Last Minute Tax Year-End Planning for Dental Professionals

With the tax year ending on April 5th, now is the crucial time for dental professionals to take action to maximise their tax savings and plan effectively for the new tax year.

Contribute to a pension

• • Contributing to a pension is a tax-efficient strategy as you get immediate tax relief on the contributions,

For Self employed Dentists

• • You make two types of contributions using differing tax relief methods.
    • • NHS Superannuation Contributions: Your contribution is automatically calculated and deducted from your income if enrolled in the NHS Pension Scheme. The tax relief is claimed against your highest tax rate when you file your tax return, which is 40% or 45% for most dentists.
      • Personal Pension Contributions: If you choose to contribute to a personal pension plan, such as a Self-Invested Personal Pension (SIPP) or as an NHS Additional Voluntary Contribution (AVC), the government tops up your contribution by 25% of what you pay in. Further tax relief is claimed on the total topped-up amount at 20%, 25% or 40%, depending on the portion of your income that falls into the higher, additional or marginal rate band.
  • Pension contributions reduce your adjusted net income, potentially unlocking further financial advantages:
    • • Preserve family benefits: Qualify for free nursery education and Tax-Free Childcare
      • Retain Child Benefit: Stay below the High-Income Child Benefit Charge thresholds (£60,000-£80,000)
      • Reduce student loan repayments: Lower your income for repayment calculations
      • Restore Personal Allowance: Keep your income below £100,000 to maintain your full tax-free allowance

For Dentists with a company

• • • Contributions made as ‘Employer’s’ contributions into your pension before the end of the company year-end provide corporation tax relief at an effective rate of 26.5% for most Dentists.
  • • Contributions must qualify as “wholly and necessary” business expenses to be tax-deductible. This prevents excessive payments to family members with minimal company involvement.
  • • Unlike personal contributions (capped to 100% of salary or self-employment income), company contributions offer greater flexibility for dentists, who typically draw low salaries with higher dividends.
  • • Company contributions do not receive the 25% government top-up that personal contributions.
  • • It’s crucial that the pension fund correctly documents the contribution as an employer contribution (not personal) to avoid adverse pension tax consequences.
  • Associate dentists with a company cannot be members of the NHS pension scheme.

Pension annual allowance opportunities and considerations

• • • There is a £60,000 yearly pension allowance and the ability to carry forward unused allowances from the past three tax years. There are some complex conditions for this:-

      • • • Your total pension contributions (including employer and tax relief) in a tax year cannot exceed your total earnings (unless using an employer contribution). If your earnings are less than £60,000, your pension contributions are capped at your earnings (but employer contributions can go higher).
        • • If your adjusted income (total income + pension contributions) is over £260,000, your £60,000 pension allowance is gradually reduced. It decreases by £1 for every £2 over £260,000, down to a minimum of £10,000 if your adjusted income reaches £360,000 or more.
        • To carry forward unused allowances from the last three tax years, you must have been a member of a UK-registered pension scheme (NHS qualifies) in those years (even if no contributions were made).

  • • Planning Tip: You can open a Self-Invested Personal Pension (SIPP) to take advantage of the carry-forward rule. To carry forward allowances, you must make a small contribution (even £1) in the current tax year. This confirms your active membership and allows you to carry this year’s allowance forward for three years.
  • • Caution: If you’re participating in both the NHS Pension Scheme and a Personal Pension, it’s crucial to understand how your NHS Pension Input Amount (PIA) affects your Annual Allowance. The NHS PIA encompasses the overall growth in your pension benefits over the tax year. This growth includes factors such as salary increases and inflation adjustments. Notably, the PIA calculation is not directly linked to the amount of employee or employer contributions paid into the scheme. Consequently, this growth counts toward your £60,000 Annual Allowance, reducing the amount you can contribute to a SIPP or other pension arrangements without incurring tax charges. Since your PIA is confirmed after the end of the tax year, estimating it in advance can be challenging. Consider consulting a financial advisor or utilising the NHS Pension Annual Allowance Ready Reckoner Tool for precise calculations and personalised advice.
  • Consult a Financial Advisor: Given the complexities of pension regulations and tax implications, seeking advice from a financial advisor experienced in NHS pensions can provide personalised guidance tailored to your situation. If you do not have one, please contact us, and we will introduce you.

