KPMG assess the implications of the Autumn Budget 2018 on the Healthcare sector.
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
Increased spending on mental health care
Increased spending on social care
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 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:
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:
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.
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:
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)