There was a lot in yesterday’s Budget, but not a lot from a tax point of view. The key point affecting dental practice owners and aspiring owners is the cut to Entrepreneurs’ Relief (ER). ER gave people selling their company a lower Capital Gains Tax on the first £10m of gains (10% rather than the usual 20%). The £10m has been reduced to £1m, the level it was in 2008, when ER was created.
That doesn’t seem very conservative, although in light of the manifesto pledge to review it, and rumours that it would be scrapped, perhaps practice owners can be thankful there is any ER left at all. But this is obviously bad if you are selling your practice.
I wonder what happens if the seemingly inevitable recession hits, though. The measures in this Budget to insulate the hospitality/travel industry show that things are getting serious. There is £30bn for small businesses, with business rates cut for many industries and sick pay rules extended for individuals affected by the Cornoavirus. So there is going to be a recession. Maybe not a long one. The bounceback depends on how long coronavirus takes to clear off.
There were some silver linings, though:
- The personal allowance remains at £12.5k
- The employment allowance is increasing to £4k, to help “compensate” for minimum wage increases
- Sick pay is being extended and becoming reclaimable (subject to certain conditions no doubt)
- Government backed loans are being made available to cover working capital shortfalls.
But where could this lead? The big corporates like Dentex are building big portfolios of dental practices in order to flog them as a package to institutional investors like pension companies. They might buy practices based on a valuation of eight times EBITDA with the goal of getting 14 times EBITDA when they sell. If prospective institutional investors suffer massive losses in a stock market crash that gameplan begins to look shaky. If it doesn’t have a viable exit plan in the form of a credible buyer, it will stop buying practices.
So Dentex and other big corporates might not be in the place they were expecting to be in 10 years, or whenever their exit was supposed to happen. If they stop buying, who is buying? Could goodwill prices crash as a result? It could go the other way too, with institutional investors seeing dental practices as a particularly safe port in a treacherous sea. The thing we can be sure of is that things will change as a result of this recession.
Another counterintuitive measure in this Budget was changes to pension rules for GPs and consultants who ‘earn too much’. If they earn above £200k they will continue to be penalised through lower pension contributions. This is the government trying to fix a problem it created itself a couple of years ago but, like with ER, it’s difficult to see what the point is in relation to conservative, free market values. If there is one.
Finally, there has been confirmation that the IR35 rules — which define your responsibilities as an employer vis-a-vis contractors – are going ahead, and will be coming into effect on April 6. This was announced a couple of weeks ago, separately to the Budget.
If you’d like to discuss any of the points raised above or want to arrange a full review of your tax position, get in touch, we’re here to help.