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Dentist Taxes - Everything you need to know

Updated: Nov 3, 2023


Income tax for dental practices

Your personal tax will be calculated based on the salary and dividends of dental practice if it operates as a limited company. In this case, your National Insurance contributions will be calculated based on your salary. The business will pay separate taxes on its taxable profit.

Your personal tax will be calculated based on your share of the dental practice's taxable profits if it operates as a sole proprietorship or partnership. In this scenario, your National Insurance contributions will also be determined by your percentage of the company's taxable profits. In both situations, any additional income you receive during a tax year (such as from a rental or investment) will be included and have an impact.

In both situations, the additional income you receive during a tax year (such as rental or investment income) will be added in and have an impact on your tax liability. Your annual self-assessment tax return will be used to calculate your personal tax obligation each year. Self-assessment tax returns need to be submitted to HM Revenue & Customs by the 31st day after the tax year ends.

The tax year

You must pay income tax on all relevant income that you receive during a given tax year. The tax year runs from April 6 of one year to April 5 of the following; for instance, the 2022–23 tax year is from April 6 of one year to April 5 of the following.

You will also pay National Insurance contributions, which are determined by your level of income, in addition to income tax.

You must start compiling the data and records necessary to finish your tax return as the end of the tax year draws near. This will involve making sure that all of the bookkeeping for your company is current and accurate.

Being taxed

Personal tax payments are due twice a year by the 31st of January and the 31st of July and are referred to as payments on account. Examining a concrete example will make explaining how the system operates the simplest:

Years one

Your first self-assessment tax return must be filed by January 31, 2023, if your first year of income taxable under self-assessment is 2021/22. You would then be required to make the first payment on account for 2022–2023 as well as the full amount of tax you owe for 2021–2022. Given that this is a reasonable estimate of your income for 2022–2023, the payment on account is calculated as being equal to half of your actual tax bill for 2021–2022.

On January 31, 2023, you will essentially pay 1.5 times your actual tax bill for the tax year 2021/22. The second payment, which will again equal half of your tax bill for 2022–2023, is due on July 31, 2023.

The following years

You will have already made two payments on account by the time your tax bill for 2022–2023 is calculated. Your actual tax bill for 2022–2023 is now reduced by the amount that has already been paid. According to timing, if the estimate was too high and you overpaid, the difference will either be repaid or subtracted from your tax payment due on January 31, 2024. The difference is due on January 31, 2024, if the estimate was too low and you owe more tax than expected.

You will also be required to make new payments on account on January 31 and July 31, 2024, based on your actual tax bill for 2022–2023 and the process will repeat.

Tax reductions for the dental sector

Dentists can deduct all business expenses related to their dental practices from their profits. This includes, but is not limited to: participation in professional organizations; professional indemnity insurance; marketing and advertising; accountancy fees; rent and rates; staffing costs; training expenses; staffing costs; cleaning and laundry expenses; telephone and internet expenses.

Whether using a straightforward spreadsheet or accounting software, these business expenses need to be documented in the bookkeeping records for your company. All of these records should be given to your accountant at the end of the year so they can use them to determine your taxable profit.

Additionally, tax relief is available when paying into a pension.

Tax Preparation

Tax planning focuses on finding ways to lower tax liability. A dentist can gain from tax planning in a number of ways, including:

  • Depending on individual circumstances, incorporating a self-employed business can lead to substantial tax savings;

  • Tax bills can be reduced by making pension contributions;

  • Profits can be reduced by ensuring that all business expenses are claimed for

Taxes and dentist associate accounts are described.

Self-employed Associates currently enjoy a dispensation from HMRC that states that, as long as they use and abide by a BDA model contract, they will be considered to be self-employed. The removal of this exemption, however, is scheduled to begin on April 6, 2023. The taxation of associates has no bearing on practice owners as long as the current dispensation is in effect. It is the individual associates' responsibility to make sure they are keeping the proper records, filing their tax returns, and paying their taxes on time. Some associates trade through limited companies, while others trade as self-employed dentists. It's possible that things will change a little after the dispensation is taken away. The BDA believes that the dispensation's removal won't have much effect. The practice owner will then be responsible for determining whether an associate is self-employed or not, and you will be required to use HMRC's CEST (Check Employment Status for Tax) tool to evaluate each self-employed contractor.

Although associates may be using the model contract, HMRC has found that they are not actually operating under its terms. As a result, it's possible that the change's primary effect will be on how employees change how they work.

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