Do You Want to Earn More?

We are a firm of Chartered Accountants who have worked in the healthcare sector now for some 15 years and have a great understanding of dentistry businesses. If I had to pick one of the most commonly occurring weaknesses it would be failing to save for the tax bill.

It doesn't really help that the UK has a hideously complicated system for the self-employed that requires 50% tax payments on account in January and July. Having an idea of how much to save on a monthly basis assumes you have an idea of what your profits might be in the first place! I am sure many of you have had similar experiences where a genuine business expense was unfortunately not "allowable" to the tax-man.

So being an employee may seem appealing, with the right amount of tax paid at source, and best of all, no bookkeeping! However I'm sure we all know that an associate who is employed, costs more to a business than someone who is self-employed, and this is because of Employer's National Insurance. This means that the associate costs, not their salary, but their salary + 12.8%. So there is less money to distribute and the associate will usually get a worse deal because of this financial burden.

In this sense, being an employee may seem appealing, with the right amount of tax paid at source, and best of all, no bookkeeping! The trouble is, as any accountant worth his salt will tell you, it costs more to be an employee because there is a sneaky little charge called Employer's National Insurance. This essentially means that an employee costs, not their salary, but their salary + 12.8%. So there is less money in the kitty and the associate usually gets a worse deal.

But it gets even worse. Income tax rates AND national insurance (NI) rates will be increasing for all over the coming years. I have mentioned this in passing to probably a dozen dentists and healthcare professionals over the last month and not one knew that there will be an unpublished tax rate of 60% on a section of their earnings. Sixty per cent!

So what can we do about it?

Well, tax planning is entirely legal and usual in normal business. The updating of the Dentistry Act a couple years back effectively legalised the use of Limited Companies for dentists again (for both clinics and associates) and it has certainly been my experience that there has been a relatively slow take-up to use these. Now, whether this is due to the specific facts of your case, or slow advice, we would wholly recommend a review as we have seen many practices obtain tax savings up to £100,000 and beyond.

Companies for associate dentists are a little trickier and savings are certainly smaller (but likely still worthwhile) but transfer the risk of IR35 to the associate. This is effectively the tax risk when things go wrong and may not seem like a big deal but, given the Inland Revenue's love for employment status (and the extra tax they get out of it!) they are certainly enthusiastic to attack where possible.

Interestingly, if a clinic operates as a Limited Company it opens up more opportunistic transactions which are not available as a sole trader. You should be very interested if your annual profits are in excess of £100,000 as there are a wide range of tactics available to us, many stem from dealing with situations probably just like yours.

If you are full-time associate then we have even better results available for you. At the moment you probably end up with around 65% - 73% of your slice after saving and paying for tax.

Using the latest technology we can turn this into 83% - 85%. If you are grossing £200k per annum on a 50/50 deal then this will put an extra £17,000 in your pocket - which works out to be a 26% pay rise! Perhaps even better still, we can also remove the burden of bookkeeping AND your tax is paid at source for you.

So, in summary, if you are either an associate OR a practice-owner we probably have some innovative ways to put more cash in your pocket, legally, and without you having to work any more hours. Sound like it's worth investigating?

Ross Martin ACA
Kelsall Steele Accountants