Luke Moore discusses what the chancellor's plans mean for dental professionals.
The UK held its breath as the chancellor, Rishi Sunak, presented the 2021 budget. By this point, it was clear that the focus would be on post-pandemic recovery plans – including an outline of the financial support available beyond April 2021 – and the potential cost of these proposals on the UK taxpayer. Given that the Chancellor’s announcement brings the government’s total spending since the start of the Covid-19 crisis to £407bn, the warning of “huge challenges” to address record levels of borrowing was unsurprising.
Dental professionals may feel at least some relief that the highly anticipated changes to capital gains tax (CGT) did not appear to come to fruition. The threshold at which to start paying CGT is remaining flat until April 2026, which will have very little impact on dental practice owners when they come to sell their business. There was also no mention of the business asset disposal relief scheme, so we can only assume this remains at £1m as set in last year’s budget. Likewise, the gains on the disposal of assets that are not linked to residential property remains at 20 per cent.
In addition, Mr Sunak has maintained the income tax personal allowance and higher rate threshold beyond April 2021. This is a tax increase by stealth – whilst taxes do not rise in cash terms, if we equate the real value of currency after inflation over time, taxes will effectively increase from next year. Beyond taxes, a new super-deduction scheme was introduced that will only apply to companies, excluding sole traders (albeit dull details of the scheme have yet to be released). The super-deduction would, in theory, allow for 130 per cent relief on any investment in capital expenditure linked to machinery, which would cover dental chairs, OPG machines and the like.
Therefore, if practice owners are considering an upgrade and trading as a limited company at the moment, there is some additional relief available for the next two years against profits made. Still, the chancellor has laid out plans to increase the rate of corporation tax (CT) in April 2021 to 25 per cent for an estimated 10 per cent of companies. There are some considerations to make in regards to this. Firstly, if your company generates less than £50k a year in profit before tax, the CT rate will remain at 19 per cent. This may affect those that are working as dental associates and how they declare profits.
Secondly, there is a tapering period for anyone that makes a profit between £50k and £250k – again, at the time of writing, the details of this tapering period were yet to be released – but this could mean you pay between 19 per cent and 25 per cent. If this is anything like what the taper relief used to be, the nearer you are to £50k, the nearer you will be to paying 19 per cent, and vice versa. This won’t necessarily be linear, but there will be some sort of tapering between different levels of profitability. Many dental practices will certainly have a hike in CT to deal with.
Other elements of the 2021 budget may also relate to the running of a dental practice. For instance, those who employ ancillary staff or junior team members with relatively low hourly rates will need to apply the higher national living wage of £8.91 from April for those aged 23 and over. The incentive to take on an apprentice has doubled from £1,500 to £3k – a scheme that will run until the end of September 2021. The chancellor also extended the furlough scheme to the end of September, although employers will have to contribute 10 per cent of wages in July, increasing to 20 per cent in August and September.
Furthermore, a great deal of practice owners will be categorised as a small- or medium-sized employer. Under the statutory sick pay (SSP) rebate scheme that was specifically introduced for Covid-19, this does mean that eligible practice owners will receive a full rebate under SSP for any employee that is self-isolating. This will likely end soon, but certainly not before the end of lockdown measures in June.
The launch of a new recovery loan scheme from April 6 will be welcome news to dental professionals who are looking to borrow. Interestingly, you will have access to this as long as you meet the eligibility criteria, even if you have already utilised the bounce back loan scheme (BBLS) or the coronavirus business interruption loan scheme (CBILS). There’s no personal guarantor required for up to £250k and your personal private residence cannot be taken by means of security. However, we are still waiting on details regarding interest rates.
It is also important to consider that you can only amortise these loans over six years in the same way that you may have done with a BBLS or CBILS loan, which means a short, sharp repayment period. Interest rates will be a commercial interest rate from the bank so the new recovery loan may not be as attractive as it initially seems. There is a six-year repayment period for recovery loans, but there are also loans under the new scheme available for overdrafts, which offer a three-year repayment period.
There is certainly a great deal from the 2021 budget for dental professionals to mull over as we look towards a swift recovery from the Covid-19 pandemic. Should you need professional advice and guidance on how you and your dental practice might be affected, get in touch with the knowledgeable team at Dental Elite.