The Autumn Statement 2023 ended up delivering very little for the dental profession. Chancellor of the Exchequer, the Rt Hon Jeremy Hunt, seemed keen to create headlines around “the biggest tax cuts ever for businesses since the 1970s”. However, these appeared to be just that – headlines and not much else.

Alcohol, business rates and NICs

For practice principals, the best news I can offer is that alcohol duty has been frozen again! Aside from this, there weren’t any real wins for those who run limited dental companies and have employees.

A small win is the news that the small business rates multiple has been frozen for another year, so your business rates shouldn’t go up again in that time. Many of the benefits discussed only really apply to larger companies. The full expensing introduced in the Spring Budget has been made permanent, meaning that businesses can continue to claim 100% capital allowances, though it only applies to plant and machinery. That said, the Annual Investment Allowance of £1 million has been available to practice owners for some time now, which is, in essence, exactly the same thing. Only very large organisations, perhaps corporates, will therefore benefit further from the full expensing scheme being made permanent with investments over the £1 million threshold.

If you don’t run your practice as a limited company, or if you work on a self-employed basis, the amendments to National Insurance Contributions (NICs) will be of note. Class 2 NICs were abolished altogether, which will be positive for all dentists and dental hygienists/therapists working on a self-employed basis. This will save you £3.45 per week. A slightly more impressive saving will be possible from the decrease in class 4 NICs, which will fall from 9% to 8% on profits between £12,570 and £50,270 from April 2024. Someone earning £35,000 will save £220, while a person taking home £50,000 will save £370. Across both changes, you will be around £450-500 better off at the end of the year.

Perspective is key

The rise in National Living Wage (NLW) will be good news for many, with everyone over the age of 23 receiving a £1.02 per hour hike in their wages, which is a pretty substantial increase. Young workers will also benefit from the rearranging of the age brackets, with 21- and 22-year-olds qualifying for the same £11.44 per hour as their older peers from April 2024, unless they’re on an apprenticeship scheme.

For business owners, even if you’re not paying your dental nurses and reception team the NLW, employees often value their worth based on the proximity of their salary to the NLW. The general expectation from staff on wages closer to the NLW, is for salaries to rise at a similar rate.

Great for individuals, but from a practice valuation perspective, this will have a less positive impact. Raising salaries by £1 an hour for 10 members of staff that work 40 hours a week, means increasing costs by £400 a week, £20,800 per year – that’s before the additional costs of Employer’s National Insurance and pensions, which equates to another £3,494. Some of this could be offset by fee increases to patients. But given that many practices introduced fairly significant fee rises last year to counter the growing costs of materials, staff and other out-goings, it’s necessary to consider whether a patient base could afford a further uplift. Either way, an increase in cost of £24,294 per annum without any offset means a reduction in EBITDA of the same. At a multiple of 7 x EBITDA, this is a potential reduction in valuation of £170,060.

Other small wins

There were a few other small wins for practice principals and professionals in the field worth mentioning. The first is that the Military Veterans Employment Scheme has been extended, so you don’t pay any NICs for individuals joining your team as their first civilian job, when you are paying them upwards of £50,270 annually.

The concept of a “pot for life” will be welcomed by many people who, theoretically, will be able to access their pension accrued in different jobs at different companies more easily. Individuals will need to speak to their employers to organise their desired pension fund.

Finally, for professionals with young children and who have individual incomes in the household of less than £100,000, they will be entitled to 15 hours of funding over 38 weeks a year, starting from the term after their child’s 2^nd birthday.

Better for some than others

In summary, the Autumn Statement was targeted towards middle earning individuals, who will benefit from small reductions in their outgoings relating to tax and childcare, with the likelihood of a pay rise too. For business owners running limited companies, there was almost nothing new at all.

If you would like any bespoke advice or guidance on how to optimise your financial situation or enhance your practice value, speak to an expert at Dental Elite.

Contact the team at www.dentalelite.co.uk, email info@dentalelite.co.uk or call 01788 545 900

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.

