Changes to taxable benefits

Why dentists should be upbeat following changes to taxable benefits

John Clarke Practice Management Leave a Comment

Despite the horror warnings beforehand, Chancellor Philip Hammond’s final Budget before Brexit was reasonably favourable for dental professionals with some notable changes made to taxable benefits.

Taxes and pay

From April 2019 the Personal Allowance (the amount you can earn before paying any income tax) will increase from £11,850 to £12,500. The basic income rate tax band has also increased to £37,500 meaning that only those with an income exceeding £50,000 will be subject to the higher rate of 40%. However, the reduction in the personal allowance for those with ‘adjusted net income’ over £100,000 remains unchanged, meaning that for 2019/20 there will be no personal allowance where income exceeds £125,000. Those with a net income over £150,000 will continue to be subject to income rate tax of 45%.

Dentists trading as a limited company will welcome the further reduction to corporation tax rates, which will fall from the current rate of 19% to 17% from 1 April 2020. This is an additional 1% cut on top of the previously announced reduction to 18%. The continuing self-employment status of dental associates, the subject of continued speculation, for now remains unchanged. Although the Chancellor announced an extension of the IR35 ‘off payroll’ working reforms to the private sector to ensure individuals who effectively work as employees are taxed as employees, this should not impact the dental sector in the immediate future.

Planning to invest in your practice in 2019?

But arguably the biggest development for dental practice owners planning to invest in their business was the temporary two-year increase to the Annual Investment Allowance (AIA), from £200,000 to £1 million from January 2019. The AIA is a capital allowance that enables a business to write off the cost of most asset-based items in full against profits in the year in which the expenditure is incurred, reducing its next tax bill and therefore improving cash flow.

For dental practice owners, most assets purchased for business use qualify, including specialist equipment, IT software and hardware, furniture and cabinetry, flooring and lighting. In contrast, company cars and items that are gifted to the business or used for another purpose beforehand are exempt.

“The AIA is a capital allowance that enables a business to write off the cost of most asset-based items in full against profits in the year in which the expenditure is incurred, reducing its next tax bill and therefore improving cash flow.”

Concerns around the unpredictability of Brexit are likely to be felt for some time. But regardless of the eventual outcome, there are some clear trends emerging within dentistry. Corporatisation, rising competition and a shift in more dentists moving towards the private sector mean that the need for practices to diversify and offer specialist and cosmetic treatments to health-conscious patients has never been more important to stay ahead of the game.

This is all the more reason for practices to act quickly to take advantage of the generous Annual Investment Allowance tax break and embrace dentistry’s digital transformation. In an uncertain economic era, there are still opportunities for those shrewd and sharp enough to seize them in order to grow their business. Specialist financial providers who implicitly understand the dental industry will continue to offer tailored funding solutions to support the longer-term investor and forward-thinking dental practices.