The Budget 2013 was delivered to Parliament on 20 March and outlined a number of measures that will particularly impact on principals and their practices.
From April 2014, an Employment Allowance of £2,000 is being introduced for businesses to set against their employer National Insurance Contributions (NIC). Practices will effectively get a discount from the amount of NIC they owe; and principals will be able to employ additional staff without the cost of NIC for that person/people up to £2,000.
Corporation Tax drops to 20% from April 2015, a single rate that will apply to all companies. This offers a great incentive for incorporation, a process in which a dental practice changes its trading structure to that of a limited company. Subject to a practice owner’s unique circumstances, a well considered structure should yield an overall annual saving in tax of 30-50%.
The Government also launched a raft of specific anti-avoidance measures alongside the new General Anti-Abuse Rule (GAAR). The Taxman will make things very uncomfortable for dentists who participate in tax avoidance schemes. Something more durable, such as incorporation (which is not a tax avoidance scheme), may be a wiser course of action.
Company car tax scales are changing in 2013/14, with further amendments yearly to 2016/17. Dentists are advised to choose their next vehicle carefully and note the amount of tax they will have to pay in the years to come. For incorporated dentists with company cars for private use, the greatest tax advantage arises on vehicles with the lowest carbon emissions.
From 2014/15, annual allowance for pension contributions will decrease from £50,000 to £40,000. Dentists who act now can maximise pension tax relief by taking advantage of the generous carry forward rules and the current £50,000 annual allowance for contributions.
The Capital Gains Tax annual exempt amount, currently £10,600, will rise to £10,900 for 2013/14. Considerable tax savings can be made for dentists whose spouse or civil partner is a basic rate taxpayer. A higher or additional rate taxpayer must pay 28% on all capital gains above their annual exemption, whereas those on the basic rate pay 18%.
The Annual Investment Allowance (the amount which a dental practice can spend on capital equipment and get 100% tax relief in the first year) increased from £25,000 to £250,000 for two years from 1 January 2013, encouraging investment in businesses.
Finally, a new tax-free childcare scheme will be phased in from autumn 2015. Dentists with children under 12 years of age will ultimately receive support worth 20% of childcare costs of up to £6,000 per child annually.
The case for incorporation grows more compelling, bringing substantial tax savings and offering a much safer approach than tax avoidance schemes. However, incorporation is a specialist area and involves more than just forming a limited company and starting to trade. Advice should be taken from a specialist dental accounting firm with relevant expertise.
For more information please visit www.lansdellrose.co.uk or call Lansdell & Rose on 020 7376 9333.