Learning Center Topics: Dental Accounting

Simplifying Bookkeeping: 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.

With accurate records and keeping track of your money, you’ll be on top of things like taxes, have enough cash to keep the office running, and be able to make smart choices about your practice, like buying new equipment or hiring more staff.

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 explain the basics of bookkeeping and 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.

What is Bookkeeping?

Bookkeeping is like having a detailed diary for your dental practice’s financial activities. It’s all about jotting down every penny that comes in (like payments from patients) and every penny that goes out (like paying bills for supplies or staff salaries). Basically, it’s keeping track of all the money-related things happening in your practice.

Now, let’s talk about bookkeeping versus accounting. Think of bookkeeping as the groundwork, like laying bricks for a house. It’s about recording every financial move and keeping things organized day-to-day.

On the flip side, accounting is like taking those bricks and building a whole house. Accountants use the info from bookkeeping to analyse how your practice is doing financially. They look at stuff like how much money is coming in, how much is going out, and how profitable your practice is. They also help with smart money decisions and making sure you’re all good with taxes.

So, in short, bookkeeping is like keeping track of the score by writing down every money move. And accounting is taking that score and figuring out what it all means for your practice’s financial health.

The Bookkeeping Process Explained

Conducting bookkeeping for your dental practice involves several key steps:

1. Choosing a System: With recent changes in UK tax and accounting laws, it is now required that you use an automated, digital accounting software. This software has to be compliant with the Making Tax Digital regulations. Systems like Xero and Quickbooks are some of the more well known.
2. Recording Transactions: It’s crucial to track income and expenses daily to maintain accurate financial records. This includes recording payments from patients, insurance reimbursements, supplier invoices, payroll expenses, and any other financial transactions related to the practice. Daily tracking ensures that no transactions are overlooked and provides real-time insight into the practice’s financial health.
3. Categorizing Expenses: Proper expense categorization is essential for generating accurate financial reports and analysing spending patterns. Dentists should categorize expenses into relevant categories such as office supplies, rent, utilities, payroll, equipment maintenance, and marketing. Consistent categorization makes it easier to track and manage expenses and ensures compliance with tax regulations.
4. Reconciling Bank Statements: Dentists should regularly reconcile their bank statements with their bookkeeping records to verify accuracy and identify any discrepancies. This involves comparing the transactions recorded in the bookkeeping system with those listed on the bank statement and investigating any discrepancies. Reconciliation ensures that all transactions are accounted for and helps detect errors or unauthorized charges.
5. Generating Reports: Dentists should regularly generate basic financial reports such as income statements and balance sheets to assess the practice’s financial performance and position. Income statements provide an overview of revenue and expenses over a specific period, while balance sheets summarize the practice’s assets, liabilities, and equity. These reports help dentists track profitability, monitor cash flow, and make informed financial decisions to support practice growth and sustainability.

By following these steps, practice owners. can effectively conduct bookkeeping for their dental practice, ensuring accurate financial records, compliance with regulations, and informed decision-making to achieve long-term success.

The Importance of Simplified Bookkeeping and Payroll for Dentists

As a dental practice owner, it’s crucial to understand your practice’s finances and follow the rules for the dental industry and the UK’s tax codes. Here’s why:

1. Informed Financial Decisions: Accurate bookkeeping provides dentists with a clear picture of their practice’s financial health, enabling them to make informed decisions about important investments such as equipment purchases and staffing levels. By understanding their revenue streams and expenses, dentists can allocate resources effectively to support the growth and efficiency of their practice.
2. Payroll Management: 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.
3. Accurate Tax Filing: Proper bookkeeping ensures that dentists maintain detailed records of income, expenses, and deductions, facilitating accurate tax filing. By staying organized throughout the year, dentists can minimize their tax liabilities and avoid penalties or audits from tax authorities.
4. Practice Profitability: Through diligent bookkeeping, dentists can track practice profitability by analysing revenue, expenses, and profit margins. This insight allows them to identify areas for improvement, optimize operational efficiency, and maximize profitability over time.
5. Cash Flow Management: Effective bookkeeping helps dentists manage cash flow by monitoring incoming revenue and outgoing expenses. By staying on top of cash flow, dentists can ensure they have sufficient funds to cover operational expenses, such as payroll and supplies, and maintain financial stability even during periods of fluctuating income.
6. Insurance Payments and Patient Billing: Bookkeeping also plays a crucial role in managing insurance payments and patient billing. By accurately recording insurance reimbursements and patient payments, dentists can track outstanding balances, follow up on unpaid invoices, and maintain strong financial relationships with insurance providers and 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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

The Benefits of a Dental Accountant

The benefits of hiring a dental accountant for your practice are numerous:

1. Expertise: A dental accountant possesses specialized knowledge of the unique financial aspects and challenges within the dental industry. They understand the nuances of dental practice management, including revenue cycles, insurance billing, overhead costs, and tax deductions specific to dentists. This expertise allows them to offer tailored financial advice and solutions that address the specific needs of dental practices.
2. Time-Saving: By entrusting financial tasks to a dental accountant, dentists can save valuable time that can be redirected towards patient care and practice management. Instead of juggling bookkeeping, tax preparation, and financial analysis on their own, dentists can focus on providing high-quality care to their patients while the accountant handles the intricacies of financial management.
3. Accuracy and Compliance: Dental accountants ensure that financial records are accurate and compliant with regulatory requirements. They stay up to date with tax laws, accounting standards, and industry regulations, minimizing the risk of errors, omissions, or non-compliance penalties. With a dental accountant overseeing financial matters, dentists can have peace of mind knowing that their practice’s finances are in capable hands.
4. Strategic Planning: Beyond day-to-day financial tasks, dental accountants play a crucial role in strategic planning for practice growth and sustainability. They can analyse financial data, identify trends, and develop strategic plans and budgets to optimize practice performance. Whether it’s expanding services, investing in technology, or improving operational efficiency, dental accountants provide valuable insights and guidance to help dentists achieve their long-term goals.

In summary, hiring a dental accountant offers numerous benefits, including specialized expertise in the dental industry, time-saving opportunities, assurance of accuracy and compliance, and strategic financial planning for future growth. By partnering with a skilled accountant, dentists can streamline financial management, minimize risks, and position their practices for success.

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.”

Arun Mehra FCA

Samera CEO

You can book a free consultation with Arun here.

Reviewed By:

Arun Mehra

Samera CEO

Arun, CEO of Samera, is an experienced accountant and dental practice owner. He specialises in accountancy, financial directorship, squat practices and practice management.

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.

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

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.

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.

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. 

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.

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.

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.

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.

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.”

Arun Mehra FCA

Samera CEO

You can book a free consultation with Arun here.

Reviewed By:

Arun Mehra

Samera CEO

Arun, CEO of Samera, is an experienced accountant and dental practice owner. He specialises in accountancy, financial directorship, squat practices and practice management.

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

For the financial year beginning on 1^st 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.

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.

Reviewed By:

Arun Mehra

Samera CEO

Arun, CEO of Samera, is an experienced accountant and dental practice owner. He specialises in accountancy, financial directorship, squat practices and practice management.

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.

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 6^th 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.

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 5^th April 2015 is subject to tax.

Recent Changes

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

Reviewed By:

Arun Mehra

Samera CEO

Arun, CEO of Samera, is an experienced accountant and dental practice owner. He specialises in accountancy, financial directorship, squat practices and practice management.

In this webinar, Nathan takes you through the software that Samera use for all of our clients to automate their financial function and streamline their accounts.

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