Maximise contributions into Cash or Shares ISAs

• • • Utilise your full £20,000 ISA allowance before the 5th of April
  • • Consider splitting between Cash and Stocks & Shares ISAs based on your risk profile
  • • Remember: Any Interest, dividend income, and capital gains within ISAs remain tax-free. This can be good if you expect to earn more from:-

      • • • interest than your tax-free personal savings allowance (£1,000 for basic-rate taxpayers, £500 for higher-rate taxpayers, and £0 for additional-rate taxpayers)
        • • dividends over the £500 tax-free dividend allowance
        • capital gains over the £3,000 tax-free capital gains tax allowance

  • • Act now: Recent discussions suggest potential reductions to Cash ISA allowances in future years, moving surplus savings funds from regular non-ISA savings accounts into an ISA.
  • Tax consideration: If you plan to fund your ISA contributions from surplus funds within your limited company, this will be part of your drawings and ultimately lead to a ‘taxed’ company dividend. You should speak with your accountant before withdrawing cash from your company to ensure you understand the tax consequences of withdrawing funds to deposit into an ISA.

Donations

Donating to charities or community amateur sports clubs through Gift Aid grants you additional tax relief if you are a higher or upper-rate taxpayer. Just like a contribution to a personal pension, it works by:

• • • Completing a Gift Aid declaration with each organisation and retaining it as your tax records
  • • The charity then claims an additional  25% tax claim from HMRC
  • You claim the difference between your tax rate and 20% via self-assessment
  • Like pension contributions, qualifying donations reduce your net income, which can enhance child benefits (see The Pension Contribution Advantage below), lower student loan repayments, help you access childcare benefits, and help to preserve your tax-free allowance.

Example: On a £1,000 gift-aided donation, a 40% taxpayer can claim £250 tax relief, and a qualifying organisation gets a further £250 top-up from HMRC.

Tip: If you miss paying your donation by 5 April, you can pay it after that date and backdate the tax relief claim to the tax year-end to maximise current tax relief.  The caveat is that it must be paid before you file your tax return with HMRC.

• • See our article here for more details.

Maximising Child Benefit Claims

If you have children under 16 (or under 20 in education), you’re eligible for Child Benefit. However, when your or your partner’s income exceeds £60,000, you’ll repay a portion through your self-assessment tax return. At £80,000, you’ll repay the full amount.

Strategic Planning for the New 2025/26 Tax Year

Is income reduction expected? If you anticipate your income dropping below £80,000 in the coming tax year, claim Child Benefit from the 6th of April. Even if you’re currently over the threshold, this ensures you receive payments if your circumstances change.

Don’t miss the backdating window. Claims can only be backdated for three months, so submit by the end of June at the latest to capture the entire year’s benefit.

The Pension Contribution Advantage

These thresholds refer to your net income after pension contributions. This creates a powerful tax planning opportunity:

Example: With an £80,000 income and a £10,000 pension contribution, your adjusted net income becomes £70,000—allowing you to keep 50% of your Child Benefit.

This effectively doubles the value of your pension contribution as you gain tax relief and preserve Child Benefit payments.

Pay planned expenses before 31 March to benefit from “Cash accounting”

Starting on April 6, 2024, all self-employed individuals, including associate dentists, will transition to the ‘cash basis’ method of accounting. This approach records income and expenses based on actual payments and receipts rather than when services are provided or goods are received (known as the “accruals” method).

On a cash basis, income is recognised when received, and expenses are paid. Therefore, strategic timing of payments and receipts can influence your taxable profits and overall tax liability.

Tax Planning Opportunity: To optimise tax relief for the 2024-2025 tax year, consider settling payments for planned expenses like training courses by 31 March 2025; paying for a training program in full before this date allows you to claim the entire cost in the current tax year rather than spreading it over multiple years if paid in instalments after 31 March 2025. Additionally, paying upfront may make you eligible for early payment discounts, further reducing costs.

Transitioning from accruals to cash-based accounting affects the timing of income recognition. On a cash basis, income is recorded when received. Therefore, if you receive payment in April 2025 for services performed in March 2025, this income will be reported in the 2025-2026 tax year. Consequently, your 2024-2025 taxable income will encompass only 11 months of income, not 12, potentially reducing your overall tax liability for that year.

