The New Budget - Impact on Dentists

Today's budget from the new coalition government announced several key implications for dentists. In brief we outline the key aspects that will effect dentists in the coming months and years.

VAT increase to 20% from January 2011

The rise in VAT is not good news for dentists. As a VAT exempt service, dentistry will feel the impact of a rise in VAT of 2.5%. For example a practice spending £10,000 on equipment will face an additional £250 cost. Not good news!

Capital Gains Tax

George Osborne announced with effect from midnight tonight a rise in Capital Gains Tax to 28% from 18% for high rate tax payers. As most dentists we work with are high rate tax payers, this again is not so good news.

However, on a better front the entrepreneur relief (available to business owners) which reduces Capital Gains tax to 10% remains in force but with a rise in value from £2m to £5m! So for the entrepreneurial dentist growing their business, this is good news!

Annual Investment Allowances
The Annual Investment Allowance (AIA) will be reduced to £ 25,000 a year with effect from April 2012. Currently the AIA is £100,000 a year. This means in summary you will be better off bringing forward your Capital Expenditure before 2012, as this will help reduce your tax bills earlier. From 2012 the allowance of £25,000 is a big reduction, and hence will not benefit dentists.

Following on from this the capital allowance rate will fall from 20% to 18% in 2012, again not a good thing for dentists, as the level of capital allowances that can be claimed after the annual allowance has fallen.

Income Tax - Increase of the Personal Allowance

Mainly aimed at low income workers, the personal allowance will rise by £1000 from next tax year. This is good news for low pay workers as they may fall outside of this earnings bracket. The eventual aim of the coalition government is to raise the personal allowance to eventually £10,000. The impact on dentists will be minimal.

Small Company Corporation Tax Rate Reduced

This will be reduced by 1% to 20%, making it more tax beneficial to be running a small company. This in effect makes it a more compelling case for incorporation for certain types of dental practices.

In Summary

Tax rises and cuts were expected. However, this budget is a bit of a triple whammy for dentists, as VAT rises by 2.5% and the capital gains tax rises and the annual investment allowance falls, there is not much good news here for dentists.

The only hint of hope comes in the guise of a 1% drop in small company corporation tax for those dental practices which are already incorporated. If you were considering incorporating, this maybe the final straw for you to take that path.