Act Now to Avoid the 2023/24 Tax Traps
We’re all paying more tax this year than ever before, so it makes sense to use whatever legitimate government incentives you can to keep the tax liability down for your professional dental practice.
Thinking of acquiring new dental technology, equipment or machinery?
We have some key advice to help you make tax savings.
The first step is to understand the rates you’re going to pay, and the tax traps where some considered investment in new equipment could save significant sums for your dental business.
Tax Rates Explained for Dental Practices – By Employment Status
Income tax for self-employed businesses with profits above £100K has shot up in 2023/24. The starting point for the 45% tax rate is now only £125K, so you don’t have to be making fortunes to lose nearly half of everything you earn.
Worse still, on taxable income between £100K and £125K, the effective rate is now a staggering 60%. The government’s measure of withdrawing the basic personal allowance for those who find themselves in this position wasn’t highlighted by the Chancellor when introduced last year.
If you hold a company directorship for your dental practice, the same is true for your company. The rate for profits over £250K is going up from 19% to 25%.
Further bad news, which Mr Hunt has done his best not to mention, is the £0 to £50K band at 19% is withdrawn as your company earns more. This means the effective tax rate between £50K and £250K is actually 26.5%. This, by any standards is a massive increase over the previous year, and a tax trap you might not be aware of.
How to Reduce Your Next Tax Bill
The key to saving tax is not to earn less, but to reduce your taxable income, ideally below the pinch points highlighted above. And, what better way to do this than investing in new equipment and machinery as a tax deductible cost. You’ll have the added benefit of being able to keep up to date with the latest treatments and attract and grow your patient list.
This investment is where we can help.
You Don’t Need to Use Cash
The right type of finance agreement will enable you to reshape your tax calculation and leave more money in the bank for better things.
Let’s look at a self-employed dentist for the tax year to April 2024, before and after investing in new equipment:
Pre Tax Profit £125,000
Income on which tax is due £125,000
Tax Due £42,432
Profit after Tax £82,568
Pre Tax Profit £125,000
Investment in Equipment £50,000
Income on which tax is due £75,000
Tax Due £17,432
Profit after Tax £107,568
Covering Your Finance Payments From the Tax Saving
In this case, the tax saving of £25K would pay for nearly two years of finance payments, (assuming a 60 month term). What’s more, during this time the new equipment will have improved efficiency and made the practice more rewarding.
Annual Investment Allowance
Now a permanent measure, the AIA enables nearly all businesses to offset the full capital cost of equipment and machinery against their profits. Read more at Annual Investment Allowance 2023/24
Key points to remember:
• We can help you lower your taxable income, when you invest in dental technology and equipment on finance
• The right type of finance agreement will ensure you have the cash in hand you need for practice growth, while gaining the latest technology
• Your equipment needs to be delivered and the finance agreement activated before the end of your tax year (self-employed and companies).
If you’re concerned at how much tax you’re paying this year, then you need to Act Now before it’s too late for 2023/24.
The purpose of this article is simply to draw attention to the tax traps and the potential savings available by financing new equipment. We recommend you speak with your accountant or professional tax advisor to see how any such investment would apply to your own tax calculation.