Bookkeeping Tips for Dentists

Simplifying Bookkeeping and Payroll: Essential Tips for Dentists

Running a successful dental practice involves more than just being a good dentist. You also need to take care of your money. Keeping track of your finances and managing your payroll are important, but they can be complicated and take up a lot of time.

As a dentist, your time is valuable and should be spent on treating your patients well. That’s why it’s important to simplify your financial tasks. In this article, we’ll give you essential tips and methods to help you make your financial tasks easier. We’ll talk about everything from choosing the right accounting software to outsourcing your financial tasks. By following these tips, you’ll be able to improve your financial management and focus on providing good dental care to your patients.

The Importance of Simplified Bookkeeping and Payroll for Dentists

Running a dental practice comes with many responsibilities, and one of the most important aspects is managing your practice’s money properly. As a dentist, it’s crucial to understand your practice’s finances and follow the rules for the dental industry and the UK’s tax codes.

Effective financial management doesn’t just help your dental practice run smoothly; it also plays a crucial role in maintaining financial stability and complying with legal requirements. By simplifying these aspects of your business, you can save time, reduce stress, and focus more on providing quality dental care to your patients.

Accurate accounting helps you keep track of your practice’s income and expenses, keeping your financial records up-to-date and organized. This is important for making informed business decisions, managing cash flow, and preparing financial reports. Improved accounting also ensures that you meet all tax obligations, including sales tax and income tax, preventing potential penalties or legal issues.

Managing payroll is equally important for dentists. As a business owner, you have legal responsibilities to your employees, including making accurate payroll calculations, making timely payments, and complying with labor laws. By simplifying your payroll process, you can ensure that your staff are paid correctly and on time, reducing the risk of disputes or legal complications.

Implementing streamlined accounting and payroll systems can also benefit your dental practice in terms of efficiency and productivity. By using modern accounting software or hiring professional accountants, you can automate repetitive tasks, such as data entry and payroll calculations. This not only saves time but also reduces the chances of errors, allowing you to focus on providing excellent dental care to your patients.

In summary, improved accounting and payroll are essential for dentists to ensure financial stability, compliance with regulatory requirements, and efficient practice management. By paying attention to these aspects of your business, you can streamline your operations, reduce stress, and allocate more time to delivering excellent dental services to your patients. In the following sections, we will explore practical tips and strategies to help you simplify your accounting and payroll processes, empowering you to take control of your dental practice’s financial well-being.

Action points

  • Implement streamlined accounting and payroll systems.
  • Use modern accounting software or hire professional accountants.
  • Automate repetitive tasks, such as data entry and payroll calculations.
  • Keep your financial records up-to-date and organized.
  • Make informed business decisions based on your financial data.
  • Manage cash flow effectively.
  • Prepare financial reports accurately.
  • Meet all tax obligations, including sales tax and income tax.
  • Make accurate payroll calculations.
  • Pay employees correctly and on time.

Click here to learn more about our accounts services for dentists.

Understanding the Specific Bookkeeping and Payroll Requirements for Dentists

As a dentist, it’s important to know the unique financial rules that apply to your job. Dental practices have their own money-related considerations that are different from other businesses. Being aware of these details will make it easier to manage your finances.

One crucial thing to think about is the money coming in and going out. In dentistry, you might have various sources of income, like patient fees, payments from government healthcare programs, and insurance payments. It’s essential to keep accurate records of all these income sources for proper financial reporting.

Dental practices also have various expenses, such as staff salaries, dental supplies, equipment maintenance, and rental costs. Keeping detailed records of these expenses will not only help with accurate financial reports but also identify areas where you can save money and plan your budget.

Besides income and expenses, dentists need to follow the rules set by organizations like the General Dental Council (GDC) and HM Revenue and Customs (HMRC). These organizations have specific requirements for record-keeping and tax obligations. Failing to meet these requirements can lead to penalties and legal problems. So, it’s crucial to stay updated on the latest rules and make sure your financial processes follow the necessary guidelines.

To simplify your financial management as a dentist, consider using specialized accounting software designed for dental professionals. These software solutions often have features that cater to the unique needs of dentists, such as tracking lab fees, managing patient records, and generating reports tailored to the dental industry. Implementing such software can streamline your financial processes, save you time, and reduce the chances of errors.

By understanding the specific financial requirements for dentists, you can ensure accurate financial records, compliance with regulations, and more efficient management of your dental practice’s finances. Improving these processes will not only save you valuable time and effort but also contribute to the overall success and stability of your dental business.

Action points

  • Keep accurate records of all income sources and expenses.
  • Use specialized accounting software designed for dental professionals.
  • Stay updated on the latest financial rules and regulations set by dental organizations and tax authorities.
  • Outsource financial tasks to professional accountants, if needed.
  • Use financial data to make informed business decisions and improve cash flow management.

Click here to learn more about Making Tax Digital for dentists.

Choosing the Right Accounting Software for Efficient Record-keeping

Choosing the right accounting software is crucial for dentists to maintain efficient record-keeping practices. Thanks to technology advancements, dentists have various options to choose from, each with its own unique features and benefits.

First, it’s important to consider your dental practice’s specific needs. Look for accounting software designed for healthcare professionals, offering features like invoicing, expense tracking, and payroll management. This ensures you have a comprehensive system that can handle all your financial and payroll requirements.

Another important factor to think about is how easy the software is to use. As a dentist, you may not have extensive accounting knowledge or experience, so it’s essential to choose user-friendly software that is easy to navigate. Look for features like a simple interface, clear instructions, and helpful customer support to make the transition to using the software smooth.

Integration capabilities are also worth considering when selecting accounting software. Look for software that can seamlessly work with other systems you use in your dental practice, such as appointment scheduling or patient management software. This will save you time and effort by eliminating the need for manual data entry and ensuring that all your systems work together smoothly.

Security should be a top priority when choosing accounting software. As a healthcare professional, you handle sensitive patient information, so it’s crucial to pick software that prioritizes data security and confidentiality. Look for software that offers encryption, regular data backups, and strong access controls to protect your financial and patient data.

Finally, consider your budget when selecting accounting software. There are both free and paid options available, so it’s important to weigh the features and benefits against the cost. While free software may be tempting, keep in mind that paid options often offer more robust features and better customer support.

By carefully considering these factors and choosing the right accounting software, dentists can streamline their accounting and payroll processes, saving time and ensuring accurate financial records for their practices.

Action points

  • Consider your dental practice’s specific needs, such as features like invoicing, expense tracking, payroll management, and integration with other systems.
  • Choose software that is easy to use and navigate, with a simple interface, clear instructions, and helpful customer support.
  • Prioritize data security by choosing software that offers encryption, regular data backups, and strong access controls.
  • Consider your budget when weighing the features and benefits against the cost.
  • Free software may be tempting, but keep in mind that paid options often offer more robust features and better customer support. We recommend looking into Xero and Sage.

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Did You Know?


  • Dentists in the UK must keep accurate financial records for all business transactions. This requirement is set out in the General Dental Council (GDC) Standards for Dental Professionals (2019), which state that dentists must “keep accurate and up-to-date records of all your financial transactions, including income and expenditure.”
  • Dentists in the UK must deduct tax and National Insurance contributions from their employees’ salaries. This is required by the Income Tax (Earnings and Pensions) Act 2003 and the National Insurance Contributions Act 2010.
  • Dentists in the UK must submit VAT returns to HMRC quarterly. This requirement is set out in the Value Added Tax Act 1994.
  • Dentists in the UK must submit payroll information to HMRC monthly. This requirement is set out in the Pay-as-You-Earn (PAYE) Regulations 2003.
  • Dentists in the UK must also submit an annual tax return to HMRC. This requirement is set out in the Income Tax (Self Assessment) Act 1996.

Click here to watch our webinar on automating your finances with Xero.

Organizing and Categorizing Expenses for Easy Tracking and Tax Purposes

When it comes to handling the money side of your dental practice, organizing and sorting your expenses is important for easy tracking and tax purposes. Keeping your expenses clear and properly categorized helps you stay organized and ensures you’re taking advantage of all eligible tax deductions.

To make this process easier, start by setting up a system to record and categorize your expenses. This can be as simple as using a spreadsheet or investing in accounting software designed for small businesses. Make sure to create categories that match the tax rules in the UK, such as office supplies, equipment, professional services, and marketing expenses.

To stay on top of your expenses, establish a regular schedule for recording and categorizing them. Allocate dedicated time each week or month to review your receipts, invoices, and financial documents. This will help you identify any missing or undocumented expenses and ensure that everything is accurately categorized.

In addition to organizing and categorizing expenses, it’s essential to keep all relevant documents in a reliable and easily accessible place. This includes receipts, invoices, bank statements, and any other financial records. Having these documents readily available will make it easier for you to provide accurate information during tax season and any potential audits.

By focusing on the organization and categorization of expenses, you’ll simplify your accounting and payroll processes and ensure compliance with tax regulations. This will give you peace of mind and allow you to focus on providing quality dental care to your patients.

Action points

  • Set up a system to record and categorize your expenses, such as using a spreadsheet or accounting software.
  • Create categories that match the tax rules in the UK, such as office supplies, equipment, professional services, and marketing expenses.
  • Establish a regular schedule for recording and categorizing expenses, such as each week or month.
  • Keep all relevant documents in a reliable and easily accessible place, such as receipts, invoices, bank statements, and other financial records.

Click here to read our guide on expenses for dentists.

Streamlining Payroll Processes for Dental Staff

As a dentist, managing the payroll for your dental staff can be a time-consuming task. However, streamlining your payroll processes can help you save time and ensure accuracy in your financial records. Here are some basic tips to improve your dental staff payroll:

  • Use payroll software: Invest in reliable payroll software designed specifically for small businesses. This software can automate various payroll tasks like calculating wages, deductions, and tax payments. It will also generate pay stubs for your dental staff, making the process more efficient and error-free.
  • Create a consistent payroll schedule: Establish a consistent payroll schedule, such as bi-weekly or monthly, and clearly communicate it to your dental staff. This will help them know when they will be paid, reducing any confusion or inquiries.
  • Implement direct deposit: Encourage your dental staff to sign up for direct deposit, where their wages are electronically transferred directly into their bank accounts. This eliminates the need for physical checks, reduces the risk of loss or theft, and saves time on manual check distribution.
  • Maintain accurate employee records: Keep detailed records for each dental staff member, including personal details, tax information, and employment contracts. This ensures that you have all the necessary information readily available for payroll calculations and reporting.
  • Stay updated with payroll regulations: Payroll regulations and tax rules can change frequently. It’s important to stay informed about any updates that may affect your dental staff’s wages and deductions. Consider consulting with a professional payroll service provider or an accountant to ensure compliance with the latest regulations.
  • Automate tax calculations and filings: Tax calculations can be complex, especially when considering deductions and allowances specific to the dental industry. Use payroll software that can automatically calculate taxes based on the latest tax rates and rules. Additionally, consider automating your tax filing process to ensure timely and accurate submissions.

