Dentists Who Invest

Podcast Episode

Full transcript

Dr James : 0:41

Fans of the Dentists who Invest podcast. If you feel like there was one particular episode in the back catalog in the anthology of Dentists who Invest podcast episodes that really, really, really was massively valuable to you, feel free to share that with a fellow dental colleague who’s in a similar position, so their understanding of finance can be elevated and they can hit the next level of financial success in their life. Also, as well as that, if you could take two seconds to rate and review this podcast, it would mean the world. To me, what that would mean is that it drives this podcast further in terms of reach so that more dentists across the world can be able to benefit from the knowledge contained therein. Welcome, welcome to the Dentists who Invest podcast. Awesome, okay, welcome everyone. So this is Mike and I’s brief synopsis discussion of Rishi Sunak’s budget and what it means for dentists. As of last week, when Rishi Sunak announced the budget, it announced the budget. What does it mean? What’s changed? There was a few things that we thought were changed, but they didn’t really. There wasn’t a whole lot in there that was drastically new. Mike will know more than me. I’m going to hand over to Mike in just a second. Lots of people will know Mike from the group already. But, mike, it might be nice for you to do a little bit of an intro for those that don’t Thanks, James. So yeah, mike.

Mike: 2:01

Mike Bryant from Humphrey Co. We’re a firm of Chartered.

Dr James : 2:04

Accountants and Tax.

Mike: 2:05

Advisors. We’re general accountants. However, we have a big specialty in dentistry. We act for about 1300-1400 dentists nationwide, all the way from young FDs coming out of FD school all the way up to corporate zoning 10, 20, 30, 40 practices. So holistic approach to dentists. And, yeah, I want to speak to you today about the budget update, or the lack of information in the budget update. I think it was actually quite not simple, but there wasn’t much information. I think I expected a bit more negativity and it seemed to be very positive. Rishi definitely spinned it a positive way. Of course, labour have spun it the other way, as is their job. But the main thing well, I think the three things that I wanted to mention that nothing changed on, which were concerns, is obviously tax relief on pensions. James, I don’t know if you heard any rumors of them removing tax relief on pensions and they haven’t.

Dr James : 3:04

I hadn’t heard that. I was mainly concerned about the capital gains tax side of things, but you’ll no doubt cover this in just a moment, but from what I could see, it wasn’t touched. But anyway, back to what you were saying.

Mike: 3:16

No, I didn’t hear that, so there was some rumors that they were going to remove higher rate tax relief on pension contributions. So you’d still get your basic rate tax relief, but you wouldn’t get your higher rate tax relief, which would almost be not the death of pensions, but would make pensions very much less attractive, and that’s obviously a negative for the government because, let’s face it, the state pension isn’t going to be sufficient for most people to live on in retirement. So that stays Capital gains tax. Very much was left alone, which is a good position, definitely. So your £12,300 remains CGT free. No change in CGT rates. It’s still 10 or 20%, depending if you’re a basic or higher rate taxpayer. No change to business asset disposal relief, which is the new entrepreneur’s relief, and so that still remains. For those of you that have dental practices and looking to sell at some point in the future, you will pay 10% gains on the first a million, the first a million, the first £1 million of gains and income tax rates. Income tax rates haven’t changed. There wasn’t a rumour that they would change, but they haven’t changed, which does bring us into the one that we did all know about, which is national insurance, and national insurance has changed or will change, and it will change April 2022 and it will go up by 1.25%. Now it’s a short-term change. In the Next year it is a 1.25% increase to national insurance and then the year after it’s a new tax. Essentially it’s a new national insurance and the reason they’re doing this is it’s really easy to bring in quite quickly to increase national insurance. But what they want to do from April 2023 onwards is penalise those people that are still working after state retirement age. So if there’s any older dentists listening at the moment, once you’re post-state retirement age, you don’t pay national insurance. When this new national insurance rate comes in in April 2023 onwards, you will pay 1.25% national insurance and for anyone that’s not above state pension age, it is just an increase of 1.25%. And that is on sole trade, employee employers and dividends. Okay, so there’s a bit of a double whammy. If you’re an employer, if you employ people, you’ve got to pay 1.25% more national insurance on your dividends you take from your company, on your net profits you get as a sole trader, but also 1.25% more on the national insurance you pay for your employees. So it’s actually a 2.5% increase in tax.

Dr James : 5:59

I see Interesting, good to know.

Mike: 6:01

Yeah, and dividends. It was the one. Actually we weren’t sure whether it was going to affect dividends. It is going to affect dividends. So, those trading as a limited company you can’t avoid it by taking dividends out. Your dividends will go up by 1.25% as well. There’s still a benefit to those that are sole traders and are thinking of incorporating and trading as a limited company. There’s still a benefit because corporation tax remains at 19% for now and it’s only when you take money out of the company you’ll pay that increased 1.25%. So if you’re thinking of putting money into a pension, in investing in dental practices or buy-to-let properties and you’re leaving the cash within the company, actually you’re not going to pay that 1.25% on that money.

