Should I consider Incorporation as a Principal?

As an owner of a dental practice you have the choice as to whether you trade through an unincorporated entity such as a sole trade / partnership or whether you incorporate your business into a limited company. Whichever decision you make can have significant tax, financial and administrative implications. It is therefore imperative you have the support of a knowledgeable accountant who can provide you with the tools and guidance to make the best decision for your dental practice.

Let’s begin with one of the most attractive benefits to incorporating your dental practice –tax efficiency.

A key reason dentists want to incorporate their dental practice is to be able to tap in to a lower rate of tax on their profits. Every business’ goal is to make as much money as possible – right? Well should you aspire to make profits of over £125,000, you will begin to pay tax at 45% as a sole trader, 40% on profits over £50,000. This discounts the fact that you may even have other personal income as well as the national insurance payable.

An incorporated dental practice’s profits are currently taxed at:

To add, the company does not pay national insurance on its profits.

You also have the option to construct your personal tax return with a mixture of salary and dividends from the company which can be a great tax planning tool and ensure no personal tax surprises each year. 

You may be an established dental practice in the area, in a strategic location, with a great reputation. As a result, you have rightly increased the value of your practice through Goodwill. Incorporating your dental practice could involve the sale of this Goodwill from your existing business to the company which can introduce attractive tax benefits, however does come with tax implications such as CGT. Each incorporation is unique and depends on your circumstances including income type which is why it is always vital to get advice before you advance.

All the above sounds great and you are about to proceed with the incorporation of your dental practice – what now?

You will need to set up a limited company. A quick search on Companies House will inform you if the name you would like to use is already taken. There are certain bodies from whom you will need to gain approval from; the GDC ‘protects’ the words ‘Dental’ and ‘dentistry’ in your name and the NHS must consent to your incorporation.

The company will need its own business bank account to facilitate the income and expenses that are attributed to your business. Banks will often require your certificate of incorporation which is generated upon set up – please keep this safe.

An accounting/bookkeeping software of some degree is invaluable to obtaining day-to-day efficiency as well as making your year end as stress-free as possible.

Incorporation is something that has a high level of complexity with multiple facets to consider. Whether incorporation has been something you have given thought to or not, it is a path certainly worth exploring should the above resonate with you.