By implementing these tips, you can streamline your dental staff payroll processes, reduce administrative burdens, and ensure accurate financial records for your dental practice. Simplifying accounting and payroll will not only save you time but also contribute to the overall efficiency and success of your dental business in the UK.

Action points

  • Invest in payroll software designed specifically for small businesses.
  • Establish a consistent payroll schedule and communicate it to your staff.
  • Encourage your staff to sign up for direct deposit.
  • Keep detailed records for each staff member.
  • Stay updated with payroll regulations and tax rules.
  • Automate tax calculations and filings.

Click here to learn more about our payroll services.

Implementing Automated Systems for Accurate and Timely Payments

Using automated systems for accurate and timely payments can be a great benefit for dentists. Managing finances and payroll can often be time-consuming and prone to mistakes, leading to unnecessary stress and financial difficulties.

By using automated systems, dentists can streamline their payment processes and ensure that employees and suppliers are paid correctly and on time. This not only saves valuable time but also helps maintain positive relationships with staff and vendors.

One effective way to implement automated systems is by using accounting software specifically designed for dentists or small businesses. These software solutions are tailored to the unique needs of dental practices, offering features like automated payroll calculations, invoice generation, and expense tracking.

With the help of such software, dentists can easily input employee hours, track leave entitlements, and calculate deductions for taxes and benefits. This eliminates the need for manual calculations and reduces the risk of errors in payroll processing.

Moreover, automated systems can integrate with online payment platforms, allowing dentists to electronically pay suppliers and contractors. This ensures prompt payments and provides a convenient and secure method for financial transactions.

Additionally, automated systems can generate detailed reports and summaries, providing dentists with valuable insights into their practice’s financial health. These reports can help identify areas for cost savings, track revenue streams, and monitor overall efficiency.

In summary, implementing automated systems for accurate and timely payments is a crucial step in simplifying accounting and payroll for dentists. By embracing technology and streamlining financial processes, dentists can focus more on providing quality dental care while ensuring the financial stability of their practice.

Action points

  • Use accounting software specifically designed for dentists.
  • Input employee hours and track leave entitlements to automate payroll calculations.
  • Integrate with online payment platforms to electronically pay suppliers and contractors.
  • Generate detailed reports and summaries to monitor financial health and identify areas for improvement.

Click here to learn more about how to organise your dental practice finances.

Staying Compliant with HMRC Regulations and Reporting Requirements

Staying in line with HMRC (His Majesty’s Revenue and Customs) rules and reporting requirements is important for dentists in the UK. As the owner of a dental practice, it’s your responsibility to make sure that your financial and payroll processes follow the specific rules set by HMRC.

One of the first steps to stay compliant is to register your dental practice with HMRC. This will allow you to get a Unique Taxpayer Reference (UTR) number, which is essential for all tax-related communication.

Next, you need to establish a strong accounting system that accurately records all financial transactions and keeps the necessary documents. This includes keeping track of income, expenses, invoices, receipts, and any other important financial records.

Staying updated with payroll regulations is also crucial. This involves correctly categorizing your dental staff as employees or self-employed contractors and ensuring that their wages are calculated accurately, including any deductions for taxes and national insurance contributions.

In addition to accurate record-keeping, you must also meet reporting requirements set by HMRC. This includes submitting timely and accurate VAT returns, payroll information, and annual tax returns. Failure to meet these obligations can result in penalties and potential legal issues.

To simplify the process, consider using advanced accounting and payroll software designed specifically for dentists. These tools often come with features that automate calculations, generate detailed reports, and remind you of important deadlines.

Staying compliant with HMRC rules might seem overwhelming, but with proper organization and the right tools, you can streamline your financial and payroll processes, ensuring that you meet all requirements and avoid any unnecessary penalties.

Action points

  • Register your dental practice with HMRC and get a Unique Taxpayer Reference (UTR) number.
  • Establish a strong accounting system that accurately records all financial transactions and keeps the necessary documents.
  • Stay updated with payroll regulations and correctly categorize your dental staff as employees or self-employed contractors.
  • Ensure that your dental staff’s wages are calculated accurately, including any deductions for taxes and national insurance contributions.
  • Meet reporting requirements set by HMRC by submitting timely and accurate VAT returns, payroll information, and annual tax returns.
  • Consider using advanced accounting and payroll software designed specifically for dentists to automate calculations, generate detailed reports, and remind you of important deadlines.

Click here to watch our webinar on managing your dental practice accounts.

Outsourcing Bookkeeping and Payroll Tasks to Professionals

Outsourcing accounting and payroll tasks to experts can be a big advantage for dentists. As a dentist, your main focus should be on providing top-quality dental care to your patients. However, administrative tasks like accounting and payroll can be time-consuming and take away valuable hours from your practice.

By outsourcing these tasks to professionals, you can free up your valuable time to concentrate on what you’re good at – serving your patients. Professional accounting and payroll services have the skills and knowledge to handle all the financial aspects of your dental practice efficiently and accurately.

One of the significant benefits of outsourcing is that you can rely on the expertise of professionals who specialize in accounting and payroll for dentists. They understand the unique financial challenges and regulations that dental practices face, ensuring compliance with tax rules and regulations specific to the industry.

Moreover, outsourcing these tasks can help you save money in the long run. Instead of hiring an in-house accountant or payroll expert, which comes with additional costs like salaries, benefits, and training, outsourcing allows you to pay for the services you need on a contractual basis. This can significantly reduce your overhead costs and improve your practice’s financial health.

Additionally, outsourcing accounting and payroll tasks can give you a sense of peace of mind. You can trust that professionals will handle your financial records and transactions accurately and securely, maintaining confidentiality and data protection. This can alleviate the stress and anxiety associated with managing these sensitive aspects of your practice on your own.

In summary, outsourcing accounting and payroll tasks to professionals is a smart move for dentists. It allows you to focus on patient care, ensures compliance with industry-specific regulations, saves money, and provides peace of mind. Consider partnering with a reputable accounting and payroll service provider to improve your practice’s financial management and streamline your operations.

Action points

  • Identify a reputable accounting and payroll service provider that specializes in working with dentists.
  • Review their services and pricing to ensure that they meet your specific needs and budget.
  • Schedule a consultation to discuss your requirements and expectations.
  • Sign a contract that outlines the services to be provided, the fees, and the termination terms.
  • Provide the service provider with the necessary access to your financial records and systems.
  • Review the service provider’s work regularly and provide feedback to ensure that your needs are being met.

Click here to book a free consultation about outsourcing your bookkeeping and accounts.

Tips for Maintaining Accurate and Up-to-Date Financial Records

As a dentist, it’s crucial to maintain accurate and up-to-date financial records for the success of your practice. This not only ensures compliance with legal and regulatory requirements but also provides a clear picture of your practice’s financial health.

Here are some simple tips to help you streamline your accounting and payroll processes and ensure accuracy in your financial records:

  • Use accounting software: Invest in reliable accounting software designed for small businesses or dental practices. These tools can automate many aspects of accounting, such as tracking income and expenses, creating invoices, and generating financial reports. They also provide a secure platform to store and access your financial data.
  • Separate business and personal finances: It’s essential to maintain separate bank accounts and credit cards for your dental practice. Mixing personal and business finances can lead to confusion and make it challenging to accurately track and categorize expenses. Keep all business-related transactions separate to maintain clarity in your financial records.
  • Regularly reconcile accounts: Reconciliation involves comparing your financial records with bank statements to ensure accuracy and identify any discrepancies. This process helps catch errors, detect fraudulent activity, and maintain the integrity of your financial data. Set aside time each month to promptly reconcile your accounts and address any discrepancies.
  • Track expenses diligently: Keep a record of all your operating expenses, including supplies, equipment, rent, utilities, and professional fees. Use categories or expense codes to accurately match and categorize expenses. Maintaining a detailed record of your expenses allows you to identify areas where you may reduce costs and improve profitability.
  • Stay on top of invoicing and payments: Timely and accurate invoicing is crucial for maintaining a steady cash flow. Establish a system to generate and send invoices promptly to your patients or insurance company. Monitor outstanding payments and follow up on any overdue invoices. Consider offering convenient payment options, such as online payments, to streamline the collection process.
  • Seek professional assistance: If managing accounting and financial tasks becomes overwhelming, consider hiring a professional accountant or bookkeeper with experience in the dental industry. They can ensure your records are accurate, assist with tax planning, and provide valuable financial insights to support the growth of your practice.

By implementing these tips, you can simplify your accounting and payroll processes, maintain accurate financial records, and focus more on providing excellent dental care to your patients. Remember, effective financial management is the foundation for a successful and thriving dental practice.

Action points

  • Use accounting software designed for small businesses or dental practices.
  • Separate business and personal finances.
  • Regularly reconcile accounts.
  • Track expenses diligently.
  • Stay on top of invoicing and payments.
  • Seek professional assistance from an accountant or bookkeeper with experience in the dental industry.

Managing finances can be overwhelming, especially for busy professionals like dentists. However, with the simple tips provided in this article, you can simplify your accounting and payroll processes, saving time and ensuring accuracy. By using these strategies, you can concentrate more on providing excellent dental care to your patients while maintaining an efficient financial system.

Click here to read our tax saving tips for dentists.

Our Expert Opinion

“As an accountant who has been working with dentists for over 20 years, we have seen much change in how book-keeping is done in dental practices. Historically, much of this was done by hand or on excel, but in today’s environment the need to be efficient with one’s time and to be on top of the numbers is imperative.

By doing the monthly bookkeeping accurately, as a dentist you will be able to see the financial trends in your practice, this will then help you make better decisions. These decisions could include increasing prices, reducing costs or looking to improve chair utilisation in your practice. This information can form the foundation of growth for your practice, i.e., should you invest, or should you change the structure of your business – the list is endless, but it’s the numbers that help tell the story.

The key is to implement a system of bookkeeping, so you know each month the numbers, and what is occurring in your practice. Without this, it’s like going on an expedition without a map or a compass.

Having access to up-to-date numbers is essential for any successful dental practice, and with the plethora of options available there is really no excuse to not knowing how you are doing.”

Further Information on Accounts & Tax

Our team of specialist accountants and tax experts can help manage, process and structure your business’s finances. From management accounts and payroll & pensions to tax planning and cash flow management, we can take care of the full back-office function of your business.

Book a free, no-obligation consultation with one of the team to find out how we can make your accounts & tax easier, quicker and cheaper.

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How to save money, tax and time in your dental practice

In this webinar with the BDA, Arun talks about the different ways you can organise your finances to save time, money and tax for your dental business.

In this talk, given at the 2022 BDIA Dental Showcase, Arun talks about how to save money, tax and time in your dental practice.

Click here to read our articles Samera.

Dental Accounts & Tax Specialists

As dental practice owners ourselves, we know what makes a clinic tick. We have been working with dentists for over 20 years to help manage their accounts and tax.