Dr James : 6:51

Awesome, thanks. I sense there’s more to it than that. But about your draw of breath, just now I can go for hours, James, I can go for hours, absolutely.

Mike: 6:59

Now that’s the end to the national insurance. Did that make sense, James? Is that any questions?

Dr James : 7:05

No, it did Very well explained. I’m just going to jump in and say one thing. I’m just going to say hello to the people that have posted some comments, because I always feel terribly rude when I can see the comments up and people are saying hi and we don’t have an opportunity to respond. So I’m just going to use this brief interruption and precedence to say hello Adrian and hello Rowit, thanks for joining us today and good to see you both as well. And then back to Mike. I’ll throw the reins back to you, mike. Thanks, james.

Mike: 7:31

So national insurance, that is the be all and end all of it. Okay, you can’t get away from it. You do need to start budgeting from April next year for a higher 1.25% or 2.5% if you’re an employer yeah, this next one is a bit niche. So if you’re a sole trader or a partnership and you don’t have a year end of 31st of March or the 5th of April, HMRC is official year end. The tax year end is the 5th of April and HMRC allow the 5th of April and the 31st of March to be the same date. They don’t differentiate between the two dates. They class them as the same. I do know why, James. It’s 5th of April. The tax year, I think a long, long time ago, was the 31st of March and then they found out that we’re actually a few days short in the calendar year. We’re going a long way back, you know 1500s, 1400s, something like that, and then there was a few extra days brought in and then it went to the 5th of April or something like that, and they haven’t changed it. I don’t know why they haven’t changed it. It’s just an absolutely bizarre date to work to. Of course, most people pay. The NHS paid to the 31st of the month. Most people paid to the 31st of the month. Therefore, most accounts will be drawn up to 31st of March, which is indeed the same date as the 5th of April, and HMRC is at night. Now you choose when your year end is. It does not have to be the 31st of March, you can choose any point in the tax year. However, the Office of Tax Simplification has said that if you don’t have a 31st of March year end by 2024, I think it’s coming in we are going to force you to go to a 31st of March year end and that’s going to cause a big catch up of tax. I won’t go into the details on it, but if you had a 30th of April year end, you would pay tax almost a year later than someone that had a 31st of March year end. Okay, it’s always always been a very clever bit of cash flow, of planning, in order to change your year end away from March. We don’t tend to do it for a lot of clients deliberately, because when you come to retire or sell, you have to pay two years worth of tax in a lump sum and therefore, actually for dentists, it’s easier that they just pay their taxes. They go rather than paying it late, because they don’t understand the theory that when they come to retire they’re going to have to pay two years in one lump sum. But there’s definitely dentists out there that don’t have a 31st of March year end and if you don’t have a 31st of March year end come April 23 or April 24, you will be forced to go to a 31st of March year end and you will have to pay tax on the catch up and you will get a gracious period of five years to pay that catch up tax on a straight line basis.

Dr James : 10:38


Mike: 10:39

Yeah. So, to reiterate, if you’re not 31st of March and you are a sole trader, you need to think about changing your year end or doing a cash flow forecast to understand the impact to you when this new rule comes in, because it’s going to be pretty expensive for those people 100%.

Dr James : 10:56

Yeah, awesome. More to it than that, then yeah more.

Mike: 11:03

That was quite one that’s probably not well known. You have a, two that are quite easy, three that are easy to talk about, and then we’ll finish on an actual calculation on the corporation tax or an understanding of how the increase in corporation tax is going to work. National minimum wage is increasing, so again, an impact for those employers out there, those principles out there. It’s going from let me get the figures right 8.91 to 9.50. If you have apprentices so dental nurse apprentices then they can be paid less. If they are young, ie under 22, then they can be paid slightly less than 9.50. But if they’re over 22 and they’re not an apprentice, they need to be paid a minimum wage of 9.50. And all principles out there will most principles out there will understand the difficulty of finding good nurses, good practice managers, a good dentist at the moment as well. That’s a really tough recruitment stage at the moment due to Brexit, due to better dentistry in different countries and therefore foreign dentists not coming into the country as much. I don’t know the average stuff dental nurse wage, but I don’t think it’s much higher than 9.50 outside major cities and this increase is obviously therefore going to impact on what you need to be paying your dental nurses in order to keep them in the job. They’re higher skilled than those working in supermarkets and various other lower skilled jobs, so it may impact on your profits, because you may. In order to keep your recruitment, your nurses, you may just need to bump up their wage slightly. Making tax digital. Have you heard of making tax digital, james?

