The New Government - Rising Taxes?
Who will be having the last laugh? Probably not dentists!
Considering the amount of government borrowing and the budget deficit we believe taxes will rise in the future in addition to public sector spending cuts.
At the moment it is not very clear what the likely changes to the tax system are. However, it will become clearer once the Budget is out, probably before the 1st July.
As it is, the likely areas of concern are;
National Insurance:
The much debated national insurance rise of 1% dubbed as the “job tax” by the Conservatives will come into effect but the 1% rise is only for the employees and NOT for the employers. Which means employer’s NI contributions will not rise but employees’ take home pay will get affected.
Therefore, you as dentists/employers will not get affected but your staff won’t be happy!
Income Tax
The 50% tax bracket (for earnings above £150,000) introduced by Labour will remain, it appears. However, the annual personal allowance will increase from current £6,475 to a higher level with the long term objective of reaching £10,000 per annum in line with the Lib Dem election pledge. It is not clear how the high income earners will get affected. At present, the annual personal allowance gradually reduces from £6,475 (earnings over £110,000) to nil (earnings over £150,000 per annum).
Hence, this increase in personal allowance may not have a significant favourable impact on dentists who are generally high income earners.
Capital Gains Tax
There appears to be a drastic increase of CGT from the current 18% to rates similar to an individual’s applicable income tax rates. However, this is in respect of non business assets. Also, it is not clear whether there will be any changes to the entrepreneur’s relief which effectively reduces the CGT rate to 10% on life time gains up to £1 million.
Therefore, it appears there will not be an impact on dentists especially on disposal of business assets including transfer of sole trader businesses into limited companies.
VAT
Any rise in VAT will have a direct impact on dentists since VAT is part of your input cost. At this moment in time, there aren’t any indications whether the VAT rate will rise from current 17.5% to a higher rate. However, 20% being the EU average rate, the new coalition government might attempt to bring UK’s VAT rate in line with the EU average which is a quick revenue raiser for the government!
Any increase in the VAT rate will have a direct negative impact on dentists’ net profit.
Corporation tax
Most of the dentists (rather their limited companies) who have incorporated currently pay corporation tax at the rate of 21%. There are suggestions that the large company corporation tax will get reduced from current 30% to 28%.
Again, even if this happens, there will not be any impact on dentists already running as limited companies.
Details of the new Government’s tax plans will only become clearer once the budget is out. However, in our opinion the above are the aspects you should keep a close watch on.
The Neem Tree, Esher
Just days until The Neem Tree, Esher opens on Monday. All very exciting as the graphics started going up today. You can see a few pictures here.
The floor completes today, and then finally the chair is in tomorrow. All very tight, but we have managed to get to this final stage on a very tight schedule considering all the issues we have dealt with.
More on progress next week, but in the meantime, fingers crossed the David and Nick show don't ruin it!
Have a great week ahead!
Arun Mehra FCA
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Incorporation
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