Whether you’re a dental associate, run your own practice or own a dental group and are looking to save time, money and effort on your accounts and tax then we want to hear from you. Our digital platform takes the hassle and the paperwork out of accounts.

To find out more about how you can save time, money and effort on your accounts and tax when you automate your finances with Samera, book a free consultation with one of our accounting team today.

Dental Accounts & Tax: Further Information

Make sure you never miss any of our articles, webinars, videos or events by following us on Facebook, LinkedIn, YouTube and Instagram.

How to Manage Your Dental Practice Accounts

In this webinar, we discuss how we can help you manage your financial and tax affairs if you are a practice owner. We cover how to organise your accountancy and tax affairs whilst minimising your tax liability, as well as Making Tax Digital.

Click here to read our article on Dentist and Dental Associate Expenses Guide

Dental Accounts & Tax Specialists

As dental practice owners ourselves, we know what makes a clinic tick. We have been working with dentists for over 20 years to help manage their accounts and tax.

Whether you’re a dental associate, run your own practice or own a dental group and are looking to save time, money and effort on your accounts and tax then we want to hear from you. Our digital platform takes the hassle and the paperwork out of accounts.

To find out more about how you can save time, money and effort on your accounts and tax when you automate your finances with Samera, book a free consultation with one of our accounting team today.

Dental Accounts & Tax: Further Information

Make sure you never miss any of our articles, webinars, videos or events by following us on Facebook, LinkedIn, YouTube and Instagram.

Tax Saving Strategies for Dentists

In this webinar we will discuss tax saving strategies for your practice, simple and complex tax planning opportunities.

Tax Saving Strategies Webinar

Tax Saving Tips For Dentists

The last few tax years saw many new changes in tax legislation. Planning ahead is more important than ever to ensure you work within the rules to not miss out on a tax saving opportunity. Tax for dentists is a complex area that requires specialist tax knowledge about dentistry. Our team has this specialist tax knowledge.

Action Point

Optimize tax benefits by strategically claiming capital allowances. If claiming full capital allowances would result in losing personal allowances due to high profits, elect to claim a reduced amount. This preserves personal allowances and carries forward unclaimed allowances to future years.

Click here to read our article about financial tips for dentists.

Selective Capital Allowances Planning

Even though you may have spent money on capital items in a tax year, there is no requirement to claim capital allowances at all.

This matters when your circumstances in a tax year mean that if you claimed all of the capital allowances you are eligible for, you would lose your personal allowance.

E.g. Dentist ABC has profits of £100k and losses of £50k brought forward which can be used to reduce the taxable profits.

They also spent £50k on capital items in the year, upon which capital allowances can be claimed. However, an election can be made to reduce the claim to £38.5k instead, leaving £11.5k as the taxable profits. (I.e. £100k -£50k -£38.5k = £11.5k).

By restricting the amount of capital allowances claimed you can still make use of your personal allowances (Which is £11,500 in 2017/18) and carry forward the unclaimed capital allowances into the next year instead of losing them.

Action Point

Strategically plan capital allowances to optimize personal allowance benefits. Consider electing to claim less than the total available to carry forward unclaimed allowances, maintaining personal allowance eligibility.

Click here to read our blog on 10 tax saving tips for Vets.

Dividend Allowance

With the new rates of dividends that came in on the 6th April 2021, dividend income is now taxed at 7.5%, 32.5% and 38.1%, depending on whether your total income (including the dividend itself) puts you into the basic rate, higher rate or top rate bracket.

Along with the new rates the Chancellor has now given every UK taxpayer a new £2,000 tax-free “dividend allowance” which means the first £2,000 of dividend income is tax-free. To minimise your tax position, it is possible to allocate some shares to a spouse who doesn’t have dividend income to make sure this dividend allowance isn’t lost. This must be done carefully and within the accepted boundaries to be acceptable to HMRC. 

Action Point

Maximize tax efficiency by using the £2,000 tax-free dividend allowance. Allocate shares to a spouse with no dividend income to fully utilize this allowance. Ensure compliance with HMRC guidelines for share allocation.

Contact us to find out more

Gift Aid

Remember to record all the charity donations you’ve made. These reduce your taxable income.

If you’re a higher rate taxpayer, you can personally claim back tax.

Example: You donate £100 to charity, they claim Gift Aid to make your donation £125. You pay 40% tax so you can personally claim back £25.00 (£125 x 20%).

Care needs to be taken here though. It can sometimes cost you tax. If you’re close to the personal allowance, this could be the case. Speak to a dental accountant to check what tax you are due back!

Action Point

Maximize tax benefits by recording all charitable donations for tax reduction. Higher-rate taxpayers can reclaim tax on Gift Aid donations. Consult a dental accountant to optimize tax returns and avoid potential costs.

Pension Contributions

When paying into your pension, you receive tax relief on any contributions that you make. This is at the highest rate of income tax that you pay, provided that the total gross pension contributions paid into your pension scheme, by you and anyone else don’t exceed the lower of your annual earnings and the annual allowance.

This could mean that, if you’re a higher rate taxpayer, £10,000 worth of contributions could get you £4,000 tax relief. Meaning you’re receiving at least a £10,000 benefit for only £6,000.

Action Points

Maximize tax relief on pension contributions, especially for higher rate taxpayers, ensuring contributions do not exceed the lower of annual earnings or the annual allowance for optimum benefits.

Limited Company Research & Development

Are you doing something that has never been done before, in advance of current technologies and sciences? This could be something as simple as a website or an app.

Millions worth of tax relief is missed by SME’s, due to people not knowing about this extremely generous tax relief for qualifying expenditure.

For each £10,000 spent on R&D, you could receive £22,500 worth of corporation tax relief. That means that the expense only really cost you just over half of what you spent at £5,500.

The tax rules surrounding this are very complex and therefore require a professional dental accountant to ensure the expenses qualify.

Action Point

Leverage R&D tax relief for innovative projects, potentially receiving £22,500 in corporation tax relief for every £10,000 spent, effectively reducing the cost to £5,500. Seek professional advice to ensure eligibility and maximize benefits.

Click here to find out more about our R&D tax relief services.

Cash In On Self-Employment Profits Taxed Twice

Again, another relief people know little about.

If your self-employment year-end differs from 5th April, it’s very likely you’ve paid tax twice on your overlap profits and therefore with a little planning, you can get this back!

Many sole traders and businesses have a tax relief just waiting to be used and can ‘cash it in’ at any time they choose.

Utilise Your Tax-Free Personal Savings Allowance

Do you have a credit balance Director’s loan account (amount owing to you from your Ltd company)?

If so, you could be missing out on utilising your tax-free personal savings allowance.

Invest Wisely

There are huge tax breaks for investments in EIS / SEIS and VCT’s. To say they are generous is a huge understatement.

For example, you could invest £10,000 into an SEIS and get £5,000 immediate tax relief. What’s more, due to loss relief, even if your investment folds, your actual loss will only be £2,750. You can even carry back to the previous year.

Contact us to find out more

In addition, every individual has a £20,000 ISA allowance available each year, which is income and capital gains tax free, so if you are not utilising this tax saving wrapper, you should really consider this.

Again, the tax legislation surrounding these different investment schemes are complex and the level of relief depends on the individual person so you should ensure you obtain independent tax advice before proceeding.

Claim All The Allowances You Are Eligible For

Whether it is claiming for use of home as an office, or laundry allowance every little helps and working with a Dental Accountant means they will be able to maximise the items you can claim for.

Tax for dentists is a complicated subject which requires knowledge and expertise.

The above is just a taste of some of the top tips, however, we strongly recommend you seek professional advice on any of the subjects detailed above.

Action Point

  • Review overlap profits for potential tax relief if your self-employment year-end differs from April 5th.
  • Utilize your tax-free personal savings allowance, especially if you have a credit balance in your Director’s loan account.
  • Consider investing in EIS/SEIS and VCTs for significant tax breaks and loss relief.
  • Maximize your £20,000 ISA allowance annually for income and capital gains tax benefits.
  • Claim all eligible allowances, including use of home as an office or laundry expenses, to reduce taxable income.
  • Consult with a professional dental accountant to navigate complex tax rules and maximize your tax-saving opportunities.

Click here to read our articles Samera.

Our Expert Opinion

“I have had fewer hot meals than the amount of times dentists have asked me to save tax. The truth is the options available to save tax legitimately are limited. Long gone are the days of some questionable tax planning, however, there are reliefs and planning opportunities that are well with the law. Don’t get swayed by someone they can save you tax, instead focus on the basics right to save tax, this means accounting for everything, getting organised and ensuring you have the right tax structures set up for you.”

Dental Accounts & Tax Specialists

As dental practice owners ourselves, we know what makes a clinic tick. We have been working with dentists for over 20 years to help manage their accounts and tax.

Whether you’re a dental associate, run your own practice or own a dental group and are looking to save time, money and effort on your accounts and tax then we want to hear from you. Our digital platform takes the hassle and the paperwork out of accounts.

To find out more about how you can save time, money and effort on your accounts and tax when you automate your finances with Samera, book a free consultation with one of our accounting team today.

Dental Accounts & Tax: Further Information

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Money Saving Tips for Dentists

Running a dental practice is not easy, and it can be expensive. You have to pay for things like equipment, supplies, staff, and rent, which can eat into your profits. But there are ways to save money without compromising patient care. In this article, we will share some tips to help you save money in your dental practice. You can negotiate with suppliers, reduce waste, and make your operations more efficient to cut costs.

When it comes to saving money, dentists walk a tightrope. This is because any minuscule changes you make to your dental practice can have the opposite effect and could hurt your business instead of helping.

With a dental business it is very hard to cut overheads, such as property costs, employee salaries and administrative services. These are things you need to spend on to maintain your dental practice and keep patients coming through the door. That’s what makes saving money on these things very tricky.

As a dentist, you are always committed to your patient’s health and wellbeing. However, as a business owner, you need to earn the necessary profits to sustain and grow your practice. Samera helps dentists all over the UK find the right balance in the inflationary environment we now live in.

In a time where inflation and interest rates are rising, much like many other expenses, shopping around for better deals on everything you need in your practice is a necessity.

However, Samera cuts this need entirely by automatically finding you the best value options from the leading brands in the industry through the Samera Dental Buying Group. Get in touch with Team Samera to see how we can help you save money today, but in the meantime have a read of our tips below.

Click here to read more about how to cut expenses in a small business.

By following these tips, you can run a successful practice while keeping more money for yourself. Whether you have a small practice or a large dental group, keep reading to learn how to save money and improve your profits.

Top Money-Saving Tips for Your Dental Practice – Webinar

First of all, watch this free webinar in which Arun discusses ways in which you can save money in your dental practice, from utility bills to dental equipment and consumables.

Introduction: The importance of saving money in your dental practice

Running a successful dental practice means taking good care of your patients and managing your money well. We know that providing excellent dental care requires investing in equipment, supplies, and staff. But it’s also important to find ways to save money without compromising the quality of service.

