We’re in for nasty tax weather. The fundamentals of the economy tell us that. Instead of the £55bn forecasted in the March Budget, the Treasury’s “best case scenario” is for government borrowing to hit £337bn this year. The furlough scheme alone will cost £123bn, and the final price tag could be higher. Meanwhile tax revenues are down catastrophically. Businesses are closed, people aren’t shopping or eating out, and hardly driving. VAT and income tax receipts have been smashed. They may take a long time to come back to comparable levels.
Even if government spending and tax collections return to some kind of normality by the end of the year, it will take the government (or should I say taxpayers) many more years to climb out of its (our) new hole. If that’s even possible against a backdrop of another recession and Brexit money still to settle. There will be tax rises. There must be. The government has all but said as much. Spending cuts too. And it seems reasonable to expect both to be long term.
We don’t yet know what they will be. A leaked document recently hinted that the triple lock on pensions will be sacrificed and public sector pay frozen (a kick in the teeth for those key workers we’ve depended so much on recently), but it also hinted at capital taxes being aligned with income taxes, increases in National Insurance and a potential scrapping of the Personal Allowance in favour of a lower tax rate. Capital gains tax is significantly lower than income tax so this, coupled with the new restrictions on Entrepreneurs’ Relief announced in March, is more bad news for small business owners.
Dentistry was at the peak of its market in March. There was plenty of activity in the practice market, which probably won’t go away, but as prices drop (it changed from a seller’s to a buyer’s market overnight) and taxes go up, everyone stands to be affected for years. It’s likely we’ll get something within the next few weeks from the government on how it expects to pay for all its new spending, at which point we can piece together how that looks.
Whatever it’s going to be, now is the time to prepare. Ideally you want to be able to act quickly when the tax announcements are made so you can reposition your business fast to minimise the financial impact. This isn’t just a case of doing this year’s tax return sooner than normal. We can do a personal budget review for you to make sure you aren’t paying any more tax than you need to right now. It involves getting more acquainted with your personal outgoings, and seeing whether, if you were a limited company, the company could pay some of those costs. It’s about making sure you’re running as lean a ship as possible.
Let’s be honest. This is bad. But we can make it as painless as possible with some timely expert advice and support. If you’re not sure about your tax position and would like a personal budget review, or you could do with an exploratory chat, give me a call. I’m here to support you with tax expertise in the dental sector as you dig in for the long haul.