Media Officer of NASDAL, Johnny Minford, Commercial and Development Director of DJH Mitten Clarke considers the Budget’s effects on the world of dentistry…
Out of all the measures announced in the Budget, there are a few which will affect dental practices’ profits and operation more than others. These are centred on the changes which will have an impact on the staff costs, which are one of the biggest single expenses in any Profit and Loss Account.
The cost to a practice is not just the 1.2% increase in the employer’s National Insurance, but also the reduction in the lower threshold, the level at which this cuts in. This now starts at £5,000, half the previous threshold, so many more employees fall into this net. This exacerbates the costs and will be especially felt in practices with numbers of mid-paid or part-time staff, who in the past will not have triggered National Insurance for their employer, but who now will.
Various estimates have been made by recognised organisations such as the Office of Budget Responsibility and Institute of Fiscal Studies setting the approximate additional cost to the employer for an average employee at around £800 pa.
But the increase is not just on the practice wage roll. All other businesses are in the same position, so it is certain that most suppliers will be facing the same stresses and will be increasing their costs too – lab fees, materials suppliers, software providers and other overheads. So, the extra costs to the practice is not a simple percentage of cost on their payroll, but a percentage increase on all their suppliers’ payrolls also. When these costs are measured against the profits, which are generally much lower than the total payroll and overhead cost, a much greater percentage impact on the practice owner is seen.
The augmentation in the national minimum wage will also have an impact, as will the uplifted Apprentice scheme cost. Some practices in certain areas rely heavily on junior members of their team and apprentices as part of the training process who will fall into this category.
There has been some miscommunication in the dental arena and through government announcements about the ‘balancing’ effect of the increasing Employers Allowance within the PAYE Scheme. This is positive, and offsets the NI increase. However, it is not evident that it is understood that employers working in the NHS system are not eligible for this allowance. This means that without a change to this, NHS practices will therefore be hit harder than private practices who can in fact claim the allowance, which is surely not what was intended!
Such tax changes drive behaviour. The obvious response is, whilst absorbing some of the cost increase in profit squeeze, most of it will be passed on to either the individual employees or to the patients through higher charges.
It is evidently not possible to pass costs on to employees directly, but it is expected that this will manifest itself in time with lower pay rises and possibly smaller teams. There is a concern that this could well have an adverse practical effect on patient care.
Passing higher charges to the patients is of course not possible for NHS practices, whose tariff is fixed. We await an announcement on next year’s Contract award and potentially changes to how Contracts are delivered from 2025 to see how this negative anomaly is addressed.
The Department of Health have been vocal on the desire to increase oral health generally and the provision of NHS dentistry and its delivery. This budget does not favour this, even in comparison to private dentistry.
Will the almost inevitable bump in profits affect the sales market? Certainly, all things being equal there will be a reduction in the EBITDA profits and most likely in practice confidence, which might also depress the multiples. However, there will be always be people looking to buy, perhaps with a view to a bargain following the tax hikes, and this will always add some upward local flavour.
Also, the increase in the Capital Gains Tax rates on sale in continuing steps over the next few years will also have an effect. Many considering sale will decide to bring their retirement forward to take advantage of the lower rates, increasing the supply on to the market. The existence of hard deadlines as tax rises are fed in annually will also impact the market, so we are likely to see more feverish activity and possible seasonal swings from buyers and sellers as the supply and demand changes affects market pricing.
Some Associates practise as limited companies and take their income as a mixture of salary and dividends. The exposure to National Insurance is one of the factors which determines the balance between the two and this will have to be reassessed in the light of the changes on a longer term review.
Many dentists, as they become successful, invest in property and of course private pensions. With the increase in SDLT from 3% to 5% and the Capital Gains regime changes, this form of investment and the intention behind it needs to be reconsidered, depending of course on the longer term intention. Changes in the structure of IHT planning should however be taken with consideration as these investments are long-term and responses should not be knee-jerk reactions. Some changes require immediate action, but some feed in over the coming years. For these, take the time to think through the new plans.
Some private pensions have been set up with a view to potentially passing their unused benefits to the next generation. The IHT changes to such structures are very negative, and for some dentists will expose them to a high IHT charge unless action is taken. This is a complex area and again, it will be worthwhile watching how this develops over the coming weeks and use the time to think matters through.
Specialist and considered advice is crucial.
The new leader of the Opposition has announced their intention to seek to reverse some of the Budget legislation. We watch this closely as some of the more detrimental changes to the delivery of oral care in the UK may be re-examined and possibly unwound by a future government in time, or even by the current government as the consequences as yet unforeseen by them emerge.
Take strong knowledgeable advice from reputable advisors who know the marketplace and who are not driven solely by the current choppy waters.