Pharmacy owners need to act now to put in place suitable preparations to manage the Workplace Pension process

Mukesh Lad highlights four recent budgetary measures that will affect independent pharmacy businesses

As a pharmacist and chair of Leicestershire Independent Pharmacy Federation, I share the same fears as my fellow independents – long hours, confusing paperwork and pressure to do more for less. This combination is making it very difficult for us to see beyond our dispensary. 

While we may not be in the absurd situation of our North American colleagues, who are asked to dispense and advise patients whilst promoting the latest laundry powder, we’re nevertheless inundated by the ever-growing demands of our healthcare system. All too often we forget we have a business to run as well as a pharmacy service to provide. We are both healthcare professional and business owner.

I’m in the enviable position of having an accountant as a business partner and he’s dedicated to pharmacy. Manish Patel is a founder member of Mr Pickford's Pharmacy Group and has worked full-time with me since 2008. He’s unique in his understanding of the threats and pressures facing independent pharmacy, from the dispensing coalface to the management of a pharmacy business. He’s possibly the best accountant in the pharmacy business.

Prior to joining the Pickford Group as finance director, Manish was a partner in a national firm of chartered accountants. He brought with him 25 years of experience advising clients on business and tax strategy, often representing them in HMRC tax investigations.

Given his invaluable experience, I took the opportunity to discuss with him the impact of the Chancellor’s July budget on independent pharmacy business. And there’s a lot more to consider than most independents realise. Manish identified the four key areas I want to discuss this month.

New business costs

First, there’s a new tax cost to consider: from April 6 next year, dividend income will be taxed. The first £5,000 is exempt, but anything more will be taxed at 7.5 per cent up to the basic rate band. However, taking income as dividends from your company is probably still a more attractive option than taking a salary. So it’s important that independents start planning their dividend income now in time for next April. Although this new 7.5 per cent tax is an additional financial burden, it’s unlikely to be a good reason to cease trading as a limited company.

Another new cost to owners will be workplace pensions. These will impact staff over age 22 earning £10,000 a year. Anticipated legal staging dates for pharmacy are during 2016-17. At the outset, employees will have to contribute 0.8 per cent of earnings rising to 4 per cent by 2018. The government will contribute 0.2 per cent, rising to 1 per cent by 2018. As the employer, pharmacy owners will have to contribute 1 per cent of staff earnings, rising to 3 per cent by 2018.

In addition to these increased cost implications, pharmacy employers will be legally liable to manage the employee contributions, ensuring they’re paid to a government-approved collection agent. Pharmacy owners need to act now to put in place suitable preparations to manage the Workplace Pension process, which may turn out to be more onerous than expected.

At present the National Minimum Wage is £6.50 per hour for anyone aged 21 and over, rising to £6.70 in October 2015. From April 2016 employees over 25 must be paid the new National Living Wage of £7.20 per hour, rising to £9.00 by 2020.

This is a 38.5 per cent compulsory pay rise between now and 2020. It represents an average 6 per cent pay increase per employee per year to 2020 and will increase year on year thereafter. No doubt this compulsory pay increase will have a knock-on effect for expectations of senior staff expecting similar increases to maintain the pay differential with their lower-paid colleagues.

As a pharmacy business owner you should be working with your accountant to calculate your new compulsory staff costs between now and 2020. This will allow you to make informed decisions about future staffing and ways to reduce costs to fund the compulsory cost increases.

And a saving for some

The reduction in small company tax rates announced in the recent budget offer some relief, but only for incorporated independents. From April 1, 2017 small company corporation tax falls to 19 per cent, with a further reduction to 18 per cent from 2020. However, there’s no similar tax relief for independents not trading as a limited company. Sole traders or partnership pharmacy businesses expecting to exceed £50,000 annual taxable profits would be well advised to seek financial advice to assess the tax benefits of incorporation.

It’s very clear from my conversation with Manish that independent pharmacy owners cannot ignore the recent budget measures. The changes are compulsory and will affect your business directly. It’s a serious wake-up call to all independents not to get lost in dispensing and prescription numbers and to remember they also have a business to run.

And in signing off for this month, I need to tell you the implications of the recent budget aren’t limited to what you’ve been reading here today. There’s another tax shocker on the horizon for those planning to sell their business soon. Next month I look at the impact of Inheritance Tax on your estate.

For Workplace Pensions information contact: Department of Work & Pension on 0345 600 1268 (have your PAYE reference hand). www.gov.uk/workplace-pensions/get-help-and-advice