Whilst operating a dental practice through a limited company can have certain tax advantages, it won’t be for everyone, and the tax position should always be considered at the outset.
Lower tax rates can make companies more attractive. Companies pay tax at 19% or 25%, depending on profit levels, while individuals pay income tax of up to 45%, plus National Insurance, on profits calculated in a very similar way.
It is important to note that this is only part of the picture. When profit is taken out of the company, either as salary or dividend, some (and potentially all) of the tax benefits are eroded.
Each case should be reviewed to assess how beneficial, from a tax viewpoint, operating through a company is likely to be.
Important considerations are:
· What is the expected annual profit?
· How much of the annual profit will you want to, or need to, take out each year? As a rule of thumb, the more that can be left in, the more tax advantageous a company would be.
· Would there be one shareholder, or is there (say) a spouse who would also own shares?
· What other income do you or your spouse have? If your spouse is currently not using all of their basic rate tax band, this may make the use of a company more favourable.
· How long do you envisage running the company for, and what would happen when you want to cease? If it is only short-term, it may make a company less beneficial from a tax viewpoint.
As well as considering the tax implications, there may be complications around operating through a company when you hold an NHS contract or contribute to the NHS pension scheme. The cost of running a limited company is also likely to be higher than an equivalent sole trader business.
These are only some initial considerations. If you wish to discuss whether operating your dental business through a company is likely to benefit you, please contact your usual BHP contact to discuss this further.