You will have likely heard that, yet again, interest rates have gone up. The base rate is now 4.5%. This is in a bid to gain control over inflation, which now sits at 10.1% – according to the Bank of England (BoE), the target is 2%.[i] BoE expects inflation to fall this year, with the 2% target being met by late 2024 – but reports suggest that there may be more hikes to interest rates as the year progresses. How will this latest increase impact dental professionals, and the dental market?  

No rest for mortgage owners  

The impact of the cost-of-living crisis and now the increase in interest rates is likely to be yet another cause for concern for the majority of dental professionals. For practice owners – who are facing increased monthly repayments as commercial mortgages are not usually fixed – this is concerning. Combined with the general costs of running a business going up, such as the cost of labour, materials, electricity and energy, then it is evident that many business owners will feel the squeeze, if they have not already. For those with variable rates on residential mortgages, in addition to those coming to the end of their fixed rate term residential mortgages, the pressures increase still.

For dental professionals on the lower end of the pay scale, these cost hikes place even more stress on their finances. On average, the standard variable mortgage rate is sitting at around 7.75%,[ii] and if this was raised by 0.25 percentage points (estimated rise for interest rates this year) to 8%, then those with a £200,000 residential mortgage and 25 years remaining may be forced to pay an additional £396 per year.

Recruitment remains a challenge

With pay and stress often being cited as reasons for a career change, this rise in interest rates may, anecdotally, prompt more dental professionals on the lower pay scale to seek employment elsewhere. This may be in the form of a new role in a different dental practice where the pay opportunities are better, or in a new field entirely. According to our most recent annual Goodwill Report for the financial year 2023, issues with recruitment are impacting market demand, even more so in rural areas where staff are much harder to source. With regards to the dental market, the lack of dentists is impacting the multiples for NHS practices, although the demand is still there.

The dental market

With the interest rate now at its highest level since 2008, those looking to acquire a dental practice may be up against higher lending rates. Our figures show that demand is still high, although, of course, prices are impacted by the increase in the cost of debt. 

There has been a slight hit on the average multiple across the country, although it is worth bearing in mind that these multiples are market-wide averages and may be impacted by extreme deals. Figures show that the multiples have decreased from 8.36x in 2021 to 7.40x in 2023 – for mixed and private practices, the average multiple paid is 7.73x, with some of the biggest players in the market hitting on average around 8.73x (some are even hitting around 8.5 – 9.5x). Our figures nod towards more consolidation and a consistently robust independent market, but if inflation remains high and the BoE must continue raising interest rates to combat it, then this may start to influence the independent market. However, it will take some time before we see how the most recent hike changes market activity.

What does the next 6 months hold?

The market is still strong, but as there remains uncertainty generated by inflation and interest rates, inflation figures will be better this month as steep rises in energy are washed through the system. In some respects this masks core inflation, especially with regards to food, albeit there are green shoots emerging. Most pundits feel we are reaching the end of the road with rate rises, one maybe two more but this will all depend on how inflation plays out. As always, it is worth noting that the dental market is not fixed but changes with the times. We will keep our ear to the ground to observe any changes that occur in the meantime.

For more information contact Dental Elite. Visit www.dentalelite.co.uk, email info@dentalelite.co.uk or call 01788 545 900

About the 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.

References:

[i] Bank of England (2023). Why Have Interest Rates Gone up? [online] www.bankofengland.co.uk. Available at: https://www.bankofengland.co.uk/explainers/why-are-interest-rates-in-the-uk-going-up [Accessed 15 May 2023].

[ii] Mason, C. (2023). Mortgage pain likely to last well into 2024 due to company bonuses and pay rises, warn experts. [online] inews.co.uk. Available at: https://inews.co.uk/inews-lifestyle/money/pain-mortgage-holders-last-2024-company-bonuses-pay-rises-2337724 [Accessed 15 May 2023].

It’s that time again – the Chancellor of the Exchequer, Jeremy Hunt, has delivered the Spring Budget and there were several key points that may be of interest to the dental profession. Much like the previous Budget, the focus is on economic growth, with emphasis on how to support the UK workforce and keep workers in their jobs for longer – a particular point of interest for the dental sector. Let’s break down a few of the leading points that potentially concern dental professionals.

