Starting as a self-employed dentist
Here at PFM, we spend our time helping dentists just like you with the transition from employment to self-employment. We have put our collective experience together for the ultimate guide to help you with this next step in your career. This guide covers making sure you are registered with HMRC, what records you need to keep and how much you should be saving for tax.
So now you’re a self employed dentist
The transition from being employed to self-employed can often be daunting. A key concept to grasp is bookkeeping. As a self-employed dentist, you will be responsible for keeping your income and expenses in order, so that accounts and a tax return can be prepared each year.
As it is a legal requirement and you can face penalties if a tax return is submitted with incorrect information, accurate and regular bookkeeping is a good routine to get into.
What to Keep
As an associate, you will receive monthly schedules from your practice principal showing your monthly earnings as well as deductions such as lab bills and superannuation. These will need to be kept as proof of your income. You will also need to keep proof of any business expenditure. Records of other information for your tax return such as bank interest, gift aid contributions or rental income will also need to be retained.
Expenses
The list of business expenditure that can be claimed to improve your tax position is comprehensive. Common expenses that can be claimed include the costs of courses and training (including travel and subsistence), professional subscription costs, mobile telephone expenses and protective and work clothing purchased.
If you have to buy any dental materials or equipment, such as loupes, these are also allowable expenses. HMRC provides guidelines for self-employed sole traders in respect of certain expenses that can be claimed, such as use of their home as an office and laundry costs. “The other benefit to getting your information sorted early in the tax year is that you can receive advice on your superannuable earnings for the annual NHS reconciliation”
HMRC also provides specific advice regarding motor expenses. The key point is that travel costs to and from your regular place of work are classed as private use and are not allowable for tax purposes.
Tax Payments
When you pay your taxes is important to get right as it will help with your cash flow and avoid any nasty surprises.
Tax returns are made up to 5 April each year and the payments are due the following 31 January and 31 July. The January payment is made up of the balance due for the previous year, as well as a payment on account as an advance towards the current tax year.
The July payment is the second payment on account. The sooner after the 5 April you get your information to your accountants the sooner you can know the tax liability due, giving you more time to plan your finances. The other benefit to getting your information sorted early in the tax year is that you can receive advice on your superannuable earnings for the annual NHS reconciliation. This is important as the second payment on account to HMRC is due by 31st July and any additional superannuation deductions for the previous tax year will be deducted from your July payslip.
Pensionable Earnings
The annual declaration of Net Pensionable Earnings (NPE) is required by 30 June each year. As the figures you confirm annually are used to calculate your pension entitlement, it is important to make sure you are accepting an accurate earnings figure.
As a self-employed associate, the responsibility lies with you to ensure that the figure is correct and not confirmed until you are happy with it. This is a specialist area so seeking advice on this is something I strongly recommend.
Why do I need a dental accountant?
In the UK almost anyone can offer accountancy services. So how do you select an accountant, what will they do for you and is a dental accountant the right choice for you?
1. There’s a reason why all our clients are dentists
The dental industry is unique and having an advisor that understands the intricacies of the dental world, can be invaluable to you throughout your career. Any accountant will know the rates of tax and national insurance, and how to prepare a tax return. By having dental specific expertise on your side – you can take comfort in the knowledge that you are in the best possible tax position and all the dental complexities have been considered.
There are several key points in time throughout a dentist’s career where the specialist knowledge can be invaluable, such as the decision to incorporate or buying a practice.
2. We understand the shift from employment to self-employment
As a foundation dentist you will be in a salaried position, with your tax and national insurance automatically deducted by your employer. This means that you have never had a requirement to complete a tax return or think about taxes.
As a salaried dentist you are entitled to tax relief on expenses that meet HMRC’s criteria of ‘wholly, exclusively and necessarily incurred in the performance of the role’.
3. We know what dental specific expenses you can claim
As you complete your studies, many of you will become self-employed and work as a dental associate. HMRC’s guidelines on allowable expenses are widened when you become self-employed as you are allowed costs that are required for the purpose of the trade.
PFM Dental will provide you with their associate’s expenses guide to help ensure you are as tax-efficient as possible. The guide covers a wide range of typical associate expenses. If you have an expense you are not sure about, a member of the team will be able to give their opinion if it is allowable or not.
4. We forecast your tax, national insurance and student loan liabilities
You will need to register with HMRC as being self-employed and start monthly record-keeping. As your tax will not be deducted monthly, you will need to understand the tax system, and get into a routine of setting at least 35% of your self-employment income aside each month towards your tax bill (which will include student loan repayments).
A dental specialist can help guide you through the process and register you with HMRC at the right time.
5. We check your NHS Pension is all in order
Each year as an NHS performer you will be required to declare your NPE to ensure that your superannuation is being deducted at the correct rate and that your pension entitlement is correct. This is a technical calculation and every year we see practices get this wrong for their associates. An uncorrected error could mean you miss out on valuable pension or end up having to pay an unexpected one-off pension contribution.
As dental specialists we can check your first (or any) payslip so you can be reassured that you practice deductions are correct. However, we do more than this: we can also check your NHS Compass declaration to make sure you are being allocated the correct superannuable earnings each year.
6. We will defend your self-employed status if HMRC challenge this
In April 2023 HMRC issued guidance for associate dentists that having an associate contract with a practice does not automatically guarantee that you will be considered self-employed. It is now the responsibility of the Practice to complete an HMRC CEST test to determine an associate’s trading status. PFM Dental work with over 800 dentists, each with a unique working pattern. This variety means that we are sufficiently well-informed to deal with any challenges from HMRC.
7. We charge a fixed fee so there are no nasty surprises.
We offer a fixed fee for our associate package so that there are no hidden charges. We look to set up a standing order with you to spread the cost of our fees over the course of the year.
Our associate package also includes a subscription to Xero’s online bookkeeping software, that makes getting your information together for your accounts so much easier. We use Xero as it is a Making Tax Digital approved software so your reporting requirements to HMRC are future proofed. All our accountancy team are trained on Xero, so there will always be someone available to help you with any queries you may have.
What to do now
Now is the time to get yourself up and running with an accountant. Do not leave it so late that you are completing your tax return in January.
There are lots of ways that you can get in touch with us. The easiest method is to complete our contact form on our website. Once we receive this form, we will send you an email to get the ball rolling.
If you have any specific questions, then please call our office on 01904 656 083 and ask to speak to a member of the dental accounts team.