By using smart strategies to save money, you can make your practice more profitable, streamline operations, and ensure long-term success. In this blog post, we will give you valuable tips to help you save money in your dental practice. We’ll talk about optimising your supply chain and using cost-effective technology, among other things.

Saving money in your dental practice not only helps your finances but also allows you to invest in things like training your team or improving your practice’s infrastructure. So, let’s get started and learn the best money-saving tips to make your dental practice thrive while keeping your finances in order.

Action Point

Optimize your dental practice’s finances by negotiating for better supply prices, embracing cost-effective technology, and streamlining operations to boost profitability without compromising care quality.

Evaluate your expenses: Identify areas where you can cut costs

To run a successful dental practice, it’s important to manage your finances wisely. One way to increase your profits is by looking at your expenses and finding areas where you can spend less money. This will help you use your resources more effectively.

First, go through your budget and examine each expense. Look at things like supplies, equipment, utilities, and employee salaries. See if there are any costs that seem too high or unnecessary. For example, you might discover that you’re spending too much on certain supplies or paying for services you don’t really need.

Next, think about alternatives or ways to save money for each expense. Can you negotiate better deals with your suppliers? Are there cheaper options for equipment maintenance or repairs? Can you find ways to use less energy and lower your utility bills? These are all things you can consider.

Another area to focus on is your staff’s schedule. By making sure your employees work efficiently and optimising their hours, you can potentially reduce labour costs without compromising patient care. Think about implementing flexible schedules, training your staff to do different tasks, or outsourcing some administrative work.

You can also use technology to make your operations more efficient and save money. Digital record-keeping, online appointment scheduling, and automated reminders can help you cut administrative costs and work more efficiently.

Remember, reducing costs doesn’t mean you have to compromise on quality or the experience you provide to your patients. It’s about finding smarter ways to use your resources without sacrificing the level of care you give. By regularly reviewing your expenses and making strategic changes, you can save money and improve the financial health of your dental practice.

Action Point

To boost your dental practice’s financial health, thoroughly review expenses and identify savings opportunities without compromising care quality. Consider negotiating better supply deals, optimizing staff schedules, and utilizing technology for efficiency. Regular financial evaluations and strategic adjustments can lead to significant savings and enhance profitability.

Negotiate with suppliers: Tips for getting better deals on dental supplies

Negotiating with suppliers is important for your dental practice’s finances. Getting better deals on dental supplies can lower your costs and increase profits. Here are some tips to help you negotiate and get the best deals:

Research prices: Before negotiating, know the market prices for the supplies you need. Compare different suppliers’ prices, quality, and reputation. This knowledge will help you during negotiations.

Build relationships: Having good relationships with suppliers can help you get better deals. Communicate with them regularly, give feedback, and show you’re a loyal customer. Suppliers are more likely to negotiate and offer better prices when they value your partnership.

Bundle purchases: Combine your orders and buy multiple supplies from the same supplier. This gives you more negotiating power. With larger orders, you can ask for bulk discounts, free shipping, or extended payment terms. Suppliers often appreciate long-term, high-volume customers and may give you better deals.

Be ready to walk away: Negotiations involve give-and-take. If the terms don’t meet your goals, be prepared to walk away. This shows you’re serious about getting the best value. It may make suppliers reconsider their offers.

Consider other suppliers: Don’t limit yourself to one supplier. Research and contact multiple suppliers to find better deals. Competition among suppliers works in your favour, as they may offer lower prices or additional benefits to win your business.

Remember, negotiating isn’t about demanding lower prices aggressively. It’s about finding solutions that benefit both parties. By following these tips, you can improve your negotiation skills and save money on dental supplies for your practice.

Action Point

To boost your dental practice’s financial health, thoroughly review expenses and identify savings opportunities without compromising care quality. Consider negotiating better supply deals, optimizing staff schedules, and utilizing technology for efficiency. Regular financial evaluations and strategic adjustments can lead to significant savings and enhance profitability.

Consider group purchasing organisations (GPOs): Exploring the benefits and savings of joining a buying group

When running a dental practice, saving money is important. One way to do that is by joining a group purchasing organisation (GPO).

A GPO negotiates discounts with suppliers for its members, like dental practices. By pooling together the buying power of its members, a GPO can secure big discounts on dental supplies and equipment.

Joining a GPO can save you a lot of money. As a member, you get access to the discounted rates they negotiated, which helps you stretch your budget. This means you can spend more on other important things for your practice.

GPOs also offer a wide range of products from different suppliers, so you have more options at competitive prices. This is especially helpful when buying expensive equipment or specialised materials because the savings from the GPO can be significant.

Another benefit of joining a GPO is that it saves you time negotiating with suppliers. Instead of contacting suppliers one by one, the GPO handles the negotiations for you. This frees up your time to focus on providing good care to your patients.

Not all GPOs are the same, so it’s important to research and compare your options. Look at things like the range of suppliers they work with, the size of their network, and their reputation in the dental industry.

Joining a GPO can be a smart move for your dental practice. It gives you access to cost savings, a variety of products, and makes purchasing easier. By considering the benefits and savings of joining a GPO, you can make informed decisions that will help your dental practice financially.

Action Point

For better deals on dental supplies, research prices, build relationships with suppliers, bundle purchases, be willing to walk away, and consider multiple suppliers.

Join the Samera Alliance Buying Group

The Samera Alliance is our growing network of dentists, practices and leading industry suppliers, designed to help you save money, grow your profits and build a better dental business.

Join today for free to be a part of our dental buying group, which gives you access to exclusive discounts and offers on the consumables, equipment and products you need to run a successful dental business.

You’ll also get better rates and terms for a wide range of services like HR, IT, utilities, insurance, legal services and much more!

Embrace technology: How implementing digital solutions can save you money in the long run

Using technology can be a game-changer for your dental practice. It helps make things easier, saves time, and can even save you money in the long run.

One area where technology can help is in managing your patients. With a cloud-based practice management software, you can store patient records, appointments, and billing information digitally. This means you don’t have to print as much paperwork or spend money on storage. It also saves you time because you don’t have to manually enter data. Plus, these systems can send automated reminders and help with scheduling, which reduces missed appointments and cancellations.

Another way technology saves money is with digital imaging equipment. Traditional X-ray films are expensive and take up space. But digital X-ray systems give you instant, high-quality images without the need for film. You don’t have to buy film or deal with developing and disposing of it. Although the initial cost of digital equipment may seem high, you’ll save money in the long run by not having to buy film or maintain it.

Using telehealth solutions can also help you save money. You can do remote consultations and give advice through video calls or telemedicine software. This means patients don’t have to travel, which saves them money. It also reduces your overhead costs.

Technology can also help with marketing. Having a good website and active social media profiles can attract new patients and strengthen relationships with existing ones. You can also do digital marketing campaigns like targeted emails or online ads to reach your desired audience without spending a lot on advertising.

In conclusion, technology has many benefits for your dental practice, including saving money. By using digital solutions for patient management, investing in digital imaging, embracing telehealth, and using digital marketing, you can improve your practice, take better care of your patients, and increase your profits.

Action Point

Implement digital solutions like practice management software, digital imaging, telehealth, and digital marketing to streamline operations, reduce costs, and improve patient care, ultimately saving money for your dental practice.

Train your staff: Investing in education and training to improve efficiency and reduce expenses

Investing in education and training for your dental staff is important for improving your practice’s efficiency and reducing expenses. When your staff is well-trained, they perform their tasks better and create a positive experience for patients. This can lead to more patients staying with your practice and referring others.

Provide opportunities for ongoing education and training to expand your staff’s knowledge and skills. They can attend conferences, participate in webinars, or take specialised courses. When they stay updated on industry trends, techniques, and technologies, they can provide the best care to your patients.

Training shouldn’t only focus on clinical skills but also administrative tasks. Efficient scheduling, billing, and record-keeping processes can make your practice more productive and profitable. Training your staff on practice management systems or hiring experts to teach them can streamline these processes, reduce mistakes, and save time and resources.

A well-trained team can handle emergencies and unexpected situations effectively, reducing the need for expensive external help. By giving your staff the right knowledge and skills, they can confidently and efficiently handle different scenarios, saving your practice time and money.

Investing in your staff’s professional development can also boost their morale and job satisfaction. This leads to lower turnover rates, as happy employees tend to stay longer. Keeping experienced staff members saves you recruitment and training costs and ensures consistent care for your patients.

Remember, education and training should be ongoing. Encourage your staff to continuously seek learning opportunities and ways to improve. By investing in their growth, you are investing in the success and financial stability of your dental practice.

Action Point

Invest in your dental staff’s education and training to improve practice efficiency and reduce expenses. This not only enhances patient care but also boosts staff morale, leading to lower turnover and recruitment costs, ultimately saving money for the practice.

Click here to read more about building a dental team.

Maintain your equipment: Tips for proper maintenance and avoiding costly repairs or replacements

Taking care of your dental equipment is important for your practice’s smooth operation and saving money. Neglecting equipment maintenance can lead to expensive repairs or replacements. Here are some simple tips to keep your dental equipment in good condition:

Follow the manufacturer’s guidelines: Read and understand the maintenance instructions provided by the manufacturer for each piece of equipment. Clean, lubricate, and calibrate them regularly as recommended.

Create a maintenance schedule: Make a schedule to keep track of when each equipment needs attention. This can include daily, weekly, monthly, or yearly tasks depending on the equipment. Following a schedule helps prevent issues and catch problems early.

Train your staff: Make sure your staff knows how to use and maintain the equipment correctly. Teach them to recognize warning signs of equipment problems. Encourage them to report any issues promptly.

Use quality tools and materials: Invest in good-quality tools and materials for your practice. Cheaper alternatives may save money at first, but they wear out quickly and need frequent replacements. Durable equipment lasts longer and saves money in the long run.

Regular inspections: Check your equipment regularly for signs of wear, tear, or possible problems. Early detection helps prevent major repairs.

Consider professional servicing: Along with regular maintenance, schedule professional servicing for your equipment. Professionals can inspect, clean, and optimise the performance of your dental equipment.

By following these tips and prioritising equipment maintenance, you can avoid expensive repairs or replacements. Your dental practice will operate smoothly and efficiently, saving you money. Remember, prevention is better than cure when it comes to your dental equipment!

Action Point

Maintain your dental equipment regularly to prevent costly repairs or replacements, ensuring your practice operates efficiently. Follow the manufacturer’s guidelines, create a maintenance schedule, train staff, use quality materials, perform regular inspections, and consider professional servicing. Prioritizing equipment maintenance saves money and keeps your practice running smoothly.

Explore financing options: Understanding dental practice loans and other financial resources to help manage expenses

As a dental practice owner, it’s important to manage your expenses well to succeed and make a profit. One way to do this is by exploring different financing options available to dental practitioners.

Dental practice loans are designed specifically for dental professionals like you. They provide funds to cover expenses such as buying equipment, renovating your office, upgrading technology, or even acquiring a practice. With a dental practice loan, you can manage your cash flow and invest in the growth of your practice.