Action Steps:

• • • Review Upcoming Expenses: Identify planned expenditures and consider advancing payments to fall within the current tax year.
  • Assess Income Timing: Be mindful of when you receive payments, as this will affect your taxable income on a cash basis.

By proactively managing the timing of your income and expenses, you can effectively navigate the shift to cash-based accounting and potentially reduce your tax burden.

Tax efficient investments – SEIS, EIS or VCT

Investing in tax-efficient schemes such as the Seed Enterprise Investment Scheme (SEIS), Enterprise Investment Scheme (EIS), and Venture Capital Trusts (VCTs) offers attractive income tax reliefs.

SEIS (Seed Enterprise Investment Scheme):

• • Income Tax Relief: Investors can receive up to 50% income tax relief on investments up to £200,000 per tax year, with the option to carry back relief to the previous tax year if unused allowance exists.

EIS (Enterprise Investment Scheme):

• • Income Tax Relief: This scheme provides up to 30% income tax relief on investments up to £1 million per tax year, or £2 million if at least £1 million is invested in knowledge-intensive companies.

VCT (Venture Capital Trust):

• • Income Tax Relief: Investors receive up to 30% tax relief on investments up to £200,000 per tax year.

Carry Back of Tax Relief: For SEIS and EIS, unused income tax relief can be carried back to the previous tax year, potentially reducing your tax liability for that year. However, VCT investments do not offer a carry-back option.  If you invest after the 5th of April, you can still claim tax relief for the current tax year, using the carryback rule.

Additional Considerations:

• • • Capital Gains Tax (CGT) Relief: Both SEIS and EIS offer CGT exemptions on gains from the disposal of shares, provided certain conditions are met. VCTs provide tax-free dividends and capital gains.
  • Loss Relief: If your investment decreases in value, EIS and SEIS offer loss relief, allowing you to offset the loss against your income.

Given the complexities and potential risks associated with these investments, seeking advice from a qualified financial advisor is strongly recommended to ensure alignment with your financial goals and risk tolerance.

Electric Vehicle Charging Incentives and Road Tax Changes Before 31 March 2025

Significant alterations will take effect on 1 April 2025, affecting grants for EV charging infrastructure and vehicle taxation.

For more detailed information, please refer to the following resources:

• • • Dentists – Electric Car Charging Grants Finish on 31 March 2025
  • Money saving tips to avoid the coming electric car road tax

Employers should prepare for significant changes affecting payroll and staffing costs.

National Minimum Wage and National Living Wage Increases:

Effective from 1 April 2025, the National Minimum Wage (NMW) and National Living Wage (NLW) rates will rise as follows:

• • • National Living Wage (21 and over): Increases to £12.21 per hour, a 6.7% rise.
  • • 18-20 Year-Old Rate: Rises to £10.00 per hour, a 16.3% increase.
  • The 16- 17-year-old and Apprentice rates saw an 18.0% uplift to £7.55 per hour.

These adjustments aim to improve earnings for lower-paid workers.

National Insurance Contributions (NICs) Changes:

From 6 April 2025, the following changes to employer NICs will take effect:

• • • Secondary Threshold Reduction: The threshold at which employers begin paying NICs will decrease from £9,100 to £5,000 per year, increasing the NICs liability for many businesses.
  • • Employer NICs Rate Increase: The main rate for employer NICs will rise from 13.8% to 15%, further increasing employment costs.
  • Employment Allowance Enhancement: The maximum Employment Allowance will increase from £5,000 to £10,500, offering eligible employers relief in whole or part against their NICs bill.

Employee Annual Salary: £30,000 NICs Calculation for 2025-2026:

1. 1. 1. Secondary Threshold: £5,000 per year
   1. 1. Earnings Above Threshold: £30,000 – £5,000 = £25,000
   1. 1. Employer NICs Rate: 15%
   1. Employer NICs Due: £25,000 × 15% = £3,750

Comparison with 2024-2025:

• • • Previous Secondary Threshold: £9,100
  • • Previous Employer NICs Rate: 13.8%
  • • Earnings Above Previous Threshold: £30,000 – £9,100 = £20,900
  • Employer NICs Due (2024-2025): £20,900 × 13.8% = £2,884.20

Impact of Changes:

• • Increase in Employer NICs: £3,750 – £2,884.20 = £865.80