The Autumn Budget has given the dental market a lot to talk about. While investment in health and social care will be welcomed by many, the budget will hold consequences for dental practices due to changes in taxation thresholds and percentages, despite some measures designed to ease the financial burden for smaller businesses.
As well as the changes to Capital Gains Tax, Inheritance Tax and Business Rates – all of which will be discussed in greater detail – of particular interest for many dental practices in the weeks following the Autumn Budget are the changes to Employer’s National Insurance Contributions (ER NIC).
Although an increased allowance for small businesses will result in many predominantly private dental practices being better off, primary care providers within the NHS have expressed concern about increases to ER NIC, combined with increased salary costs. Not eligible for relief in the form of Employers Allowance, and as yet unclear on how investment in health and social care will be allocated, some practice principals may have little option but to decrease their NHS offer in favour of private treatments.
What are the changes to ER NIC?
In her first budget as chancellor, Rachel Reeves confirmed a rise in ER NIC from 13.8% to 15% from April 6, 2025. In addition, the Employer’s Secondary Threshold will be lowered from £9,100 to £5,000. Benchmarking data[i] produced earlier this year gives us an annual staff cost of around £161,000 for the average UK dental practice with around £906k revenue and 6 full time equivalent (FTE) PAYE staff. This gives us an average additional cost of just under £5k in ER NIC.
To offset this, the Employment Allowance is to from £5.5k to £10.5k meaning – according to government estimates – around 865,000 employers won’t pay any Employers National Insurance at all next year.[ii] Indeed, for predominantly private practices with annual staff costs under about £180k, the cost of employing people will be slightly lower or about the same post-Budget.
The additional consideration of wage increases
Businesses have already seen considerable rises in salary costs and related NI rates since 2019. According to the Office for National Statistics, between 2019 and 2023, the average wage for business service staff increased by 25%.[iii]
National Minimum Wage (NMW) will increase from £8.60 to £10/hour. That’s almost a £4 per hour increase since 2019. Apprenticeship and under 18s pay will go up by over £1 from April 2025 – from £6.40/hour to £7.55/hour. National Living Wage (NLW) also increased between 2018-19 and 2024 from £7.83 to £11.44 per hour, while the statutory age dropped from 25 to 21 years.[iv] NLW will again increase to £12.21 an hour from April 2025.
Increases to NMW and NLW require a consideration of commensurate pay rises for staff earning above those on the lowest pay and, of course, this also adds to the ER NIC bill for employers.
The impact of the ER NIC increase on NHS practice
The government has committed an annual average increase of 3.8% in funding for Health and Social Care between 2023-24 and 2026 totalling over £25 billion. However, at the time of writing, there is not yet any detail to confirm what investment NHS dentistry might expect.
Currently, the increase in ER NIC does mean that many NHS practices will be looking at higher employment costs next year, unless something changes. There is deep concern among those delivering NHS primary care about whether the ER NIC uplift has to come out of core budgets.[v] In an open letter[vi] to the government, the BDA has called for the chancellor to extend Employment Allowance relief to struggling practices who are already providing NHS services at a financial loss.
Despite all this, there is reason for optimism. A recent set of statistics released by NHS Business Services Authority (NHSBSA)[vii] surprised many by demonstrating that income, courses of treatment and dental activity for NHS practices has risen in the last year, and benchmarking informationi demonstrates that an NHS contract can still be a key driver for practice growth.
Optimising value
Going back to basics can help to ensure you are maximising the value of your business. As always, maintaining a forensic understanding of your finances, and keeping abreast of market influences and trends, alongside strategic investment in growth areas for your particular practice is vitally important.
The Dental Elite Benchmarking Report 2024 revealed a pre-Budget advantage in the dental market for mixed practices. This remains the case, with the new proviso that practices will benefit from a greater that 50% emphasis on private work. For any principals looking to increase the value of their practices, or to buy or sell, Dental Elite has a team of specialist brokers and finance experts who all have an unparalleled understanding of the dental market.
You don’t have to navigate your way through the twists and turns of the dental market alone. If you are considering selling or purchasing a dental practice, there are exciting opportunities available.
For more information on Dental Elite visit www.dentalelite.co.uk, email info@dentalelite.co.uk or call 01788 545 900
Author: Luke Moore is one of the Founders and Directors of Dental Elite and has overseen well in excess of 750 practice sales and valuations. With over 19 years working in the dental industry, Luke has extensive knowledge in both dental practice transfers and recruitment and understands the complexities of NHS and Private practices.
[i] Dental Practice Benchmarking Report DentalElite.co.uk. 2024. Available at: https://dentalelite.co.uk/benchmarking-report/ Accessed November 2024.
[ii] https://www.bbc.co.uk/news/live/cp9zrg128get?page=8#:~:text=The%20Employment%20Allowance%20will%20increase,less%20as%20they%20did%20previously.
[iii] Table 2: In-industry price and wage increases, 2019 to June 2023, selection of services industries. Dataset. Available from: https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/earningsandworkinghours/articles/analysisofwageandpriceincreasesuk/2011to2023. Accessed November 2024
[iv] National Minimum Wage and National Living Wage rates. Gov.uk. https://www.gov.uk/national-minimum-wage-rates
[v] https://www.nhsconfed.org/news/employer-national-insurance-rise-could-create-perfect-storm-gp-surgeries
[vi] Dentists: Chancellor must extend NI relief to struggling practices. BDA. November 2024. https://www.bda.org/media-centre/dentists-chancellor-must-extend-ni-relief-to-struggling-practices/
[vii] Dental statistics – England 2023/24. NHSBSA August 2024. Available at: https://nhsbsa-opendata.s3.eu-west-2.amazonaws.com/dental/dental_narrative_2023_24_v001.html Accessed October 2024
