DTUK1710

June 28-July 4, 201010 Practice Management United Kingdom Edition T here are now several business structures un- der which dentists can practice. The first point to make, very clearly, is that no one solu- tion is best for every practice. All an advisor can or should do is work with their clients and their other relevant advisors to find the solution that best delivers the requirements of that practice. The considerations are fre- quently complicated and involve weighing the pros and cons. The purpose of this article is to give an outline of some of the principal considerations that arise in coming to the right de- cision. These are guidelines only and specific advice on the indi- vidual circumstances is neces- sary in each case. But what are the options? Sole tradership - Here a dentist will simply trade on his or her own account in a famil- iar manner. He or she is liable for all the debts and liabilities of the practice, including any uninsured loss, without limit. There is therefore no protection for the individual dentist from commercial or liability risks. The dentist is taxed as an indi- vidual and has few filing and regulatory responsibilities. Limited company - A den- tist has the option to transfer their practice to a limited com- pany or simply to incorporate a new practice as a limited com- pany. This is the tried-and-tested commercial structure for doing business and has the principal benefit of limited liability. In oth- er words, the company is a sepa- rate legal entity from the dentist, and the liabilities of the company are not those of the dentist them- selves, therefore giving some protection against commercial risk and uninsured claims. This does not mean that it will eliminate every liability arising against the individual. Excep- tions to the ‘shield’ it provides may arise if, for instance, a den- tist does not fulfil their statutory duties as a director. In addition, where banks or other creditors take security from the dentist for the liabilities of the company, it avoids limited liability working in relation to the debt. The disadvantages of this can arise from the extent of dis- closure, which is required by the regulations governing the filing of accounts and other in- formation relating to the busi- ness, including earnings levels, with which some professionals are uncomfortable. A limited company is taxed at Corporation Tax rates on its profits and the dentist’s earn- ings from it are taxed again, ei- ther under PAYE for salary or as dividends where applicable. De- pending on both the dentist’s in- dividual circumstances and their levels of earnings, this can be used to create tax advantages or can cause tax disadvantages. Tax advice therefore is a necessary component of any decision to in- corporate as a limited company. Dentists working together Expense sharing - This is the ‘standard’ business structure that is put in place to organise the practice of dentists who work together in the physical sense of sharing a surgery, but keep their businesses and earnings essen- tially separate. The dentists agree to share (and frequently to own in com- mon) accommodation and equipment or facilities. They jointly employ staff and share management functions, agreeing to pay their agreed proportion towards the common expense of outgoings. Most dentists will pay laboratory and other fees direct- ly connected with their dental practice themselves and retain all earnings from their own den- tal practice after those costs are paid and the share of common outgoings has been deducted. Each participant will deal with taxation in his or her own right as an individual on the basis of his or her own earnings. This business structure has to be seen as a hybrid form, but essentially is a form of partner- ship. The extent of that partner- ship and the exact consequences will depend on precise circum- stances in each case, and a broad range of conclusions is possible. In any event, the dentist practis- ing in this way has unlimited li- ability for all commercial risks and uninsured losses. Advantages of an expense- sharing agreement include the flexibility that is available to a group of dentists with diffe- rent practices to differentiate be- tween their respective contribu- tions and earnings. Essentially, each dentist remains independ- ent and in control of his or her own practice. Exit routes for practition- ers, however, are difficult, in that most expense-sharing ar- rangements will restrict its participants from freely leaving and taking their practice with them, and so will give an op- tion to the other participants to purchase the practice from the departing partner. That can lead to a difficult exercise in balanc- ing the rights and expectations of both the leaving and the remaining parties. Partnership - An orthodox ‘unlimited’ partnership operates largely like an expense-sharing arrangement in practice, but pro- ceeds on the clear understanding that all participants are involved in the same business. In that way, it differs conceptually from an expense-sharing arrange- ment. There is more sharing of information, responsibility and accountability between partners. In a partnership which is not a Limited Liability Partnership, the partners have unlimited li- ability of the same nature as that which exists in an expense-shar- ing arrangement. A formal partnership for- mat allows less flexibility and outright self-determination to the practitioners in it than an expense-sharing arrangement; however, procedures on exit can be greatly simplified as a One size does not fit all when it comes to working out which business structure is best for a particular practice, as Clive Lawrence explains Bespoke solutions Working out the best business structure for your practice

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