What the Budget means for your private practice

The ‘mini-Budget’ could be really good news for independent practitioners. Specialist medical accountant Julia Burn explains why and gives some tips.

Chancellor Kwasi Kwarteng © Chris McAndrew

Well, it was not something I would refer to as a ‘mini-Budget’ – there was a lot of content in a fairly short speech and many items that reverse decisions made in previous budgets.

The theme of Kwasi Kwarteng’s announcements were bold and quite frankly surprising.

The main changes that were announced, which could be extremely good news for independent practitioners, are:

Reduction in the basic rate of income tax from 20% to 19% from April 2023;

Abolishing the top rate of income tax of 45%, meaning that the top rate of tax is 40% from April 2023;

Reduction in the highest rate of dividend tax by 6.85% (from 39.35% to 32.5%);

Scrapping of the additional 1.25% increase in National Insurance by reversing the Health and Social Care Levy (from November 2022);

Scrapping the planned increase in corporation tax to 25% for companies earning profits of over £250,000 a year from April 2023. The corporation tax rate will remain at 19%;

The Annual Investment allowance for capital allowances will be permanently set at £1m rather than reverting to £200,000.

Doubling the zero-rate threshold for Stamp Duty Land Tax from £125,000 to £250,000 and enhancing the first-time buyer’s relief from £300,000 to £425,000. These changes take effect for transactions completing on or after 23 September 2022;

A new Stamp Duty relief will be given for purchases of land and buildings in Investment zones;

Tax incentivised investment schemes will also be enhanced and expanded. 

So, what does this mean in practice for your businesses?

Careful planning needs to be carried out to ensure businesses benefit as much as possible from the above changes.

But while there have been some significant tax cuts announced, it is not all good news. 

We are still facing rising utility costs, which will affect us all personally as well as affecting those medical practices who own their own premises. 

Additionally, with interest rates continuously rising, individuals and businesses are facing increased costs with their mortgages, so the anticipated tax savings from the mini-Budget may be quickly lost.

Independent practitioners who work through their own companies should consider deferring bonuses and declaring dividends until after the tax cuts have come into force to benefit the most from the tax cuts announced. 

The abolition of the highest rate of income tax –which applies to employees earning over £150,000 a year – will see substantial savings for higher-earning individuals. An employee earning £200,000 would benefit from just over a £4,000 reduction in their tax bill next year compared to this year. 

This is due to moving to a 40% highest rate of tax instead of 45%, also coupled with the 1.25% reduction in National Insurance. Higher earners will also benefit from the reduction in the highest rate of dividend tax of 6.25% from 39.35% to 32.5%.

Corporation tax

Businesses, which fell into the proposed higher rate of corporation tax – those with annual profits chargeable to corporation tax above £250,000 – will see a benefit in the 6% reduction in tax on business profits – from the proposed increase to 25% being scrapped and therefore the corporation tax rate remaining at 19%.

And they will also benefit from the 1.25% reduction in employers’ National Insurance charges, payable on staff salaries.

Timing of capital expenditure on equipment is not as critical now that the Annual Investment Allowance has been permanently fixed at £1m, but it is still good business practice to plan these costs. Timing of investment in capital equipment is always important to potentially bring forward the tax relief gained.

The previous proposed increase in the corporation tax rate may have encouraged businesses to carry forward losses incurred during the Covid period to be utilised in the future, therefore benefitting in relief at the higher rate. 

Now that this has been abolished, medical practices that have incurred losses may want to consider carrying losses back instead to benefit from cash flow benefits earlier.

While reviewing cost savings from the above reductions, it may also be worth considering savings which would be made with the changes to the zero rate thresholds for Stamp Duty land tax if considering purchasing properties. 

As stressed above, the ‘mini-Budget’ was somewhat surprising and there seemed to be a huge amount of tax savings given by the Government. It is hard to envisage what will be announced in the next full Budget, but I guess we will have to watch this space.

Julia Burn (right) is a director at Blick Rothenberg and part of the team that advises medical practitioners