When considering a dental practice loan, research different lenders and compare their terms and interest rates. Look for lenders who specialise in dental practice financing, as they understand the industry better and can offer solutions that suit your needs.

Another option is equipment leasing. Leasing dental equipment helps you save your working capital while still getting access to the latest technology and equipment you need for your practice. Leasing spreads out the cost over time, making it more affordable and manageable for your cash flow.

Besides these financing options, look into other sources of financial assistance. Some dental associations and organisations offer grants or scholarships for dental professionals. These can help with expenses or fund continuing education. Also, there may be government programs or incentives to support dental practices, so stay informed about any financial resources that can benefit your practice.

By exploring these financing options, you can manage your expenses and ensure the financial stability of your dental practice. Carefully evaluate each option, consider your long-term goals, and consult with financial professionals who specialise in dental practice management to make informed decisions for your business’s financial health.

Action Points

Explore financing options for your dental practice, including specialized loans and equipment leasing, to manage expenses and invest in growth. Research lenders, compare terms, and consider additional financial resources like grants or government programs. Consult with financial professionals to make informed decisions for your practice’s financial health.

Please click here to read our guide to financing a dental practice.

Review your insurance policies: Ensuring you have the right coverage at the best rates

It’s important to review your insurance policies to manage the financial health of your dental practice. Dental practices have unique risks and liabilities that require special coverage, so it’s crucial to make sure you have the right policies in place to protect your practice and patients.

Start by looking at your current insurance coverage. Check your general liability insurance, malpractice insurance, property insurance, and workers’ compensation insurance, among others. Understand what risks are covered and what may be missing by reviewing the terms, limits, and exclusions of each policy.

Get quotes from different insurance providers or brokers for the same coverage. Comparing rates from multiple insurers helps you find the best rates without compromising on the coverage you need. Ask about any discounts or customised packages available for dental practices.

As you review your insurance policies, consider any changes in your practice’s operations or services. If you’ve added new procedures, expanded your office space, or hired more staff, you may need to adjust your insurance coverage. Keeping your policies up to date ensures you have enough protection.

Consider working with an insurance professional who specialises in dental practices. They can provide valuable advice on the specific risks and coverage options for your industry. Their expertise helps you understand complex policy terms and make sure you have adequate protection at the best rates.

Remember, insurance is an investment in the long-term financial stability of your dental practice. Regularly reviewing your policies and getting the right coverage at the best rates helps protect your practice from unexpected events and can save you a lot of money.

Action Point

Review your dental practice’s insurance policies regularly to ensure you have comprehensive coverage tailored to your unique needs. Compare quotes, adjust policies for any changes in operations, and consult with specialists. Proper insurance safeguards your practice’s financial health.

House brands vs name brands

House brands are a great alternative for some more expensive name brand products. If you do your research correctly, most types of dental consumables have the same, if not very similar, ingredients and often most are manufactured by the same companies. The biggest difference is the price point. However, this is not the case with all house brands, the cheapest brand is not always the least expensive.

Branded PriceOwn BrandPrice
4% 1:100,000 2.2ML LATEX-FREE£26.75BARTINEST 1:100,000 2.2ML ANAESTHETIC£22.96
ALCOHOL FREE JUMBO WIPES REFILL£8.50UNODENT ALCOHOL-FREE WIPES£2.86
BRUSH REFILL REGULAR ASSORTED£30.24MICRO APPLICATOR BRUSH REGULAR – MIXED£4.40
UNIVERSAL SPRAY (NO NOZZLE)£23.00UNOLUBE UNIVERSAL SPRAY£4.27
Aspirator Cleaner £28.99AUTORINSE DAILY ASPIRATOR CLEANER£12.64

Sometimes the price of some things you need matches the hefty price attached to it. Buying cheaper branded items when it comes to non-critical items such as disposable barriers and cotton rolls is a good way to save money. Those products will make very little difference to you or your patients. However, when it comes to anything that is a bit more valuable and you are debating it over, it’s worth weighing up the pros and cons. Does the price justify the usage of the product? When it comes to anything that will aid you in diagnosing, treating or restoring, save yourself the trouble and opt for a more reliable brand to buy from.

If you join a dental buying group you can still purchase these more expensive items at an exclusive, more competitive price – just for being part of the group!

Loyalty rewards: Get rewarded for your business!

Many companies offer rewards or loyalty programs, so pay attention to what is out there for you to benefit from. Company representatives often know all the tricks, so sometimes it’s worth talking to them so they can teach you how to order more effectively. Sometimes you can take advantage of special programmes and free products or loyalty awards that many distributors offer.

Keep in mind that none of this will happen automatically, you will need to take the time to find how to get the most out of what is available.

Action Point

Maximize savings by utilizing loyalty rewards and programs offered by suppliers. Engage with company representatives to learn effective ordering strategies and take advantage of special offers, free products, or loyalty awards. A proactive effort is required to benefit from these opportunities.

Understanding the dangers of ‘false economy’

The truth is, the steps you take in starting to save money can actually become an expensive venture. A great example of this is that perhaps it is a lot cheaper for you to have an automatic answering machine for your calls, rather than employing a full-time receptionist. However, if you consider patient experience, your reception is often the first point of contact with your business.

In other words, a good receptionist with excellent customer service skills is worth every penny you invest in them, even though they may not be the cheapest option.

This is very similar to dental equipment. While buying cheaper consumables that have similar ingredients and manufacturers may be worth buying, looking at the cheapest price of dental equipment may not tell the same story.

We hope our blog post about saving money in your dental practice was useful to you. Running a dental practice can be costly, but there are ways to save money without sacrificing care quality. By following the tips we mentioned, like talking to suppliers, managing your inventory well, and getting the most from your insurance reimbursements, you can save a lot of money and make your practice more profitable. Remember, every pound you save can be used to improve your practice or provide better care to your patients.

Action Point

Recognize the importance of value over cost. Opting for cheaper alternatives, like an automated answering service, may save money initially but can negatively impact patient experience. Similarly, while inexpensive dental consumables might seem appealing, investing in quality equipment ensures better service and long-term savings. Prioritize investments that enhance patient satisfaction and practice efficiency.

Business Loans for Dentists

We’ve been helping to fund the future of the UK’s dentists for 20 years and our team are made up of former bankers with decades of experience and contacts in the UK’s healthcare lending sector.

You can find out more about working with Samera Finance and the financial services we offer by booking a free consultation with one of the Samera team at a time that suits you (including evenings) or by reading more about our financial services at the links below.

Dental Practice Finance: Further Information

For more information on raising finance for your dental practice, including more articles, videos and webinars check out our Learning Centre here, full of articles an webinars like our How to Guide on Financing a Dental Practice.

Make sure you never miss any of our articles, webinars, videos or events by following us on Facebook, LinkedIn, YouTube and Instagram.

Maximising your Dental Practice’s EBITDA

In this webinar Arun discusses how to maximise your dental practice value through growing your practice EBITDA before you sell.

Click here to read our article on Dentist and Dental Associate Expenses Guide

Dental Accounts & Tax Specialists

As dental practice owners ourselves, we know what makes a clinic tick. We have been working with dentists for over 20 years to help manage their accounts and tax.

Whether you’re a dental associate, run your own practice or own a dental group and are looking to save time, money and effort on your accounts and tax then we want to hear from you. Our digital platform takes the hassle and the paperwork out of accounts.

To find out more about how you can save time, money and effort on your accounts and tax when you automate your finances with Samera, book a free consultation with one of our accounting team today.

Dental Accounts & Tax: Further Information

Make sure you never miss any of our articles, webinars, videos or events by following us on Facebook, LinkedIn, YouTube and Instagram.

Buying a Car Through Your Limited Company: 4 Things You Need to Know

When your company buys a piece of equipment or a business car, you can deduct part, or all, of the cost from your business’s taxable profits. 

How much of the cost of the purchase you can deduct from your profit is dependent on several factors. The main points to consider are how you finance the purchase, how you use the vehicle and how environmentally friendly the vehicle is. 

Buying a car with a limited company, can be a great way to save on your tax bill. However, it is essential that you understand everything involved before you do. 

These are 4 important points you need to know about purchasing a vehicle through a limited company. 

How have you financed the purchase? 

How you pay for the new business car will affect the tax rate you have to pay on it. 

If your company takes out a loan to purchase the vehicle, or it is purchased on hire-purchase, you will only be able to deduct the interest payments as a business expense. You will not be able to deduct the loan itself as a business expense.  

If you lease a vehicle for use by the company, but you do not buy it outright, you will be able to claim the monthly payments as a business expense. 

Other maintenance costs involved with owning a business car, such as insurance, can be claimed as business expenses for Corporation Tax.

Action Points

  • Determine the financing method for the business car (loan, hire-purchase, or lease).
  • Calculate and deduct interest payments from a loan or hire-purchase as a business expense.
  • Understand that the principal amount of the loan or hire purchase cannot be deducted as a business expense.
  • If leasing, prepare to claim the entire monthly lease payments as a business expense.
  • Keep records of all maintenance costs like insurance, as these can be claimed as business expenses for Corporation Tax.

Will the vehicle be used for purely business purposes? 

If your car is used solely for business-related purposes, you will be allowed to claim VAT back on the purchase. 

If your company vehicle is used for personal purposes outside of the business, this is considered a Benefit-In-Kind (BIK). A benefit-in-kind is anything HMRC considers to be a benefit or a perk on top of your salary. Your business will be taxed on benefits-in-kind.

To reclaim the VAT on your company car you will need to be able to prove to HMRC that the vehicle is not and cannot be used by you or your employees for personal reasons. For example, do you have a company car that is always kept on stand-by at the dental practice for use by the business? That can be considered an exemption. 

HMRC does not consider your normal commute to and from work to be a business use, so you will not be able to claim VAT on your vehicle if it is primarily used for commuting. 

You can also claim back VAT on vehicles which are used as part of your employee’s routine duties. For instance, vehicles used for teaching people how to drive, taxis and vehicles which are primarily loaned in self-drive schemes.

Action Points

  • Assess the vehicle’s usage to ensure it’s strictly for business purposes.
  • Document and maintain proof that the vehicle is not used for personal reasons, to qualify for VAT reclaim.
  • Be aware that personal use of the vehicle, including commuting, makes it subject to Benefit-In-Kind tax.
  • Ensure the vehicle is designated for business-only activities, possibly keeping it on-site to reinforce this.
  • Keep detailed records of the vehicle’s use in employee routine duties to support VAT claims on such usage.

Is your company vehicle environmentally-friendly? 

How much tax you pay on your company vehicle is also dependent on the CO2 emissions it produces and the date on which you bought it. This applies to both the tax rate of any benefits-in-kind and the capital allowances you can claim on the cost of buying the vehicle. 

You can find out more about the difference between different emissions and dates of purchase, and how they affect the capital allowance rate you pay on the .gov.uk website here.

For the most part, the more CO2 emissions produced by your company car, the more tax you will have to pay. 

