On 17 October 2022, the Chancellor, Jeremy Hunt, known to many dentists as his time as the health secretary, made a fiscal statement reversing almost all tax measures announced at the Mini-budget on 23 September 2022, other than those that have already been legislated.
- National insurance and stamp duty cuts will remain, as does the £1 million annual investment allowance and the energy bill relief
- Mini budget measures now reversed include a 1.25% increase in dividend tax rates and a 1% reduction in basic income tax to 19%, announced effective from April 2023
- The Prime Minister had already announced on 14 October 2022 that Corporation Tax rates will increase to 25% from April 2023 as intended before the mini-budget
- In addition, the previous chancellor Kwasi Kwarteng had already announced a reversal of his Mini-budget proposal to scrap the 45% upper rate of Income Tax
National Insurance cut remains
In April 2022, National Insurance rates increased by 1.25% for one year, and the plan was to replace this increase with a Health and Social Care Levy from April 2023.
The increase will be reversed from 6 November 2022, and the Health and Social Care Levy will no longer be introduced as planned.
The national insurance rate for the self-employed has been reduced to:
- 9.73% from 10.25%, a 5% decrease in profits up to £50,270 and
- 2.73% from 3.25%, a 16% decrease in profits above this.
The following tax year’s rates are set at 9% and 2%, as they were in the previous year.
For example, with this rate cut, a dentist operating as a sole trader or in partnership with profits of £80,000 (after expenses) will save £851 in National Insurance annually. Instead of paying £4,898, they now pay £4,047, a fall of 17%.
A great way to combat inflation is with tax cuts. The new Chancellor, Kwasi Kwarteng, unveiled significant cuts to taxes and National Insurance in Friday’s Mini-Budget and important changes to the tax system for dentists in practice and dental associates.
House purchase stamp duty land tax rates cut remains
Anyone yet to complete or planning a house purchase above £250,000 will save £2,500. The first £250,000 is now free from tax with the removal of the 2% band on the £125,000 to £250,000 threshold.
First-time buyers save as their 0% threshold is raised from £300,000 to £425,000 and have to pay 5% on the remaining £200,000. The maximum value of a property for the first-time buyer relief is increased from £500,000 to £625,000.
A first-time buyer purchasing a house for £625,000 will pay a £10,000 stamp duty instead of £25,000 before the budget.
Annual Investment Allowance permanent level set at £1m remains
Good news for any squat or established dental practices looking to purchase equipment for more than £250,000.
From April 2023, the limit for the annual investment allowance was set to fall back to £250,000 a year, but this will now be set permanently at £1m.
The corporation tax rise remains
A planned increase of corporation tax from 19% to *25%, a 31.5% rise on profits above £50,000 next year, has been scrapped.
The tax rate paid by dentists operating through a limited company on their profits will remain at 19% in the future.
For example, this tax cut for a dentist with company profits of £80,000 (after expenses) saves £2,250 in corporation tax annually. Instead of paying £17,450, they now pay £15,200, a fall of 13%.
*The planned rise was 26.5% from profits between £50,000 – £250,000 due to a marginal relief adjustment.
Dentists with plans to buy equipment should no longer rush to ensure it’s purchased and in use by 31 March 2023
Due to the higher corporation tax rates, equipment purchases from April 2023 will be worth more tax savings. This means the “super deduction,” which gives an extra tax saving when buying new equipment to 31 March 2023, is now effectively extended.
Energy bills support remains
Under the scheme, the government will provide a discount on wholesale gas and electricity prices for all UK businesses for six months from 1 October 2022, which they say will be “less than half the wholesale prices anticipated this winter”. Dental practices do not need to contact suppliers, as the discount will automatically be applied to their bills.
CANCELLED Dividends tax cuts
The dividend rate, which increased by 1.25% at the start of this tax year, will be reduced back down to the previous year’s levels of 7.5% from 8.75%, a 16% fall (basic rate taxpayers) and 32.5% and 33.75%, a 4% fall (higher rate taxpayers) for next tax year.
After being announced, it would be removed the additional dividend rate of 39.35% will be 38.1%, a 3% fall.
For example, this tax cut for a dentist with company profits of £80,000 (after expenses and corporation tax), taking all the profit as a dividend, will save £810 income tax annually. Instead of paying £12,445, they now pay £11,635, a fall of 6.5%.
CANCELLED Income tax cuts
From 6 April 2023, the introductory income tax rate will reduce for England and Northern Ireland from 20% to 19%, a 5% decrease. This will save up to a maximum of £470 per year. It remains to be seen whether this rate will change in Scotland and Wales.
For example, with this tax cut, a dentist operating as a sole trader or in partnership with profits of £80,000 (after expenses and pension contributions) will save £377 in income tax annually. Instead of paying £19,432, they now pay £19,055, a fall of 2%.
The additional rate of 45% will remain in place for profits above £150,000 after its planned removal was scrapped.
Like National Insurance, this tax rate change will have little or no effect on a dentist with a limited company, as most of the money they take from their company is as dividends, which have a different tax rate and no National Insurance.
CANCELLED IR35 (off-payroll) to be simplified
HMRC has for many years accepted that associate dentists are almost always self-employed. HMRC guidance has mentioned that provided a standard ‘approved’ agreement supplied by either the British Dental Association (BDA) or the Dental Practitioners Association (DPA), their ‘self-employed’ status would not be challenged. But as of April 2023, this paragraph will be withdrawn, and associate dentist engagements should be considered in line with off-payroll working rules.
The good news for dental associates and practices is that the 2017 and 2021 off-payroll working rules will be scrapped from April 2023.
This means that it will once again become solely any dental associate with limited company responsibility, not the practice, to determine whether or not their work comes under IR35. The associate will decide if their work should be taxed as employment income and will be responsible for paying additional tax and National Insurance.
Summing up
- All self-employed dentists should see a reduction in their National Insurance bills from next year. But back in March 2021, the then Chancellor announced that personal allowances and income tax thresholds would be frozen until 2026. This results in more income being brought into higher tax rates purely through income inflation
- Despite the Corporation tax rise, a company can offer dentists a lower tax cost than operating as a sole trader or partnership. Make sure you talk to your accountant to see if you could benefit. An NHS dentist must always take financial advice about pensions before changing a company
- The off-payroll working and IR35 legislation will continue to create payment anxiety for practices (especially the big corporates) and associates with companies concerned about their employment status
- Practices with concerns about rising energy costs will see government support similar to that provided to individuals
- All dentists who invest in new equipment should get 100% tax relief on their purchases unless they expect capital expenditure of +£1m.
- First-time buyers received the most stamp duty savings widening the scope of saving when purchasing higher-priced properties
