Matt Everatt looks at what yesterday’s autumn budget announcement means for UK dental laboratories.
Dental laboratories in the UK, like many small businesses, have been hit hardest in this autumn’s budget, and will face a challenging financial landscape in the coming months.
In the 2024 autumn budget, Chancellor Rachel Reeves announced big changes to national insurance contributions (NICs) and an increase in the national minimum wage (NMW), both of which will raise the cost of employment.
In addition, labs will face a huge hit with the change in business rates relief being reduced from 75% to 40% – this is complex and not easy to quantify in this article.
Two significant changes stand out:
- Employer NIC rate increase: beginning in April 2025, the employer NIC rate will rise from 13.8% to 15%, with the threshold for contributions dropping from £9,100 to £5,000
- Increase in NMW: Recent increases in the NMW mean that many employees, especially those in entry-level or support roles, will see their wages rise, directly impacting payroll expenses for employers in labour-intensive fields such as dental technology.
Breaking down the numbers
Here is a real life example of how these changes will financially impact a dental laboratory with ten employees earning £30,000 annually.
Cost implications of employer NIC
Under the new NIC rate of 15% with a reduced threshold of £5,000, each employee’s NIC contribution will increase significantly. Let’s break it down:
New NIC cost per employee:
- Taxable earnings: £30,000 – £5,000 = £25,000
- NIC at 15%: £25,000 x 15% = £3,750 per employee
- For 10 employees, the NIC cost would be £3,750 x 10 = £37,500.
NIC cost under previous rate:
- Taxable earnings: £30,000 – £9,100 = £20,900
- NIC at 13.8%: £20,900 x 13.8% = £2,884.20 per employee
- For 10 employees, the NIC cost would have been £28,842.
This means a laboratory with 10 staff on £30k per annum will pay an additional £8,658 annually due to the NIC rate increase.
Increased payroll costs
It is likely that most labs already pay above the NMW and even above the real living wage (RLW). However, with national minimum wage increases, dental labs may need to raise wages even for roles already above the minimum wage, to maintain competitive pay and retain skilled staff.
Rising wage rates may further push employees into higher NIC tax brackets, increasing contributions and compounding financial pressures on the laboratory.
Potential consequences for labs
For many dental laboratories, this increased financial burden could have several consequences:
- Reduced profit margins: dental laboratories may already operate within tight profit margins due to specialised labour and materials costs. The additional NICs and wages will further compress these margins
- Cost-cutting measures: laboratories may have to reduce operational costs, which could mean cutting back on employee benefits, training, or even scaling back staffing levels.
- Potential price increases: as costs rise, some dental labs might pass on expenses to clients, potentially increasing the cost of dental restorations and prosthetics for dental practices and, in turn, patients will pay more for their treatment and dental care
- Retention and recruitment challenges: Higher costs may impact the ability of dental labs to attract and retain skilled technicians, especially with competition from other industries that can offer more competitive salaries and benefits.
What does this all mean?
The recent changes in NIC rates and NMW are intended to support public services and improve welfare for employees, but they impose substantial financial demands on small and medium-sized businesses.
With the average dental laboratory employing five to 10 people and larger labs up to 100, we are hit the hardest. And with rising costs across the board, many labs will need to reconsider their financial strategies and explore cost-efficient operational changes to remain viable, let alone competitive.
Alternatively, increase prices and pass these costs onto the practice and patient, ultimately leading to an increase in inflation.
Click here to find out all you need to know about yesterday’s autumn budget announcement.
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