However, it is important to remember that the criteria also change according to how old your car is. The newer your car is, the greener it will need to be if you want to claim back on tax.

Action Point

  • Evaluate the CO2 emissions of your company vehicle to understand the potential tax implications.
  • Consider the vehicle’s purchase date, as newer cars require lower emissions to qualify for tax benefits.
  • Explore First-Year Allowances for vehicles that meet eco-friendly standards to deduct 100% of the purchase cost.
  • Determine if your vehicle qualifies for the Main Rate pool to claim 18% against taxable profits.
  • Assess if your vehicle falls into the Special Rate band, allowing a 6% claim, aimed at discouraging the purchase of high-emission vehicles.

For instance, this is a table from the Government’s page on business cars: 

Cars bought from April 2021

Description of carWhat you can claim
New and unused, CO2 emissions are 0g/km (or car is electric)First year allowances
New and unused, CO2 emissions are between 1g/km and 50g/kmMain rate allowances
Second hand, CO2 emissions are between 1g/km and 50g/km (or car is electric)Main rate allowances
New or second hand, CO2 emissions are above 50g/kmSpecial rate allowances

Compare this with the rates for cars bought between April 2009 and April 2013:

Cars bought between April 2009 and April 2013

Description of carWhat you can claim
New and unused, CO2 emissions are 110g/km or less (or car is electric)First year allowances
New and unused, CO2 emissions are between 110g/km and 160g/kmMain rate allowances
Second hand, CO2 emissions are 160g/km or less (or car is electric)Main rate allowances
New or second hand, CO2 emissions above 160g/kmSpecial rate allowances

Vehicles which meet the criteria for First-Year Allowances can have 100% of their cost of purchase deducted from the business’s taxable profits. This is intended to encourage British businesses to go green and purchase environmentally-friendly assets. 

The Main Rate pool allows you to claim 18% of the cost of the purchase against your taxable profit. 

The Special Rate band allows you to claim just 6% of the cost of the purchase. This is intended to discourage British businesses from buying environmentally-unfriendly assets. 

You can calculate the tax band for your company car, according to its CO2 emissions, fuel consumption and date of purchase on the gov.uk website here.

Contact us to find out more

How much tax do you need to pay on the fuel for your business car?

If your company owns a business car, you may be required to pay tax on the fuel required. 

Again, how much tax you pay on the fuel will depend on the CO2 emissions and whether it is used for private or solely for business purposes. 

If your business car is only used for business purposes then you will need to be able to prove this to HMRC. This is one of the reasons why it is so important to keep detailed records like submitted travel expenses and mileage reports. You can use these to show HMRC that all of the consumed fuel was used for business purposes, and not personal use. 

If you cannot prove this, or you have indeed used the car (and thus the fuel) for personal reasons, this will be considered a benefit-in-kind. Therefore, you will need to pay tax on the benefit-in-kind fuel usage. 

If you can show HMRC that the vehicle has not been used for anything other than company business, you will not need to pay any additional benefit-in-kind tax. You will also be able to reclaim the full VAT amount on the fuel. 

You will also not have to pay VAT on the fuel usage if the vehicle is used in certain other circumstances. For instance, cars used for business journeys such as those that are part of the employee’s normal routines like a tradesperson travelling to appointments (this does not include your normal commute to work), or one of your associates travelling to a temporary place of work. 

Action Points

  • Assess the CO2 emissions and usage of the business car to determine fuel tax liability.
  • Maintain detailed records, including travel expenses and mileage reports, to substantiate business-only use of fuel.
  • Be prepared to provide HMRC with evidence that the fuel was exclusively used for business purposes to avoid benefit-in-kind tax.
  • Reclaim full VAT on fuel for vehicles proven to be used solely for business activities.
  • Understand the specific circumstances under which VAT on fuel usage is not applicable, such as business journeys excluding regular commutes.

You can find out more about exemptions for tax payments on fuel on the gov.uk website here.

Should you buy a business car via your dental practice? 

So, are you better off purchasing a business car through your limited company or privately? 

Let’s take a look at an example: 

Harry is a dental practice owner who owns a limited company who wants to buy a business car at around £40,000.

Buying the car himself:

Harry can declare a £40,000 dividend from his limited company and use that to purchase a car. Harry has to pay 32.5% as a higher-rate taxpayer. This comes out to £13,000 in income tax he has to pay.

Buying the car via a limited company:

Harry could instead buy the care via his limited company. Since there is no dividend declared, there’s no added income tax. Harry’s capital allowances will also allow him to claim back £7,600 in corporation tax. In the current tax year, the benefits-in-kind tax rate is only 1%, meaning the tax on them will be minimal.

This means that Harry is better off to the tune of £20,600 by purchasing his business car through his limited company. 

Action Points

  • Evaluate the financial benefits of purchasing the car through your dental practice’s limited company versus personal purchase.
  • Consider the tax implications of declaring a £40,000 dividend for personal purchase and the resulting 32.5% income tax.
  • Explore the option of purchasing the car directly through the limited company to avoid dividend tax and capitalize on capital allowances.
  • Calculate potential corporation tax savings and the minimal benefits-in-kind tax rate when purchasing through the company.
  • Assess the overall financial advantage, in Harry’s case, a saving of £20,600, by opting for a company purchase.

Our Expert Opinion

“Buying car through your business is a complex thing. So get the right advice specific to your business and car needs. Do this wrong and you could pay much more tax than needed!”

Further Information on Accounts & Tax

Our team of specialist accountants and tax experts can help manage, process and structure your business’s finances. From management accounts and payroll & pensions to tax planning and cash flow management, we can take care of the full back-office function of your business.

Book a free, no-obligation consultation with one of the team to find out how we can make your accounts & tax easier, quicker and cheaper.

Make sure you never miss any of our articles, webinars, videos or events by following us on Facebook, LinkedIn, YouTube and Instagram.

A Guide to Corporation Tax

Most companies will generally pay corporation tax on both their income as well as their capital gains tax.

For the financial year beginning on 1st April 2021, all companies (except for those in the oil and gas sector) will pay the same flat rate of 19% corporation tax. This rate will also continue into the financial year of 2022.

In 2023, the corporation tax rate will increase to 25% which was announced during March 2021.

You must pay Corporation Tax on profits form doing business as:

  • A limited company
  • A club, co-operative, or any unincorporated association
  • Any foreign company with a UK office or branch

Profits you pay Corporation Tax on

Taxable profits for Corporation Tax include the money your company makes from:

  • Investments
  • Doing business (trading profits)
  • Selling assets for a profit

Calculating Your Company’s Effective Tax Rate

From April 2023 corporation tax will not only get increased, but it will also become a bit more complicated. There will be two official corporation tax rates:

  • Small profits rate: 19%
  • Main rate 25%

Companies with taxable profits of £50,000 or less will continue to pay 19% tax on all their profits. Companies with taxable profits of more than £250,000 will pay 25% tax on all their profits.

If profits are between £50,000 or £250,000 a ‘marginal relief’ calculation will be made. The practice effect of this is that there will effective be three different corporation tax rates:

First £50,000: 19%

Between £50,000 and £250,000: 26.5%

Over £250,000: 25%

Multiple Companies

There are many company owners who think about setting up a second company which is separate from their existing business. Often there are a few commercial reasons for using more than one company including:

  • Reducing risk and limiting liability
  • Involve different shareholders
  • Enable a stand-alone sale of each business

With corporation tax increasing in the near future, it is possible for multiple companies with one owner, enjoying up to £50,0000 of profit taxed at 19%. However, in order to achieve this the companies must not be associated companies.

Contact us to find out more

Associated Company Rules

When the new corporation tax rates come into operation within the next couple of years, to prevent people artificially spreading their business activities across multiple companies, the £50,000 lower limit and £250,000 upper limit will be divided up if there are any associated companies.

A company will only be associated with another company if:

  • One company controls the other company
  • Both are under the control of the same person / people

Family Members and Business Partners

When deciding who controls a company, your associates interests are treated as your own if there is substantial commercial interdependence between the companies.

Business associates include:

  • Your spouse or civil partner
  • Close relatives
  • Legal business partners

Trading Companies vs Investment Companies

A trading company is essentially a company that is involved in regular business activities such as a company that sells goods online or a catering company or a firm. Common types of non-trading companies include those that hold substantial investments in financial securities or property or earn substantial royalty income.

Corporation Tax

If your company is mainly engaged in non-trading activities, in 2021 it will be paying corporation tax at the same rate as most other companies (19%). However, when the new corporation tax rates come into effect, a lot of these investment companies will have to pay the main rate of corporation tax which will be a rate of 25% on all their profits.

This is because any company classed as a close investment holding company (CIC) will not be able to benefit from the small profits rate of 19%. The company will be forced to pay corporation tax at the main rate on all profits.

Companies that mainly derive their profits from renting properties to unconnected third parties (not to family members, etc) are excluded from the CIC provisions. Hence, the majority of property investment companies will be allowed to enjoy the small profits rate.

If a company has too many non-trading activities (including most property investment and property letting) it may lose its trading status for capital gains tax purposes. This will result in the loss of two important CGT reliefs:

  • Business Asset Disposal Relief
  • Holdover Relief

Business Asset Disposal Relief

Business Asset Disposal Relief allows you to pay capital gains tax at just 10% (instead of 20%) when you sell your company.

Holdover Relief allows you to give shares in the business to your children, common-law unmarried partner, or other individuals and postpone CGT. You do not need Holdover Relief to transfer shares to your spouse because such transfers are always exempt.

A company will only lose its trading status for CGT purposes if it has ‘substantial’ non-trading activities. Unfortunately to HMRC ‘substantial’ usually means as little as 20% of various measures such as:

  • Expenses
  • Assets
  • Profits
  • Turnover
  • Directors’ and employees’ time

HMRC may attempt to apply the 20% rule to any of the above measures.

Inheritance Tax Shares in trading companies usually qualify for business property relief. This means they can be passed on free from inheritance tax. However, if the company holds investments (including any rental properties), this could result in the loss of business property relief.

The qualification criteria are more generous than for CGT purposes and a company generally only loses its trading status for inheritance tax purposes if it is either wholly or mainly involved in investment related activities. To be on the safe side you will want to ensure that the company’s qualifying activities exceed 50% of each of the measures listed above (e.g. turnover, time, profits etc).

Companies registered as Tax Shelters Corporation tax is often a lot lower than the income tax and national insurance paid by sole traders and partnerships. Companies don’t always pay less tax than self-employed business owners but, as profits increase, the tax savings also naturally increase.

A business owner will therefore potentially have a lot more after-tax profit left to reinvest. Companies are normally most powerful as tax shelters when profits are reinvested. Most company owners need to extract money for their own personal use. At this point additional tax may be payable. The income tax payable on dividends reduces the tax benefits of using a company in many cases.

Further Information on Accounts & Tax

Our team of specialist accountants and tax experts can help manage, process and structure your business’s finances. From management accounts and payroll & pensions to tax planning and cash flow management, we can take care of the full back-office function of your business.