Retirement

To boost economic growth, Jeremy Hunt shared the pillars with which he plans to support and address certain issues: everywhere, enterprise, employment and education. In particular, the employment pillar saw quite an unexpected bombshell – that the pension lifetime allowance (LTA) is not only being altered, as speculated, but is being abolished entirely. So, this is quite an impressive leap from the original £1,073,100 limit. While this is aimed at the higher earners, in the current tight labour market, this abolishment may help to encourage dentists to stay working for longer, rather than retiring early to avoid the pension trap. They may opt to work longer/additional hours, too, without the worry of going over the yearly limit, which has increased from £40,000 to £60,000. According to Jeremy Hunt, those aged over 50 were seen leaving the workforce in the greatest numbers during COVID-19. By removing the LTA on pensions, the government hopes to see more over-50s extending their working lives. However, the Labour party announced that they would reverse the LTA abolishment if elected, which means there’s a risk for those who would have filled their pension pots as a result of this Budget’s announcement. It’s something to bear in mind going forward.

An apprenticeship scheme for those over 50 was also announced, which could prove useful for recruitment, although there wasn’t a huge amount of information accompanying this. 

Childcare

Another barrier to employment was childcare, a concern that has seen many headlines in recent years. The cost of childcare has skyrocketed with many parents foregoing work to care for their child/children at home. For single parents, the situation is even more dire. As it stands, on average in the UK, 50 hours of day nursery (for a child under two) costs around £263.81 per week, while 25 hours equals around £137.69 per week.[i] Other types of childcare, including afterschool clubs, costs around £63.13 per week – over £2,423 a year during the term time for 5 to 11-year-olds. It’s clear to see how childcare costs eat into parents’ income, often leaving them with the difficult decision to put their careers on hold. Jeremy Hunt highlighted that it’s usually women who end up making this sacrifice. Last year, it’s believed that 32,000 women left the workforce to care for their children.[ii]

Having noted the struggles faced by families across the UK, Jeremy Hunt announced 30 hours of free childcare for children over the age of nine months. This support will be rolled out in phases: 15 hours of free childcare for 2-year-olds as of April 2024 and 15 hours of free childcare for children between 9 months and 3 years in September 2024 – all applicable when both parents are working. The slow phasing is a downside to this announcement, as the impact won’t be felt until next year. With regards to dentistry, many staff members will appreciate this additional support when its time comes round, especially those on lower incomes or who work part-time.

Other key topics

Corporation Tax has been increased to 25%. While the government hastened to add that at 25%, the UK rate of Corporation Tax remains the lowest in the G7, larger practices and mini-groups are likely to the feel this impact. Jeremy Hunt also introduced a new policy that sees 100% first-year relief for plant and machinery investments, being set at £1 million from April 2023. This may be welcome for smaller practices, encouraging them to invest in their businesses, while larger practices and mini-groups/corporates, who likely spend over £1 million on equipment and machinery, won’t garner much benefit. Further announcements include investment zones, which had also been announced in previous budgets. There is little information on this, so it’s looking like a more long-term ambition which we’ll find out more about in the future. The Energy Price Guarantee (EPG) has been extended for an extra three months, potentially providing relief for households. Undoubtedly good news for many, the draft beer tax has been frozen, doing away with the additional 11p per pint!

The long-touted Spring Budget was light on detail – hopefully by the next Budget, there will be more meat in terms of announcements that will affect the dental profession. As always, it’s worth keeping an ear to the ground to see what changes occur over the coming months.

For more information contact Dental Elite. Visit www.dentalelite.co.uk, email info@dentalelite.co.uk or call 01788 545 900

References

[i] MaPS. (n.d.). Average childcare costs. [online] Available at: https://www.moneyhelper.org.uk/en/family-and-care/becoming-a-parent/childcare-costs [Accessed 15 Mar. 2023].

[ii] www.ons.gov.uk. (n.d.). Labour market overview, UK – Office for National Statistics. [online] Available at: https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/bulletins/uklabourmarket/march2023 [Accessed 15 Mar. 2023].