Dr James : 12:47

I think I have, but I can attempt to explain what I think it is, or I can just let the expert take their reins. I’ll do just that. The second one, thank you.

Mike: 13:00

Making tax digital has been rumoured to come in. I think it was supposed to come in April 21. It then got delayed to 22 due to Brexit. It then got delayed to 23 due to COVID. I know it’s been delayed to 2024 because HMRC had to have bigger fish to fry. At the moment, it’s already around for VAT registered businesses. If you are that registered, you will already know about this, but obviously most dentists aren’t that registered. What it will mean is, again, only for sole traders or partnerships at the moment. It will mean that you need to report quarterly to HMRC rather than yearly to HMRC. You will need online cloud-based accounting software and you’ll need to report your profit and loss four times it will actually six times a year. Again, it’s proof. The Office of Tax Simplification they think it will be simpler. Their argument is it will be more accurate. What you’ll do is you’ll do four quarterly returns, you’ll do an annual adjustment and then you’ll still do your annual tax return. So instead of going from one submission, you’re going to six submissions and of course, it is simplifying the equation. It’s been delayed, so good news it’s been delayed by another year Only, before you need to worry about it.

Dr James : 14:58

Yeah. What was the reason for that then? Because surely they’re very keen to get that over the line.

Mike: 15:04

They just haven’t got the manpower. They’re short staffed, as every good body are. They haven’t got the manpower to make sure it works properly. They’re trialling it. They’re obviously having some headaches with it. They want it to happen. It’s going to be big brothers watching you. My theory is at the moment, if you let’s think of a dental practice for argument’s sake, you got Joe Blogs in to paint your reception and he said it’s a grand if you pay me directly, or it’s 800 quid if you pay me in cash. Yeah, probably doing something a little bit dodgy with that payment. What I think will happen in these digital tax accounts, in these zeros or sage or QuickBooks you know, these online platforms that will allow you to support making tax digital is that when you pay Mr Joe Blogs, he’s going to want you to put a UTR his unique taxpayer reference in there In order for you to get tax relief. You have to put a code in for it to populate your expenses for you to get tax relief, and that will automatically expect Mr Joe Blogs to have the same amount of income in his digital tax account. I am theorizing here. That’s the way I think it’s probably going to go. It’s the easiest way for HMRC to cut out tax dodgers by taking cash and not reporting it and, unfortunately, if all of the tax fraud that happens year on year was caught, we wouldn’t be in a deficit at all, that we would be in a surplus.

Dr James : 16:30

So I see, okay, cool Makes sense.

Mike: 16:35

Last one Well, no, actually last two. Self-employment status of a dental associate got absolutely nothing to do with the budget, but is a really important thing for dentists, associates and for principals to look at. Have you done a webinar on it already, james? What you about to say something?

Dr James : 16:53

No, I was just going to say IR35, right, yeah, that’s the one, yeah, but no, no, interested to hear your slant on it. But we did. We had a podcast on it the other week, talked about how it’s changing, what we need to watch out for, how there needs to be clarifications on the terms. But you know what, the more information the better, and actually that podcast was before the budget, so you might have something to chuck on top of what we said.

Mike: 17:18

Okay, nice. Well, my slant is that big corporates might be in trouble. I know that one of the biggest corporates has announced that they will not be employing their dentists I won’t name and shame them and they are putting things in place to meet the employment status, meet the self-employment status For those smaller principals and those associates that don’t work for big corporates. Generally you’re probably fine. There’s things you can do have your own loops, your own equipment, make sure you have financial risks. So don’t pay your associate a day rate. And then substitution is the big one. It’s the big one that the corporates will go after. If you, the dentist, can appoint a dental friend to go into your practice and see your patients for one day a week and the principal allows it sorry, one day a year or more and the principal allows it, the principal shouldn’t not allow it. If they don’t allow it, you’re probably employed and they continue to pay you and you pay your dental buddy X amount for the day’s work that he done, then that will protect self-employment status. The substitution is the golden ticket. I see Something to point out.

Dr James : 18:32

go on, I was just going to say so. Your view is that it might be necessary for dentists to do that once a year just to fill proof themselves. So that’s that in itself. That’s different, that’s something that’s changed, but it is obviously going to be a workaround.

Mike: 18:47

Yeah, absolutely it is, but it will that’s self-employment. Status will indicate if you can send someone else in your place to do your work and you get paid for it, then it’s. It’s generally self-employment, I see okay, awesome, yeah, yeah.

Dr James : 19:06

so there’s going to need to be this heightened awareness going forward that perhaps that’s what us dentists should be thinking about once a year.