Book a free, no-obligation consultation with one of the team to find out how we can make your accounts & tax easier, quicker and cheaper.

Make sure you never miss any of our articles, webinars, videos or events by following us on Facebook, LinkedIn, YouTube and Instagram.

A Guide to Capital Gains Tax

Capital Gains Tax is a tax on the profit when you sell an asset that’s increased in value. It is the financial gain or profit you make that is taxed, not the amount of money you receive altogether.

Some assets are tax-free. If all your gains in a year are under your tax-free allowance, you do not have to pay Capital Gains Tax.

Capital Gains Tax Rates

There are two main rates of capital gains tax. These are:

  • 10% Basic rate taxpayers
  • 20% Higher rate taxpayers

With gains arising from disposals of residential properties, the 18 and 28% rates still apply. If you are entitled to Business Asset Disposal Relief, the tax rate is set at 10%. 

If you’re entitled to Business Asset Disposal Relief (previously called Entrepreneurs Relief) the tax rate is 10%. This relief is generally only available when you sell a business. Unfortunately, the old 18% and 28% rates still apply to gains arising on disposals of residential property. They also continue to apply to “carried interest”, typically profits made by hedge fund managers and private equity managers. The 10% and 20% rates mainly benefit:

  • Those disposing of commercial property (except where a business owner disposes of his trading premises and Business Asset Disposal Relief is available)
  • Stock market investors (although many investors’ gains are tax free thanks to the £12,300 annual CGT exemption or by investing via an ISA or SIPP)
  • Property investors who use a company to invest in property, when the company itself is sold or wound up
  • Owners of trading companies who do not qualify for Business Asset Disposal Relief

Basic Rate Band

If you are a basic rate taxpayer, you can pay 10% or 18% capital gains tax on some or all your taxable capital gains. The 18% rate applies to residential property and the 10% rate applies to most other assets.

The basic-rate band is £37,700 this year (2021) so you can have up to £37,500 of capital gains taxed at these lower rates. It is important to note, the basic rate band will be £37,700 until the end of the 2025/26 tax year. You can only benefit from these lower CGT rates if your taxable income (for example your salary, rental income, or dividend income) does not use up your basic-rate band.

The Annual Capital Gains Tax Exemption

The annual exemption is £12,300. In other words, capital gains of up to £12,300 can be realised tax free during the current tax year. The exemption is fixed at £12,300 until the end of 2025/26 as part of the Government’s Big Freeze. Before the current freeze the CGT exemption had been increased by less than inflation for several years and, coupled with reductions in the basic rate band, means the Government has been increasing the CGT haul without increasing tax rates. Where possible, you should consider using this exemption before the end of the tax year on 5 April 2022. After that date, this year’s exemption is lost completely. It is essentially a case of ‘use it or lose it’.

Further Annual Exemption Benefits Couples enjoy one capital gains tax exemption each so they can have £24,600 of tax-free capital gains per year. Minor children also have their own annual exemption. The estate of a deceased person has its own annual exemption in the tax year of the death and the following two tax years. Trusts also have their own annual exemption equal to half of the annual exemption available to individuals (i.e., £6,150). However, this amount must be sub-divided amongst all of the trusts set up by the same settlor.

Contact us to find out more

Bed and Breakfasting

The old practice known as bed and breakfasting is no longer possible in its simplest form (selling assets, usually quoted shares, and buying them back the next day in order to utilise the annual exemption). However, there are still a number of ways in which the annual exemption can be used such as:

  • Wait 31 days before buying the shares back. This strategy will not appeal to those who wish to remain fully invested.
  • Bed and Spouse. Despite its name, this strategy can be used by all couples (married or not). One partner sells the shares and the other one makes an equivalent purchase. (For married couples and civil partners, the repurchase must be made on the open market – a direct sale from one spouse or partner to the other will not have the desired effect.)
  • Bed and ISA – sell the shares to use your annual exemption and buy them back through an ISA.

Spreading Asset Sales

Property investors who want to sell more than one property should consider spreading their sales over more than one tax year, where possible, to use more than one year’s worth of CGT exemption. This will save a couple up to £6,888 per year in capital gains tax (£12,300 x 2 x 28%). Main Residence Relief Principal private residence (PPR) relief protects your main residence from capital gains tax. For disposals taking place from 6 April 2020 onwards it covers the period during which the property was your main residence and the last 9 months before selling (previously 18 months). Any property which has been your main residence and has been rented out at some point used to qualify for private lettings relief of up to £40,000 per person.

However, for disposals taking place from 6 April 2020 onwards private letting relief is restricted to periods where the owner is in ‘shared occupancy’ with a tenant. In other words, it is now restricted to periods when you are renting out part of your home while it is still your main residence.

Main Residence Relief

Principal private residence (PPR) relief protects your main residence from capital gains tax. For disposals taking place from 6 April 2020 onwards it covers the period during which the property was your main residence and the last 9 months before selling (previously 18 months). Any property which has been your main residence and has been rented out at some point used to qualify for private lettings relief of up to £40,000 per person. However, for disposals taking place from 6 April 2020 onwards private letting relief is restricted to periods where the owner is in ‘shared occupancy’ with a tenant. In other words, it is now restricted to periods when you are renting out part of your home while it is still your main residence.

Commercial Property Capital Gains

The main changes in recent times include:

  • A reduction from 28% to 20% in the CGT rate applying to commercial property sales (18% to 10% where some of your basic-rate band is not used up by your income).
  • CGT on non-resident capital gains. Until recently non-residents did not pay CGT when they sold commercial property located in the UK, for example offices, shops, warehouses and agricultural land. Commercial property gains that arise after 6 April 2019 are now subject to tax. Tax will only be payable on any increase in value from this date. They must file a non-resident capital gains tax return and pay the tax within 30 days of the sale.

Capital Losses

Capital losses are automatically set off against capital gains arising in the same tax year. Any surplus losses are carried forward to set off against future gains (but only to the extent that future gains exceed the annual exemption, so the annual exemption will not be wasted).

Generally speaking, capital losses may not be carried back to earlier tax years. The capital loss rules have a couple of important practical implications:

  • Losses must be realised by 5 April 2022 in order to be set off against 2021/22 capital gains.
  • If the losses you realise during the current tax year take your capital gains below the level of the annual exemption (£12,300), some of the annual exemption is wasted.

The timing of the disposal of assets standing at a loss should therefore be considered carefully.

Business Asset Disposal Relief

Business Asset Disposal relief was previously known as Entrepreneurs Relief. It allows each individual to have capital gains for a lifetime of £1million taxed at just 10%. In the March 2020 budget, the lifetime limit was drastically reduced from £10 million to £1 million which is what the current rate is set at.

As the lifetime limit is now a lot less generous than it used to be, it may now be necessary for you to spread assets among various family members to save CGT.

Who Qualifies for This Relief?

This relief is made to benefit owners of trading businesses which are essentially regular businesses.

A business will lose its trading status when it owns significant investments including any rental properties. If you are a property investor or simply own a few properties, the taxman does not treat you as a trading business owner, they will treat you only as a business owner.

Two types of property that can qualify for Business Asset Disposal Relief are:

  • The trading premises of your own business, for example, a retail unit owned by a sole trader.

Business Asset Disposal Relief can also be claimed when your partnership or company uses a property that you own personally. However, it is important to note that there are restrictions that apply.  

  • Furnished holiday lets (in certain circumstances) Company owners are entitled to Business Asset Disposal Relief when they sell their shares.

The main qualifying criteria are the following:

  • The company must be a ‘trading’ company
  • The company must be your company. Generally, this means you must own at least 5% of said company
  • You must be an employee of the company

Each of these rules must be satisfied for at least two years before the company is wound up or sold. Each of the rules must be satisfied for at least two years before the company has ceased trading. The disposal of the company should then take place within three years after trading has stopped. This time period used to be one year instead of two years. The new two-year rule applies for disposals taking place after 6th April 2019.

Investors Relief

This relief provides a 10% capital gains tax rate for investors in unlisted trading companies, providing they hold onto their shares for at least three years. Investors Relief only applies to gains on newly issued ordinary shares in unlisted companies. Buying shares from existing owners does not qualify. There is no minimum percentage shareholding. The relief is subject to a lifetime cap of £10 million of capital gains (unlike the £1 million cap now applying to Business Asset Disposal Relief). The investor generally cannot be an employee or officer of the company, and neither can any connected person (e.g., close family members).

However, the investor can become an unpaid director if he was not involved or connected with the company before investing. He can also become an employee 180 days after investing, providing there was no reasonable prospect of becoming an employee at the time the investment was made.

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Non-Residents

Quite a few years ago it was possible to leave the UK for a short period of time and avoid capital gains tax on any assets sold while non-resident.

The rules have now changed so that you have to remain a non-resident for at least five complete tax years in order to avoid any capital gains tax. Under the current anti-avoidance rules, to attempt to avoid capital gains tax your period of non-residence must last for more than five years.

This may mean you have to leave the UK for more than five years or you may have the option for less than five years, depending on whether ‘split-year treatment’ is available and whether you are treated as non-UK resident under the terms of a double tax agreement.

Over the last couple of years now, non-residents have had to pay CGT on some of their gains from UK residential property. Only the part of the gain arising after 5th April 2015 is subject to tax.

Recent Changes

Non-residents are also subject to capital gains tax on UK commercial property from 6th April 2019.

It is also important to note, where a non-resident sells shares in a company that derives at least 75% of its value from a UK property, the sale will now be subject to UK capital gains tax. The individual should own around 25% or more of the company.

Only gains arising after 5 April 2019 are subject to tax.

Reporting Capital Gains

You will need to report capital gains arising during the year on your tax return if:

  • Your total sale proceeds for capital disposals made during the year exceed four times the annual exemption or,
  • You have any capital gains tax liability.

If you sell a property and the gain is completely covered by the principal private residence exemption (e.g., the sale of your main home), it does not have to be reported on your tax return.

It is also very important to report capital disposals that give rise to an overall capital loss for the tax year, so that you can carry the loss forward to future years.

CGT Payments – Residential Property

Normally capital gains tax has to be paid by 31 January after the end of the tax year. From 6 April 2020, UK residents who sell residential property must make a pre-payment of capital gains tax (payment on account). This payment, along with the submission of a return, must be made within 30 days of the property’s sale.

Company Capital Gains

Indexation relief on capital gains made by companies has been frozen with effect from 31 December 2017.

This means that the relief available on disposals from 1 January 2018 onwards will be limited to the increase in the Retail Prices Index up to December 2017.

This is a major blow to property investors who hold investment properties inside a company and business owners who hold their premises inside a company.

Indexation relief has protected companies from paying corporation tax on any rise in a property’s value which is simply down to inflation. 

Further Information on Accounts & Tax

Our team of specialist accountants and tax experts can help manage, process and structure your business’s finances. From management accounts and payroll & pensions to tax planning and cash flow management, we can take care of the full back-office function of your business.

