Phillip Hammond's first budget has attracted headlines, with the self-employed allegedly in the firing line, after he announced an increase to Class 4 National Insurance contributions from 9% (current rate) to an eventual 11% in 2019. The Chancellor has attracted criticism because some commentators think this breaks the Tories manifesto pledge of 'no tax increases'.
Regardless of this, the increase isn't going to make a significant difference to dentists – the Class 4 NICS rate of 2% on income above £43,000 doesn't change. The planned increase only affects the band of income between £8,060 and £43,000 – by 2019 a monetary increase of £680. It could have been much worse.
The majority of dentists pay income tax at 40%, so those who make pension contributions will be thankful pension tax relief and other personal tax breaks remain unaltered. Those who aren't making pension contributions or contributing to ISAs should take advantage while they can.
One announcement that will be disappointing for dentists trading as a limited company is the reduction of the tax-free dividend allowance from £5,000 to £2,000pa. Based on current dividend tax rates, this could represent a tax charge of 32.5% on an additional £3,000 of income – so a real term rise of £975. Again, not too significant. This is disappointing, however, as the £5,000 dividend allowance only came into effect this tax year. It will also affect the many investors who take dividend income of more than £2,000pa from their portfolio. Perhaps Philip Hammond was scoring points by changing something only recently introduced by his predecessor, George Osborne. We should be thankful if this is the extent of him making his mark – a largely benign budget.
For more information on taxation, pensions, practice purchases and sales as well as legal and accountancy matters go to: www.pfmdental.co.uk