Higher Rate Threshold to £50,000 by the end of this Parliament.  These increases will now take effect from April 2019.

Employment status and the Taylor Review

There was no announcement on the Government’s consultation on employment status that followed the Taylor Review.

If you would like to discuss any of these points please do not hesitate to contact your usual KPMG contact, or one of the following:

Corporate Tax: Sandra Cox (0161 246 4280) or Steve Brooks (0207 896 4295)

VAT: Arran Thoma (0161 246 4596), Siddiq Musa (0161 246 4265) or Kerry Sykes (01223 582093)

Employment tax: Caroline Laffey (0191 401 3849)

Pensions: Steve Simkins (0113 254 2975) 

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