By Helen Sewell, Accountant at Hive Business
Kitting out a new surgery or renovating your reception area is no small decision. Aside from the practical considerations of how best to use the space and what equipment is needed, there are the financial decisions on how to finance it (bank loan, hire purchase, existing cash). And there are tax implications.
Purchasing a new scanner, dental chair, furniture or IT equipment is ‘capital’ expenditure. It isn’t included in the calculation of your profit. But HMRC give you relief for this expenditure via the ‘capital allowances’ system. Furthermore, the annual investment allowance usually means that 100% of the cost is subtracted from your profit before calculating your tax bill.
For example, for a limited company:
Your business makes a profit of £120,000, you should expect to pay £22,800 in corporation tax (£120k x 19%)
If you have also spent £52,000 on a dental chair, scanner and bits of furniture in the year your tax liability would be £12,920 (£120k – £52k) x 19%
ANNUAL INVESTMENT ALLOWANCE
The annual investment allowance has temporarily increased from £200k to £1m until 31st December 2020 (when it will revert back to £200k); if you were so inclined you could spend up to £1m on (eligible) assets and get 100% of the cost taken off your profit before calculating the tax bill for the year.
We don’t know many dentists who want to spend £1m on assets all in one year, however, we do know plenty who might spend up to £200k within their financial year ending 31st March. And here’s the rub: when the annual allowance switches back to £200k on 1st January 2021 there will be ‘hybrid’ allowance for all companies whose year ends at any point other than 31st December.
For example, for a limited company with financial year ending 31 March 2021
The hybrid annual allowance is £800k:
£750k for the nine months to 31/12/2020 (9/12 x £1m);
and £50k for the 3 months to 31/03/2021 (3/12 x £200k)
No more than £50,000 can be claimed for period falling post 31/12/2020 so please consider the timing of your purchases next year. If you have any questions, get in touch.
So you go through the (emotional & financial) pain of refurbishing two surgeries and later your accountant might tell you that some of it isn’t going to help reduce your tax bill at all: it is deemed ‘buildings’ expenditure. HMRC don’t give any tax relief on this sort of expenditure until the point at which you dispose of the property (if ever). Ceilings, doors, mains services, and structural works fall within this category
There are a few assets which look like buildings & structures but are actually deemed to be plant & machinery by HMRC and are therefore eligible for capital allowances as normal – things like electrical and lighting systems.
Before committing to any significant refurbishments or equipment purchase, please get in touch and we will chat through the financial implications with you.