Mike: 19:13

There will be the corporates are working on it. They’re already bringing out. You know big substitution pools that people can pull in different people from their database and get substitutions in there. You got to think from a corporate side. If employment status came in, it would cost an extra 14% in tax on what they pay their associates and the corporate model would fail, or dentists get paid less.

Dr James : 19:39

I hear you, I hear you. Wow, that’s interesting. And from memory, if memory serves me right, 2023 is when those IR35 changes are coming in. Is that right, or is that sooner? I think it might be 2022. Oh, really Okay, even in a clock right there.

Mike: 19:55

No, that’s only relevant. Again, the rules are if the contractor, the corporate, is a medium entity or large entity. So now you’re looking at only the bigger corporates, then it’s there that the onerous is, on them to decide whether IR35 is applicable or not. If you’re contracting with a smaller principle, just a single handed principle, or a principle that owns, I don’t know, 10 or under practices probably, then the onerous is still with the dentist in order to ascertain whether IR35 applies or not.

Dr James : 20:29

Right, okay, interesting one Awesome.

Mike: 20:32

Yeah, so definitely an issue, but an issue that all dentists should be able to overcome with good advice and making sure they’re putting things in practice to support self-employment status. And then the final one. So there wasn’t loads Everyone’s aware of this one, but I just thought we’d look at a kind of live example as to how to work out the impact of the increased corporation tax rate that is coming in in April 2023. Well, they say it is. There’s already rumours that it won’t. There’s a vote beforehand a general election, I believe and it’s going to be a vote winner if they say, oh, we’ve done better than we planned. 25% tax rate won’t come in. We might I don’t know go to 23%. So who knows? But at this moment in time, 25% corporation tax will come in in April 2023. And what will happen is actually it will be for most people, it will be between 19 and 25% tax that they’ll pay. So the rules are if you have one limited company ie, you don’t control multiple companies, because that’s different and I’ll explain that in a minute but if you had one limited company, you’re a dental associate, one limited company and your profits were 100 grand, let’s say, and you’ll pay between 19% and 25%. The rules are if you earn under 50 grand, you’ll pay 19%, if you earn over 250 grand, you’ll pay 25%, and if you earn between 50 and 250, you’ll pay between 19 and 25% In order to work it out. If your profits do fall between 50 and 250, in order to work it out, what you do is you take the first 50 and you tax that at 19%, and then the amount between 50 and 250, you tax it at 26.5%, which seems a bit anal because the highest rate of tax is 25%. But it’s because you get that 50 grand at 19% first. If you earn over 250, everything’s at 25%. The marginal corporation tax rate is 26.5%. So if you earn 100 grand let’s call it 100 grand, that’s probably an okay amount for a dental associate to earn you would pay 50 grand at 19%, which is 9.5 grand, and you would pay 50 grand at 26.5%, which is 13.25%. Therefore, your total tax is 22,750, which will be a 22.75% effective tax rate. I see got you. So it comes in at between 19 and 25%. So you can now actually do the maths. If you’re a company, you know what your profits are. You can actually do the maths to work out what that effective rate of tax will be using that percentage, 26.5%.

Dr James : 23:38

Very interesting and very relevant to us dentists Awesome, cool. Well, that’s a very nice synopsis and also, yeah, very good job of homing it into what it means for dentists, because that is what this page is about, of course, and you know what? I came on this webinar beforehand and I said you know what? I didn’t really think there was anything in there that affected us, but now I know that there is some stuff, so that is really good to know, and I’m sure there’ll be lots of people sat in my choose as well before they listen to this.

Mike: 24:06

Awesome Okay.

Dr James : 24:07

Mike, that is so good. Thank you so much for your day and, guys, if anybody’s got any questions, feel free to pop them in the chat just before Mike and I round off. If anybody wants to reach out to Mike based on anything that he said, they can find him in the group Mike Bryan, and we will, of course, put this up as a podcast, because this has just been a very impromptu Q&A that Mike and I just decided to do today. I’d like the budget, because we know it’s so, so, useful for everyone on the page. Okay, cool, haven’t got any questions, but that’s totally cool. You’ll know where to find Mike afterwards if you can dream up any questions. Guys, thank you so much for coming along today. Good to see you, adrian, good to see you Rohit, as we said before, and anybody else who’s joining us, and thank you so much to Mike for giving up some of his time today. Come and speak to us. Cheers, james Nice one Take care. Awesome, mike. See you later. Bye-bye, leo, bye. If you enjoyed this podcast, please hit, follow or subscribe so you can stay up to date with information on new podcasts which are released weekly. Please also feel free to leave a positive review so others can learn about this podcast and benefit from it. I would also encourage any fans of the podcast to sign up to the free Facebook community from which the podcast originated. Please search Dentist who Invest on Facebook and hit join to become part of a community of thousands of other dentists interested in improving their finances, well-being and investing knowledge. Looking forward to seeing you on there.