National insurance: how can practice owners tackle rising costs?

National insurance: how can practice owners tackle rising costs?

Dental specialist financial planner Graham Hutton discusses what the recent changes to national insurance will mean for dental practices.

Changes to national insurance (NI) announced in October’s budget may have caused significant concern among dental practices. The upcoming changes will impact every salaried position within a dental practice.

The increase is particularly troubling as practices are already grappling with increased operational costs. Many are also already struggling to finance more attractive financial propositions to recruit associates and address the pressing issue of ‘dental deserts’.

What are the specifics of the changes?

National insurance is being modified in two key ways.

Firstly, the employer NI rate will rise by 1.2 percentage points, reaching 15% effective from 6 April 2025.

Secondly, the threshold at which employers begin paying NI contributions on salaries is being reduced from £9,100 per annum to £5,000, resulting in a larger portion of employees’ salaries being subject to taxation.

How will this impact practices?

It’s important to view these budget changes in the wider context of cost and workload pressures facing practices.

They come at a time when practices are managing increasingly high workloads, particularly against the backdrop of the dental recovery plan. The plan is expected to fail to reach its target of 1.5 million additional NHS dental treatments by March 2025, according to research carried out by the National Audit Office.

It’s understandable why, for many practice owners, the picture may not stack up. NHS practices may struggle to do more, with less.

In an open letter to Rachel Reeves, key spokespeople for the BDA have highlighted the significant impact of increased minimum wages and the rise in employer national insurance contributions (NICs) on practice operating costs.

The letter emphasises that as small businesses, dental practices are compelled to raise fees for private patients in response to rising overheads. However, practice owners with a significant NHS provision have limited options in an environment where fees are determined externally.

‘Hundreds of NHS providers are already delivering NHS treatments at a financial loss. Failure to soften this blow will push more of them closer to the brink or with no choice other than to move away from NHS provision,’ the letter states. It adds: ‘Make no mistake, these cost increases will have an impact on access to NHS dentistry.’

How can increased costs be mitigated?

As it stands, practice owners will have to shoulder these increased national insurance (NI) costs, along with various other financial pressures.

Practices could find it necessary to make operational cuts, including hiring fewer staff or reducing investments critical for business growth.

To manage expenses, practice owners might contemplate limiting insurance cover, a tactic that could prove counterproductive in the long run if it leads to greater costs down the line should the scenario they were protecting against come to pass.

In other cases, some dentists may evaluate the financial landscape and conclude that continuing with the NHS is no longer feasible, which could result in them handing back their contracts. The situation could pose a significant risk of deterring prospective dentists from considering practice ownership, thereby exacerbating the challenges facing the sector.

What steps should practice owners take now?

To gauge the potential impact on your practice, begin by calculating the anticipated costs associated with the National Insurance (NI) increases for the coming years. This projection will help you determine necessary adjustments to your investment plans and understand how these changes may affect each partner’s take-home pay.

If your earnings have decreased as a result, consulting a financial adviser could be beneficial to review how this situation aligns with your long-term financial objectives, including retirement savings. Additionally, if you are contemplating relinquishing your stake in the practice, an adviser can provide insights into the potential repercussions of exiting the business and how to minimise them.

It is essential to consider the tax and pension implications associated with these decisions, as making changes without thorough evaluation can complicate an already challenging situation.

You can book to speak to a dental specialist financial planner at Wesleyan Financial Services by visiting wesleyan.co.uk/dentists or calling 0808 149 9416.

Please note: charges may apply. You will not be charged until you have agreed to the services you require and the associated costs. Learn more about our charges by visiting wesleyan.co.uk/financial-advice/charges.

This article is sponsored by Wesleyan Financial Services.

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