Into the storm – the Autumn Statement
The new Chancellor of the Exchequer, Rt Hon Jeremy Hunt MP, has just announced the Autumn Statement, giving an update on the government’s plans to stabilise the economy and reduce inflation. It has been well-anticipated, to say the least, after ex-Chancellor Kwasi Kwarteng and ex-Prime Minister Liz Truss’s mini-budget back in September. Let’s have a closer look at some of the announcements, and see how they may affect the dental sector.
A closer look
Firstly, incorporated practice owners are likely to feel the hardest blow. A few weeks back, it was announced that the reversal of the Corporation Tax rate, from 19% to 25% for companies with profits over £250,000, was going ahead. So, from the new tax year, the tax on profits from a limited company will be 25% for anything exceeding £250,000. For profits below this unit, there will be some tapering between the 19% and 25% rates, depending on where they sit between £50,000 and £250,000 in taxable profit.
Anecdotally, if a dental practice generates £250,000 in net profit, and the practice owner takes all of that money out of the business in the form of a salary-dividend mix, then they may be worse off going into the next tax year, by around £10,577. For a limited company practice that has £200,000 in net profit which is all taken out using a salary-dividend mix with sole director, they’d be around £8,303 out of pocket. So, for those who are incorporated, this is quite a remarkable tax increase. Those who act as sole traders won’t really see an increase in the tax rate, but there will be a change from £150,000 to £125,140, when the reduction of the higher income tax rate threshold kicks in. This may sound a lot bigger than it is, because the increase in tax for those already at the £150,000 level was limited to £1250. Depending on where you sit between £125,140 and £150,000, that amount will come down. So, compared to how it looks in the headlines, it doesn’t sound quite as concerning in retrospect.
The National Living Wage increase may also affect practice owners. It’s going up by 9.7%, from the current £9.50 per hour to £10.42 for the over-23s from 1st April 2023. This is the largest increase to the UK’s National Living Wage ever, Chancellor Hunt explained, and could serve to benefit around 2 million of the lowest paid individuals in the country.
Not every business owner will be employing their staff on the current National Living Wage, but it begs the question whether staff will be expecting similar rises? To put it in perspective: if you were paying your staff £9.50 per hour, and had to increase by 92p per hour to £10.42, then each member of staff on that wage would cost you £2,277.67 per year extra to employ (on an average of 40 hours per week, 52 weeks per year, and including the additional employer’s NI that you’ll need to pay). Multiply that by, say, five members of staff, then you’re looking at an additional £11,388.35 per year. NHS practices often employ higher numbers of staff members, and so are likely to feel the impact of this more keenly. The Autumn Statement did detail that NHS funding would increase by £3.3 billion, although it lacked the specifics regarding how that would impact dentistry. There are also fears that this may not be enough to protect the NHS from inflation. It has been predicted by the Office of Budget Responsibility (OBR) that unemployment will peak at 4.9% and then drop to 3.6% the year after. Will the labour market ease as a result, specifically in dentistry? That, too, remains to be seen.
For prospective vendors, the reported changes to Capital Gains Tax weren’t announced, which is positive. The only announcement affecting Capital Gains Tax is that from 2023, you don’t pay tax on the first £6000 only – down from the previous £12,300 threshold. The year after, this will be further reduced to £3000. Relative to what most dental practices sell for, this is quite a modest increase on tax.
Fortunately, the dental market hasn’t witnessed an Armageddon, only a slight softening within the NHS market and perhaps the owner operator market too. I’m interested in whether we’ll be seeing an increase of practices coming to market, following such a substantial increase in tax as an operator.
What to make of the Autumn Statement?
All in all, the Autumn Statement could have been a lot worse, compared to what was predicted by the dental market. As always, the impact on dentistry remains to be seen, but over the coming months we shall see what waves Chancellor Hunt’s statement has made within the sector.