The Taxation of Cremation Form Income
by Dr Ed Cantelo GP, Chartered Accountant and Tax adviser. Medics’ Money co-founder.
Received a few cheques from completing cremation forms (ash cash) and not sure what to do regarding tax? Wondering if you need to tell HM Revenue and Customs (“HMRC”) or how? In this blog Ed tells you what you need to know as a junior doctor receiving cremation fees.
How are Cremation fees classified for Income Tax?
Cremation fees, as you will know, are fees paid to doctors by undertakers in order to provide certification required for cremation. Two certificates are required, one by the deceased’s doctor or part 1 doctor, and one by a second independent doctor, the part 2 doctor. The undertaker will pay both the part 1 and part 2 doctors a fee for this service.
HMRC have issued guidance on the taxation of cremation fees for individuals (note we will not consider the situation where the doctor is practising through a company in this blog).
HMRC have stated their policy on the treatment of such payments in their “Business Income Manual” (BIM54015 if you’re keen for the reference!). HMRC’s guidance is as follows:
- If the doctor is self-employed, for example in general practice, these fees must be included in their calculation of profits. These are considered to be taxable earnings.
- Where the doctor is an employee, the fees will be assessed as miscellaneous income. Where the fees have been assigned to a charity directly, HMRC will consider that these have not been received and do not need to be declared.
In both cases if fees arenot paid to the doctor but assigned to a charity directly, HMRC consider these have not been received by the doctor.
So, for self-employed doctors cremation fees are part of their taxable earnings as expected and taxed accordingly whereas for an employed doctor cremation fees are assessed as miscellaneous income.
OK so my cremation fees are taxed as miscellaneous income – why does this matter?
Because HMRC consider cremation fees as miscellaneous income and not employment income this is very advantageous, especially nowadays.
Until the tax year ended 5 April 2018 (the 2017/18 tax year), cremation fees were charged to income tax at the employee’s “marginal rate”, usually at 20% or 40%. The taxpayer was required to notify HMRC and pay income tax (note, not National Insurance as this is only applied to employment income not miscellaneous income.)
From the 2017/18 tax year the Government introduced the “trading income allowance” – a £1,000 allowance for property and trading income. Most importantly for us the trading income allowance also covers miscellaneous income from the provision of assets or services.
There is more to the trading income allowance but focussing on the most important points for doctors, if you are an employee and received less than £1,000 in cremation fees, which seems very likely:
- You do not owe HMRC any tax because the allowance applies automatically
- You do not need to tell HMRC about the cremation fees
Which of course simplifies everything greatly. So, if you receive a few cheques from funeral directors and you’re worried you owe tax on these, don’t worry, you should be absolutely fine. And you don’t need to tell HMRC either.
If you are in the position that you have earned more than £1,000 in cremation fees, you will need to pay tax on the excess (so if you earned £1,250 you will pay tax on £250, for example). If you complete a tax return already you need to record this in box 17 on page TR3 of the main tax return (put in the amount net of the trading allowance and make a note in the white space in box 21 on that page (or on page TR7 of the main tax return if there is insufficient space). If you do not complete a tax return you can go to your personal tax account and change your tax code to reflect this income – HMRC can then tax you by reducing your personal allowance; just remember that this amount will almost certainly change each tax year.
So, in conclusion…
…if you are a doctor employed by a trust and receive cremation fees less than £1,000 (i.e. the vast majority of doctors) you do not need to pay income tax on these fees and you don’t need to inform HMRC. It doesn’t get simpler than that in the tax world!
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