Book a free, no-obligation consultation with one of the team to find out how we can make your accounts & tax easier, quicker and cheaper.

Make sure you never miss any of our articles, webinars, videos or events by following us on Facebook, LinkedIn, YouTube and Instagram.

A Guide to Income Tax and National Insurance

Income Tax

The 2021/2022 tax year begins 6 April 2021 and ends 5 April 2022 and the following will explain how most individuals will have to pay their income tax:

  • 0% on the first £12,570 (personal allowance)
  • 20% on the next £37,700 (basic-rate band)
  • 40% above £50,270 (Higher-rate threshold)

Basic-rate taxpayer explained

Arun earns a salary of £30,000. This is how his income for 2021/2022 can be calculated:

  • 0% on first 12,570 = £0
  • 20% on the next £17,430 = £3,486
  • Total income tax bill = £3,486

Higher-rate taxpayer explained

Arun is a sole trader and had profits of £60,000. This is how his income tax for 2021/22 can be calculated:

0% on first £12,570 = £0

20% on next £37,700 = £7,540

40% on final £9,730 = £3,892

Total income tax bill = £11,432

Read our top 10 tax saving tips here.

Marriage Allowance

Marriage tax allowance allows you to transfer £1,260 of your personal allowance (this is the same amount you can earn tax-free each tax year) to your spouse or civil partner if they earn more than you. It is free to apply for Marriage Allowance. This can reduce your tax bill by £252 every tax year.

In order to benefit from this allowance as a couple, you need to earn less than your partner and have an income of less than £12,570. Your partner’s income has to range between £12,502 and £50,270 for you to be eligible.

You are able to backdate your claim to include any tax year since 5 April 2017 that you were eligible for Marriage Allowance.

In order to register for Marriage Allowance register at: www.gov.uk/marriageallowance

Different incomes and their tax levels

Income between £100,000 and £125,140

If your income exceeds the £100,00, your personal income tax allowance is gradually taken away from you. The more you earn, the less you get for your personal allowance. It is reduced by £1 for every £2 you earn above £100,000. This means that if your income exceeds £125,140 this year, you will have no personal allowance at all.

It is reduced by £1 every £2 you earn after £100,000.

If you are earning over £100,00 this tax will really take its toll on you.

Paying 60% tax

If you are earning a high income of £100,00 or more, the effect is that anyone earning this or higher will face a hefty marginal income tax rate of 60%.

Income over £150,000

Once your income rises above £150,000, you will have to start paying income tax at 45% on most types of your income. This is also known as the additional rate of tax.

You can find out more about how to reduce your tax here.

What income is taxed?

The above tax rates apply to most types on income including:

  • Salaries
  • Pensions
  • Self-employment profits
  • Rental profits
  • Sole traders and partnerships

Many types of income are also subject to national insurance, whereas some types of income are subject to different income tax rates.

Contact us to find out more

Dividends

Many individuals receive dividends from stock market companies or from their own private companies. You may get dividend payments if you own shares in a company. You can earn some of your dividend income tax free each year.

You do not have to pay tax on any dividend income that falls within your personal allowance. This is the amount of income you earn per tax year that is tax free.

You do not have to pay tax on dividends from share in an ISA or any dividends received from a pension. You also get a dividend allowance each year.

You only pay tax on any dividend income above the dividend allowance.

For dividends that are taxable, the tax rates on those dividends are usually lower than other types of income. This is due to the fact that dividends are paid out after companies’ after-tax profits. This essentially means that dividend income is taxed twice.

Dividend tax credits have been abolished since 2016. Therefore, it is no longer necessary to gross up your dividends to calculate your tax. It is now a lot simpler, as all tax calculations now work with cash dividends.

Although that is great news, it also comes with some bad news: new tax rates for cash dividends have been introduced. These new rates are 7.5% higher than the previous ones. However, due to the ‘dividend allowance’, the first £2,000 dividend income you receive is completely tax free. Regardless of income, all taxpayers can benefit from this allowance.

For those receiving dividends, these following tax rates apply:

  • Basic-rate taxpayers: 7.5%
  • Higher-rate taxpayers: 32.5%
  • Additional-rate taxpayers: 38.1%

These rates will always be subject to the highest possible tax rate as dividends are always treated as the top slice of your income.

Click here to read our blog on 10 tax saving tips for vets.

How dividend allowance works

The dividend allowance is available for anyone (regardless of income) who has dividend income. The dividend allowance means that you will not have to pay tax on the first £5,000 of the dividend income. The dividend allowance is not given as an additional standalone tax-free amount of £2,000. 

Instead, it usually uses up some of your basic-rate band of higher-rate band. Dividends aren’t treated as sole income; they are treated as the top addition to your income and is, therefore, taxed at your highest marginal rate. The dividend allowance exempts the bottom £2,000 of that income from tax.

This means that if you have dividend income taxed at both x7.5% and 32.5%, the allowance will exempt some of the income taxed at 7.5%.

The recent changes in dividend tax rates includes an increase that was designed to extract more tax from those company owners who take most of their income as dividends. The main beneficiaries are higher-rate taxpayers and additional-rate taxpayers who receive relatively small amounts of income which is usually accumulated from stock market investments.

Changes in tax laws over the years has meant that if your investments were not stored and sheltered in a pension, an ISA or a capital trust you would have had to pay 25% or 30.6% tax on all dividend income. However, at present, you can receive £2,000 tax free.

Action Points

  • Review your dividend income to determine if it falls within the £2,000 dividend allowance for tax-free treatment.
  • Understand that the dividend allowance consumes part of your basic or higher-rate tax band, rather than acting as a separate tax-free amount.
  • Assess how your dividends are taxed, considering they are added on top of your other income and taxed at your highest marginal rate.
  • If applicable, identify portions of your dividend income that may be taxed at different rates (e.g., 7.5% and 32.5%) and apply the allowance to minimize tax liability.
  • Stay informed about recent changes in dividend tax rates, especially if you are a company owner who receives significant income through dividends.
  • Consider financial planning strategies such as investing in pensions, ISAs, or capital trusts to shelter dividend income from higher tax rates.

Income tax examples

Example 1:

In 2021/22 Brendan has a pension income of £49,270 and dividend income of £6,000.

The first £12,570 of his pension is covered by his personal allowance and the next £36,700 is taxed at 20%.

This leaves him with £1,000 of basic-rate band remaining.

£2,000 of his dividend income is tax free. The first £1,000 uses up what’s left of his basic-rate band (preventing him from paying 7.5% tax), leaving £1,000 of dividend allowance to use in the higher-rate band (preventing him from paying 32.5% tax).

The final £4,000 of dividend income is taxed at the 32.5% higher rate. 10

Example 2:

In 2021/22 Julia has £60,000 of rental income and £3,000 of dividend income. Her rental income uses up her personal allowance and basic-rate band and some of it is taxed at the 40% higher rate.

The first £2,000 of her dividend income is covered by the dividend allowance, leaving £1,000 subject to tax at the 32.5% higher rate.

The dividend allowance does not use up her basic-rate band because none of her dividends fall into the basic-rate band.

Example 3:

In 2021/22 Leon has a £130,000 salary and £50,000 dividend. With this much income his personal allowance is completely withdrawn.

The first £2,000 of his dividend income is covered by the dividend allowance, leaving £18,000 taxed at the 32.5% higher rate. Along with his salary this takes Leon up to the £150,000 additional rate threshold.

The final £30,000 of his dividend income is taxed at 38.1%.

Note, Leon has dividend income taxed at both the higher rate and additional rate. The dividend allowance reduces the amount of his dividend income taxed at the 32.5% higher rate.

Example 4:

In 2021/22 Martin has a £100,000 salary, £50,000 of rental income and £50,000 of dividend income. With this much income his personal allowance is completely withdrawn.

His salary and rental income take him up to the £150,000 additional rate threshold. The first £2,000 of his dividend income is covered by the dividend allowance, leaving £48,000 taxed at the 38.1% additional rate. The dividend allowance reduces the amount of his dividend income taxed at the additional rate.

UK tax on foreign dividends

Buying into shares worldwide is very common these days, particularly within US companies. This impacts your dividend income as these foreign dividends are often subject to withholding tax.

Usually, the overseas company will deduct tax before actually paying you the dividend. It also works in your favour that the UK has double tax treaties with many countries overseas that reduces the amount of payable foreign tax, this is usually between 10% and 15%.

The dividend withholding tax rate in the US is normally 30% but due to the double tax agreement between the UK and US, the amount of withholding tax can now be reduced to 15%. This can be done by completing form W-8BEN, issued by the US Internal Revenue Service (IRS). In many cases, mostly with online investment, stockbrokers will handle these forms for you on your behalf to ensure a smooth process for you.

This double tax agreement also provides a specific exemption for pension schemes. This means that US dividends can be received tax-free if the shares are held inside a pension scheme. If your overseas shares are held outside a pension scheme (e.g., SIPP) or an ISA, your income from your overseas dividends will be subject to UK income tax. The double tax agreement does not recognise ISAs. ISA investors will still be subject to the 15% withholding tax.

You may be able to claim Foreign Tax Credit Relief when you submit your tax return. This allows the overseas tax paid to be deducted from the owed amount of UK tax. However, the amount deducted cannot exceed the UK tax payable on the income.

Contact us to find out more

Interest Income

Personal Savings Allowance

Your Personal Savings Allowance is provided at a 0% tax rate for up to £1,000 of your interest income if you are a basic-rate taxpayer and up to £500 if you are a higher-rate taxpayer. The more you earn, the more your personal saving allowance decreases. Additional rate taxpayers do not receive this allowance.

The amount of income that falls within your savings allowance will still count towards your basic-rate or higher-rate limit and can, therefore, affect the level of savings allowance you are entitled to and the rate of tax payable on any savings income you receive in excess of this allowance.

The starting rate band

There is a 0% starting rate for up to £5,000 of interest income. However, in most cases only those who are on low incomes can use it. You are only able to benefit from this 0% starting rate this tax year if your non-savings income is less than £17,570 (this is £12,570 personal allowance + £5,000 starting rate band). Normally, your non-savings income will include your salary and pensions, but it does not include your dividends.

Many of you reading this probably won’t be able to use the 0% starting rate this is due to you having more than £17,570 of non-savings income. However, there may be another option for you. If you are unable to benefit from starting rate band, you may be able to benefit from the Personal Saving Allowance.

Future income tax changes

Rishi Sunak has promised that after the devasting affects of the pandemic, our government is not going to raise the rates of income tax, national insurance, or VAT. This means that most income tax thresholds and allowances will be frozen until 5th April 2026. This includes:

–          Personal allowance £12,570

–          Income tax higher rate 

Further Information on Accounts & Tax

Our team of specialist accountants and tax experts can help manage, process and structure your business’s finances. From management accounts and payroll & pensions to tax planning and cash flow management, we can take care of the full back-office function of your business.

Book a free, no-obligation consultation with one of the team to find out how we can make your accounts & tax easier, quicker and cheaper.

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