Dental incorporation 15 years on – an erosion of the benefits?
NewsPosted by: Dental Design 28th September 2021
Fifteen years have passed since the law was changed allowing dentists to incorporate. At the time, there were plenty of dentists who embraced incorporation in order to reduce their tax liability. Today the benefits are less clear-cut and the Ross Brooke Dental team urge caution.
Specialist dental accountant Nathan Poole commented: “Our view has always been that incorporating can be beneficial but will depend on individual circumstances. The dentist needs to know how they will manage a range of factors, outstandingly the limits placed on withdrawals from the business.”
He explained that when a dental practice is incorporated, the cost of the goodwill has to be amortised, or off-set over a period of roughly five years. If the value of the practice was £500k, then a notional charge of £100k has to remain in the business until the good will is written off. This reporting requirement is a bitter pill to swallow for the sole trader who has always had full access to all their earnings.
Ross Brooke Dental provides a feasibility to any client considering incorporation so they can weigh up all the aspects which might affect them, such as:
- How to extract income from their company
- Amortisation of goodwill
- Moving the balance sheet of the practice into the limited company
- The Director’s loan account
- Shareholders
- Staff contracts – employees must be employed by the company
Nathan continued: “Whether to incorporate may not seem like one of life’s big decisions, but as a dentist, it could be among the most critical choices you will make, and that includes career, marriage and where you live!”
Ross Brooke Dental founder Linda Giles agreed. She said any dentist who wanted to incorporate should be given the option of a detailed feasibility study by their accountant. Anything else would be a dereliction of duty.
