20 Mar 2025
“Nothing is certain except death and taxes”, said Benjamin Franklin, US founding father, in 1789. But just because tax is imposed doesn’t mean that you can’t legitimately take steps to reduce liability, says Association of Tax Technicians technical officer Helen Thornley…
Helen Thornley
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Image: Adobe Firefly / AI generated
These are definitely taxing times. When the chancellor stood up to announce her first budget last year, it contained 43 major tax changes and is projected to raise, on average, an extra £36 billion a year from 2025/26 to 2029/30.
It may, therefore, come as a relief that the Government has committed to only having a single major fiscal event (such as a budget) each year. But the inclusion of the word “major” is worth noting, as this does leave room for smaller events with tax changes.
Given this background, it makes sense to look at some of the main taxes encountered by a typical veterinary practice and some of the threats and opportunities that the October 2024 budget has brought.
In terms of additional tax revenue, the biggest change was the increase to employers’ national insurance contributions (NIC).
Employers’ NIC is paid by employers on top of staff salaries. From 6 April 2025, this will increase from 13.8% to 15%. At the same time, the threshold from which employers’ NIC starts to be charged will decrease from £9,100 to £5,000.
Employers only start to pay employers’ NIC once their liability exceeds their employment allowance. Smaller employers will receive some protection from the increased NIC costs as from 6 April 2025, the employment allowance is increasing from £5,000 to £10,500. But larger employers, firms with lots of part-time staff or groups of companies (which share a single allowance) will very much feel the NIC rises.
One way an employer might be able to mitigate the extra costs is to look at how pension contributions are handled for their staff.
For all but the lowest paid workers, the value of any pension payments made by the employee can be enhanced if the pension contributions are made via salary sacrifice. This means the employee agrees to accept a lower salary in exchange for higher pension contributions from their employer. This approach can create NIC savings for both employees and employers as employer pension contributions are not subject to employers’ or employees’ NIC.
The increase in employers’ NIC comes in at the same time as increases to the national living wage. From 6 April 2025, over-21s will be entitled to a minimum of £12.21 an hour, up from £11.44. The national minimum wage – which applies to 18 to 20-year-olds – will increase to £10 an hour, and apprentice pay will increase to £7.55 an hour. These additional costs can quickly add up and need to be factored in to wage budgets.
Where the practice is incorporated – that is, trading through a limited company – it will pay corporation tax on any profits. The current rates of corporation tax depend on the amount of profits the business makes. Very broadly, a company with profits of below £50,000 will pay 19% corporation tax, while one with profits above £250,000 will be taxed at 25%. A company with profits between those two figures will pay at rate of between 19% to 25%.
As it stands, the government has committed to maintaining both the higher 25% rate and 19% small companies rate for the duration of this parliament, so we are not expecting significant changes here.
Tax savings to be had remain from going electric when looking at acquiring cars for use by directors or employees.
The 100% first-year allowances for zero-emission cars and electric vehicle charge points have been extended to 31 March 2026, which means tax relief up front for the cost of cars purchased outright or via hire purchase.
The benefit-in-kind rates for electric company cars also remain favourable, which keeps tax costs down for employees, although the rates are set to increase gradually between now and 2029/30, so tax costs will creep up here over time.
Practices that are not incorporated and operate as sole traders/partnerships can also benefit from tax savings by choosing electric vehicles.
Less favourable changes have been made for double cab pickups (DCPUs). All new DCPUs will be treated as cars for benefit in kind and capital allowance purposes from April 2025. Previously, DCPUs were treated as vans, which was much more tax efficient for employees and their employers. Fortunately, some transitional rules are in place and DCPUs purchased, leased or ordered before 6 April 2025 will be treated as vans until the earlier of disposal, lease expiration or 5 April 2029.
All trading businesses, including veterinary practices, need to be aware of some big changes to taxes that apply on disposal of the business.
If you are thinking of selling your practice in the next few years, then you need to know about increases to the rate of business asset disposal relief (BADR). The conditions for BADR are complex, but, broadly, if you are selling all or part of a business you have owned for at least two years – or selling assets that were used in a business that you owned within three years of the cessation of the business – you may be entitled to lower rates of capital gains tax (CGT). Currently, individuals who meet the conditions pay a 10% CGT rate on their first £1 million of gains. This is a lifetime allowance, so will be reduced if you have made previous qualifying gains in the past. Without this relief, CGT rates of 18% and 24% (depending on the size of your income and the gain) would apply.
From 6 April 2025, the rate for the first £1 million of gains will increase to 14% and from 6 April 2026 it will increase to 18%. Gains above the limit will remain taxable at 24%.
While you may not plan to run your business forever, you should still think about inheritance tax (IHT) in case the worst happens.
As it stands, most well-structured veterinary practices can look to claim relief from IHT on the value of the business, thanks to business property relief (BPR). The maximum relief is currently 100%, with a lower 50% relief on premises the business trades from if they are owned personally rather than held in the partnership or company.
From 6 April 2026, the 100 per cent relief will be capped at the first £1 million of qualifying assets, with a lower 50% rate applying to any remaining qualifying assets. This means there will be an effective 20% IHT rate on business assets above £1 million. While this is half the standard 40% IHT rate, it is still a big change for businesses if the owner dies unexpectedly or was intending to pass the business on to family members.
Much of the commentary on IHT changes has focused on similar restrictions to agricultural property relief (APR), and rural veterinary practices may well have found this coming up in conversation with clients without realising the new rules could also affect them. The £1 million limit is actually a combined cap in which an individual can have no more than £1 million of APR and BPR assets together receiving 100% IHT relief. Both farmers and their vets are, therefore, in a similar boat with respect to IHT increases.
At the current time, it is not envisaged that the £1 million allowance will be transferable between married couples or civil partners. If you have a valuable practice and your spouse is involved, it will be worth seeking advice from a reputable tax advisor to help maximise available IHT reliefs.
For most practices, the biggest day-to-day risk for tax is making errors or mistakes. In 2024, the government announced it would be funding an additional 5,000 HMRC compliance officers over the next five years, which will likely increase the risk of being on the receiving end of an enquiry in future.
The key with day-to-day compliance for most practices is ensuring they keep good records and making sure to use a suitably qualified advisor with experience of dealing with similar veterinary practices. An advisor who is qualified and familiar with the operation and types of costs your practice may incur will be best placed to ensure you are getting all the reliefs you are entitled to.
In terms of any more adventurous tax planning, the old adage “if something seems too good to be true, it probably is” remains a sensible guide.