The new Chancellor of the Exchequer, Rt Hon Jeremy Hunt MP, has just announced the Autumn Statement, giving an update on the government’s plans to stabilise the economy and reduce inflation. It has been well-anticipated, to say the least, after ex-Chancellor Kwasi Kwarteng and ex-Prime Minister Liz Truss’s mini-budget back in September. Let’s have a closer look at some of the announcements, and see how they may affect the dental sector.

A closer look 

Firstly, incorporated practice owners are likely to feel the hardest blow. A few weeks back, it was announced that the reversal of the Corporation Tax rate, from 19% to 25% for companies with profits over £250,000, was going ahead. So, from the new tax year, the tax on profits from a limited company will be 25% for anything exceeding £250,000. For profits below this unit, there will be some tapering between the 19% and 25% rates, depending on where they sit between £50,000 and £250,000 in taxable profit.

Anecdotally, if a dental practice generates £250,000 in net profit, and the practice owner takes all of that money out of the business in the form of a salary-dividend mix, then they may be worse off going into the next tax year, by around £10,577. For a limited company practice that has £200,000 in net profit which is all taken out using a salary-dividend mix with sole director, they’d be around £8,303 out of pocket. So, for those who are incorporated, this is quite a remarkable tax increase. Those who act as sole traders won’t really see an increase in the tax rate, but there will be a change from £150,000 to £125,140, when the reduction of the additional income tax rate threshold kicks in. This may sound a lot bigger than it is, because the increase in tax for those already at the £150,000 level was limited to £1243. Depending on where you sit between £125,140 and £150,000, that amount will come down. So, compared to how it looks in the headlines, it doesn’t sound quite as concerning in retrospect.

Moving on…

The National Living Wage increase may also affect practice owners. It’s going up by 9.7%, from the current £9.50 per hour to £10.42 for the over-23s from 1^st April 2023. This is the largest increase to the UK’s National Living Wage ever, Chancellor Hunt explained, and could serve to benefit around 2 million of the lowest paid individuals in the country.

Not every business owner will be employing their staff on the current National Living Wage, but it begs the question whether staff will be expecting similar rises? To put it in perspective: if you were paying your staff £9.50 per hour, and had to increase by 92p per hour to £10.42, then each member of staff on that wage would cost you £2177.67 per year extra to employ (on an average of 40 hours per week, 52 weeks per year, and including the additional employer’s NI that you’ll need to pay). Multiply that by, say, five members of staff, then you’re looking at an additional £10,888.35 per year. NHS practices often employ higher numbers of staff members, and so are likely to feel the impact of this more keenly. The Autumn Statement did detail that NHS funding would increase by £3.3 billion, although it lacked the specifics regarding how that would impact dentistry. There are also fears that this may not be enough to protect the NHS from inflation. It has been predicted by the Office of Budget Responsibility (OBR) that unemployment will peak at 4.9% and then drop to 3.6% the year after. Will the labour market ease as a result, specifically in dentistry? That, too, remains to be seen.

For prospective vendors, the reported changes to Capital Gains Tax weren’t announced, which is positive. The only announcement affecting Capital Gains Tax is that from 2023, you don’t pay tax on the first £6000 only – down from the previous £12,300 threshold. The year after, this will be further reduced to £3000. Relative to what most dental practices sell for, this is quite a modest increase on tax. 

Fortunately, the dental market hasn’t witnessed an Armageddon, only a slight softening within the NHS market and perhaps the owner operator market too. I’m interested in whether we’ll be seeing an increase of practices coming to market, following such a substantial increase in tax as an operator.

What to make of the Autumn Statement?

All in all, the Autumn Statement could have been a lot worse, compared to what was predicted by the dental market. As always, the impact on dentistry remains to be seen, but over the coming months we shall see what waves Chancellor Hunt’s statement has made within the sector.

For more information contact Dental Elite. Visit www.dentalelite.co.uk, email info@dentalelite.co.uk or call 01788 545 900

About the 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.