Please activate JavaScript!
Please install Adobe Flash Player, click here for download

Dental Tribune Middle East & Africa Edition

For example, a sole trader mak- ingaprofitofaround£100,000pa, and drawing out of the practice all of the profit, would expect to be about £4,000pa better off af- ter incorporation, just based on the rate differences alone (09/10 tax tables), before any other planning is done to significantly increase the amount of the total tax savings. Cash flow benefits Converting to a limited compa- ny also has cash flow benefits. Sole traders normally pay tax on their profits (income) in two instalments, with about half be- coming due two months before the end of tax year and the other about half payable payable four months after the end of the tax year. Limited companies of this size do not make payments on account, and their Corporation Tax, as opposed to Income Tax, is not payable until nine months after the end of the tax year. When the practice is transferred to the newly formed company, it can often borrow to pay for the goodwill, which can amount to 100 per cent of the annual turn- over of the practice. The interest on this loan qualifies for tax relief, and the capital sum borrowed by the limited company can be used by the dentist to reduce non-tax deductible payments, for exam- ple on his/her home mortgage. In some cases, the home mort- gage can be paid off in its en- tirety, depending on the good- will value. Even if the company does not need to borrow to complete the purchase of the practice, it is possible for the dentist as both shareholder and company di- rector (employee) to draw from the company a combination of salary, dividends, and loan re- payment, to reduce his/her per- sonal tax liability to zero, for a number of years after incorpo- ration. Corporation Tax on the practice’s (now the company), profits is of course still paid, currently at a rate of 21 per cent on profits up to £300,000. A family business Legislation to curb “income splitting” due to be implement- ed on 6 April 2009 has been deferred for now. However, other family members, often a spouse employed to manage appointments or other aspects of administration, assist many dentists acting as sole trad- ers in the running of their businesses. If these family members also become shareholders in the new company, advantage can be taken of other allowable tax mechanisms to further reduce the overall tax liability. Offshore structures For higher earners not domiciled in the UK for tax purposes, there are more so- phisticated tax-planning techniques that make use of offshore structures. If you fall into this category, (and your domicile in this context is not necessarily the country in which you live or hold a pass- port from!), you need to take specialist advice to optimise your tax position. It’s evident that all dentist sole traders and dental partnerships, wheth- er or not they are currently con- sidering incorporation, would benefit from a review of their status which compares their present position with that after the formation of a limited com- pany. There is, quite literally, nothing to lose. At the same time, incorpora- tion is not necessarily appropri- ate for every practice. The ulti- mate decision, after considering specialist, professional advice, must take into account the indi- vidual dentist’s present business circumstances, personal posi- tion and preferences and also, where relevant, his or her future plans. DT About the author Michael Lansdell was brought up in South Africa, receiving his hon- ours degree there in 1991. He com- pleted his training with international accounting firm Deloitte in 1994, and went on to be- come a founding partner at Lansdell & Rose Chartered Accountants (SA) a year later. Based in Kensington, London, Lansdell & Rose deal only on a long-term retained ba- sis, exclusively with owner-managed clients, generally dentists and doctors, and specialising in the incorporation of dental practices. As a client-focused team, they look for sustainable long- term solutions for their clients that maximise profits, minimise tax and build wealth. For more information, visit www.lansdellrose.co.uk or call 020 7376 9333. DENTALTRIBUNE Middle East & Africa Edition Business Matters 9 AD