Budget 2018: the key impacts on dentists
A corporation tax reduction and increased allowances for business investment offer dental practices an incentive to upgrade and grow their business
The 2018 Budget delivered opportunities for dental practices and health sector businesses, which are intended to support and encourage them to invest. However, Philip Hammond’s generosity was not all it appeared as the personal allowance and higher rate threshold will both be frozen in 2020/21, and he also kept many tax thresholds and allowances unchanged.
Corporation tax will fall next year
One of the key developments confirmed by the Chancellor – but originally announced in previous Budgets – is that corporation tax will fall to 17 per cent from 2020. This new low rate will make incorporation more attractive for smaller businesses and reduce the tax burden for companies of all sizes.
Increased allowances for business investment
The annual investment allowance (AIA) will increase from £200,000 to £1,000,000 for qualifying investment. The increased allowance only applies to investment between 1 January 2019 and 31 December 2020.
Quite simply, capital allowances can reduce your annual tax bill. They can be claimed for some types of capital expenditure but, generally speaking, anything that is used for a business purpose that has a useful life of two or more years may qualify. See table inset below for examples of qualifying investment. They are treated like any other expense and can be deducted from your profits when calculating your taxable profits at the end of the financial year. The deductions recognise that assets and equipment can lose value as a result of general use, wear and tear. In other words, capital allowances are the tax equivalent of depreciation.
Alongside this, a new structures and buildings allowance has been introduced, which has been set at 2 per cent on construction or conversion costs over 50 years, where all the contracts for physical construction works were entered into from 29 October 2018.
So if you are considering building a new practice or converting existing premises into a dental practice, or you plan to upgrade practice equipment and fixtures and fittings next year, get in touch to discuss what tax-efficient options are available to you.
Personal allowances and thresholds
A £650 increase in the personal allowance to £12,500 will come in next year, one year ahead of schedule. There will also be an increase in the higher rate threshold (and self-employment National Insurance on profits) to £50,000; however, we will have to wait until 12 December to find out if the latter will be implemented in Scotland. The pension lifetime allowance, widely tipped to be cut pre-Budget, was increased to £1.055m from April 2019. However, the personal allowance and higher rate threshold will both be frozen by the UK Government in 2020/21. A good example of the impact of frozen thresholds is the personal allowance that will continue to be tapered from an income level of £100,000. This threshold has applied since April 2010 and it creates high marginal rates for some dentists.
Combined with the increase in the personal allowance, for income between the taper threshold of £100,000 and the starting point for additional rate tax of £150,000: the first £25,000 will be taxed at up to 60 per cent (61.5 per cent in Scotland); and the next £25,000 will be taxed at 40 per cent (41 per cent in Scotland).
NHS spending up
By far the largest element of spending announced in the Budget was for the NHS with the Chancellor finding a further £20bn a year for the NHS, which when followed through will mean that the NHS will account for 38 per cent of all public spending by 2023.
We will have to wait until 12 December when the Scottish Budget is announced to find out if this increase in NHS spending is replicated in Scotland, and indeed we will also find out if the higher rate threshold which is due to rise in England, Wales and Northern Ireland next year will be applied
For the full Budget 2018 summary visit maco.co.uk. Our Scottish Budget 2018 commentary will be published on 13 December 2018.
Jayne Clifford, Director, Martin Aitken & Co, email@example.com