The mini budget - a big boost for dentists?
It was billed as a “mini budget”, but the Chancellor's announcement today was anything but “mini”. Indeed, it reveals a significant change of economic policy for the new government and set out the biggest level of tax cuts since 1972, amounting to £45 billion or 2% of GDP.
Kwasi Kwarteng’s fiscal statement is designed to jump start the UK economy, and there are some substantial benefits for higher earning dentists, particularly principals. Chartered Financial Planner Daniel Cornish takes a detailed look at the budget’s implications for dentists.
For Principal Dentists:
Energy rate relief for business
The biggest short term benefit, particularly for practice-owning clients is the Energy rate relief for business with prices capped to £211 per MegaWattHour(MWH) for electricity and £75 per MWH for Gas. These are about half the expected prices per MWH for the next six months and are available to any business on a variable energy tariff or a company who fixed after 1st April 2022. Therefore, if your practice used 20 MWH in electricity and 15 MWH in gas a year, your six-month costs for energy would be capped at £2,672.50 and if the help is extended a further six months, the energy bills would be £5,345. With the cap apparently half the expected costs, many practices are set to save many thousands of pounds in the coming months. These savings will vary depending on how big or small your practice is.
With this cap there is also the possibility that scammers will take advantage by posing to be from Government asking you to complete forms and provide bank details to claim relief. It is important to be vigilant and not directly follow any direct links in any text or email messages.
Corporation Tax increase:
The planned increase in Corporation Tax is also set to be kept at 19% which is good news for those who own their practices through a limited company - meaning more money for the business or for the shareholders to draw in dividends.
Recruitment
IR35 has also been abolished which means the onus is no longer on practices that hire associates to determine if the associate should be on or off the payroll. That responsibility will now fall back onto the associate. This area can be a minefield so the announcement that the employer is no longer responsible for making this classification should make the hiring process easier and may ease some of the recruitment issues for associates.
Income tax
For those with high earnings, the additional rate of tax of 45% has been abolished so any self-employed earnings above £150,000 will be taxed at 40% so if you earned £200,000 in a year you will save over £5,000 a year after April 2023 (including the NI savings outlined below).
National Insurance increase scrapped - employees and employers
The recent National Insurance increase of 1.25% is also being scrapped from November 6th. Again, this should mean more take home pay for employees and may ease some of the wage inflation pressures that practice owners have been experiencing this past year (and will continue to experience). The basic rate of income tax will also be cut to 19% from April 2023, saving over £800 a year for anyone earning £50,000.
NHS Pensions
There’s increasing pressure on the government to sort out the issues relating to those in the NHS pension and their Annual Allowance and Lifetime Allowance. While not mentioned in today’s Growth Plan, the Secretary of State for Health and Social Care, Thérèse Coffey yesterday announced plans to reform the NHS Pension Scheme, and published this policy paper. The paper outlines proposals to help retain doctors, nurses, and other senior NHS staff by making changes to the NHS pension scheme.
Energy Costs
There’s a welcome measure that will apply to almost everyone which is energy bills for households have been capped at an average of £2,500 a year for two years, a £1,000 saving on present energy prices.
Property Investors
A final point for those who own additional properties is the raising of the stamp duty land tax 0% threshold to £250,000. This means that the 3% rate for additional property purchases extend from £125,000 to £250,000 saving you £2,500 in tax should you purchase an additional property for £250,000 and above.
Clearly, this budget appears to be generous to higher earners and from an individuals’ perspective is definitely positive for the majority of dentists. Whether the strategy works to stimulate and grow the economy, and bring inflation back to a manageable level we will have to wait and see.
If you’re interested in reading an amusing take on how our progressive tax system works when governments announce tax cuts like this – have a read of the tax system explained in terms of beer
With so many changes being introduced in a short time it can be a useful exercise to see how the changes impact you and your business especially combined with the interest rate increases which look set to continue. Both can have an impact on profitability and it is more important than ever to know your numbers in such a fast-changing environment to help give you peace of mind.
Please be aware of the following investment risks
Levels and bases of, and reliefs from taxation are subject to individual circumstances and may be subject to change.
The Financial Conduct Authority does not regulate taxation and trust advice.