Budget 2021 – what does it mean for dentistry?
Stuart Garlick discusses the Budget and what it will mean for dentists and dental practices across the UK over the next few years.
As always, there is some good news and bad news in the recent budget.
So, I will talk through the key points that are likely to affect dentists on both business and personal topics.
There is a big increase in corporation tax, which is increasing to 25% from April 2023 on businesses profits over £250,000.
The rate is not changing for smaller businesses that have profits under £50,000. It will remain at 19%, with a tapered rate that will apply to profits up to £250,000.
That is a large increase for any business and may place some dental practice owners under financial pressure. Even with a two-year notice before it is implemented.
Considering ways to mitigate this additional cost will need considering.
Rishi described super deduction as the biggest tax cut ever. It allows companies to reduce their corporation tax bill by 130% of the value of any asset investments for two years, from 1 April 2021 until 31 March 2023.
Effectively, this means that any dental practice owners that are looking to upgrade their surgeries, for example by installing airflow equipment, will benefit from a 130% first-year capital allowance.
This is a warm welcome and great news. It will effectively allow companies to cut their tax bill by up to 25p for every £1 they invest.
It’s a great time to invest in your practice. This will need planning to ensure it is done between these dates.
The furlough job retention is extended until the end of September 2021. This means that employees will continue to receive 80% of their current salary for any hours they’ve not worked.
There are no employer contributions beyond National Insurance and pension contributions in the months of April, May and June.
Then, from July, there is an employer contribution towards the cost of unworked hours of 10% in July, 20% in August and 20% in September.
It was a pleasant surprise to see this extended to the end of September. It gives a lifeline support to employees and dental practice owners affected by the pandemic.
It’s clear that the government is absolutely committed to supporting businesses and employees to get back on their feet in hard times, which is great to see.
On the other side of the coin, business owners will need to factor in employer contributions from July as it currently stands. Then from 1 October, that’s when the furlough scheme will currently stop.
Self-employment income support
The self-employment income support scheme is also continuing with the fourth SEISS grant, to cover the three-month period for February, March and April.
The downside of the budget is that it is capped again, with the cap at £7,500 and based on 80% of the three-month average trading profits. In addition, the £50k cap on trading profits does remain in place.
Support for self-employed dentists is welcome, but it doesn’t help most dentists who typically earn more than £50k on trading profits.
Government-backed loan scheme
A new government-backed loan scheme will replace the CBILS and bounce back loans.
This is essentially providing lenders with a guarantee of 80% on loans between £25,000 and £10 million. What that effectively does is give the lenders confidence to continue providing finance to UK businesses, including dental practices.
It’s open to all businesses, including those who have been receiving support under the existing COVID loan schemes. It will run from 6 April until the end of the year.
In addition to the changes for businesses, there are several changes to personal tax arrangements that affect everybody. So this is also pertinent to dentists.
- Stamp duty – for those looking to buy a home or move home, the stamp duty holiday is extended and the nil rate band will remain at £500k until the 30 June 2021. This is great for people who are moving home in this timeframe. That means if they are buying a house up to half a million pounds, they can save up to £15,000 on stamp duty. From 1 July 2021, the nil rate band will reduce from half a million down to £250,000, until the 30 September 2021. Before returning to £125,000 on 1 October
- Inheritance tax – the IHT nil rate band will remain frozen until April 2026. So although this gives some certainty to making financial plans, it ultimately means that people will pay more in tax
- Income tax – personal allowances and thresholds will increase in line with inflation in April 2021. But they will then freeze at that level until April 2026
- Capital gains tax – the annual exemption allowance is frozen at £12,300 until April 2026 as well. This means again that people will potentially pay more tax than they were expecting over the next few years
- ISA subscriptions – those people that are looking to save, it’s probably worth mentioning that ISA subscription limits will remain unchanged for the 2021/22 tax year.
The Chancellor has announced that the government will maintain the lifetime allowance at its current level of £1,073,100 until April 2026.
This is very unwelcome for dentists and indeed any high earning individuals. Particularly those who are approaching the end of their careers and are looking forward to retirement by utilising their pensions.
We were previously expecting that the lifetime allowance would continue to increase in line with inflation. This decision now potentially risks discouraging people saving towards their retirement. It creates a much less favourable tax regime for pension savers.
Dentists who are part of the NHS pension scheme should plan carefully. Company schemes are worth a lot more than people imagine, making it much easier to breach this allowance than most believe.
You should approach a dental specialist financial adviser to review your pension planning. Particularly if you are high earning and approaching retirement.
What does the future look like for dentists and dental practices?
There is still a high demand for dentists, particularly at the present time as a result of the pandemic.
Some of the budget changes such as super deduction, the furlough scheme and self-employed support can clearly help some dentists.
Unfortunately, the tax changes relating to corporation tax and the freezing of allowances could potentially create additional financial pressure to some dental surgeries, with similar pressure being felt across the UK.
On this basis, it is possible that some dentists may seek to gain more control over their income and fees. They may therefore make a move towards private dentistry and investigate patient payment plans.
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