Running your dental accounts can often feel like the most dreaded and tedious aspect of the job. However, properly organised accounts are not just important for managing the cash flow and handling your tax bill. Many don’t realise that your accounts will be key any time you try to raise finance for any dental business you start.
In this guide, we’ve tried to make accounts for dentists a little more simple.
Dental associate accounts and tax explained
It can be easy to fall into the trap of thinking that only practice owners need to really worry about their accounts. As long as your tax bill is kept low and your money keeps moving, that’s all that matters right? Wrong. If you decide to start a dental practice of your own, or indeed if you ever try to raise a business loan, your dental accounts and financial records are going to be crucial.
You will most likely be able to produce a set of accounts without expert help. However, it is almost essential to engage a specialist dental accountant like Samera to go through your accounts with you, should you wish to raise finance.
Profit and loss accounts
Your profit and loss accounts will show your turnover for each of the last 2 years, usually generated by your service sales.
You will then list your cost of sales, such as materials.
Underneath this, you will need to list your expenditures. Here is a list of the kind of costs you will need to include here:
- Protective clothing
- Travel expenses
- Use of Private residence
- Vehicle running costs
- Professional indemnity insurance
- Printing, postage and stationery
- Telecommunications and data
- Accountancy fees
- Professional subscriptions
- Charitable donations
You will then subtract these expenses from your gross profit. This will give you your net profit for the year.
The balance sheet is also a key document and represents the financial health of your business. The profit and loss sheet shows you the financial situation for that year alone.
The balance sheet, on the other hand, includes all of your assets and liabilities. Assets are split into current and fixed assets.
Typically for dental associate accounts, current assets will include your bank accounts and any money owed to you. Current assets are assets which can be expected to be sold or consumed within that fiscal year.
Fixed assets are tangible assets, such as loupes and their costs are included on the balance sheet and not the profit and loss sheet. This is because they are an asset of the business which you will theoretically use for many years, not as a one-off material within the fiscal year. The value will be depreciated across the period of its estimated useable life.
Liabilities are people or entities that you or the business owe money to.
Underneath your assets and liabilities, you need to list your Net Current Assets (subtract your total liabilities from your current assets), Total Assets Less Current Liabilities and Net Assets (current + fixed assets).
Balancing this all out is the Capital Account, which is where the accounts owner comes in. Here, you list your brought-forward profits from the previous year. You then list your new net profit for the year just ended. Then, off-setting all of that is what the owner has drawn for personal use, the money they’ve spent.
So, your brought-forward profits plus current year profits, minus drawings gives you your remaining cash reserves. This will also equal your assets minus liabilities (Net Assets).
In most cases, a financially healthy business will have a positive balance sheet.
You will also need to include a separate record of each of the assets, such as the loupes.
Tax for dental associates explained
Once you have properly organised your accounts, it’s time for the tax man to get involved.
On your tax calculation record, you’ll need to include your income received (before tax is taken off). This will typically include your profit from self-employment (as an associate dentist), which you calculated on the profit and loss sheet, as well as interest received from your bank accounts (even if it is only a couple of pounds). This gives the Total Income Received.
You then take away from this figure your pension contributions and your personal tax allowance. The remaining figure is your taxable profit.
You will then list out your tax payments categorised by the tax band you need to pay, how much at the basic rate, how much at the higher rate and any additional rate. You will also need to list any taxable interest payments you have received.
You will also need to report your National Insurance payments, which have different threshold bands. This will give you your total National Insurance liability.
Adding these figures (Income Tax Charged and National Insurance liabilities) together gives you your total income tax.
You should find that this figure is around 25% of your profit. This is why we recommend to our clients that they set aside 25% of their income to cover their tax bill.
Paying the tax
The next document you need to draw up will be the tax payment summary.
First, list your total tax payments due, which you calculated on the tax report. You will then minus any previous tax payments you have made for that year, as well as any deductions such as previous overpayments and rebates.
The resulting figure is the tax you currently owe for the financial year.
Remember, if your tax bill is over £1,000 you will need to make advance payments on next year’s tax bill, based on this year’s tax bill. You will be required to pay 50% of the total tax due in January and the remaining 50% in July.
So, your total tax bill due on 31st January will be the tax you currently owe, plus your first advance payment on next year’s tax.
How to use Xero for dental associate accounts
In this webinar, Arun and Nathan discuss using Xero for dental associate accounts and tax returns. Xero is a great way to make your dental accounts easier, quicker and simpler – we use it with all of our clients.
What dentists can claim on expenses
As a dentist you can only claim on expenses items which have been purchased for business purposes, the items you use for dentistry.
While you may be tempted to try and put everything through the books, this can quite often end you up in trouble with HMRC. That’s why the Samera team have put together a Dental Associates Expenses Guide.
What can a Dental Associate claim for?
So when it comes to preparing your annual tax return, a degree of good judgement needs to be used to assess whether something is allowable for tax purposes.
Travel from home to practice is a big no no, however, if you travel between practices on a regular basis and keep records to support such journey costs, then this is allowable for tax purposes. Mileage records must be maintained – HMRC just love to investigate such mileage claims and then find that there are not any!
If you use a computer for your business, then some or even all of the capital cost could be claimed on your behalf.
New loupes, or other new kit? Then potentially this can also be claimed for.
Good Judgement is Essential
In respect of training, if you are building on existing knowledge, then this is usually deemed to provide you with CPD, which can then be claimed for. However, brand new knowledge is usually not deemed to be allowable, so again some judgement needs to be used on this aspect.
The Samera Dental Associates Expenses Guide
We have listed below common key expenses you can claim for in your self assessment tax return.
- Travel for business purposes at 45p/mile, and this includes travel to any courses or visiting accountants etc. We would suggest keeping a diary of business travel through the year so that you don’t have to do all of this at once at the year end. You cannot claim mileage to a regular place of work but can claim for travel to other dental practices where this is irregular
- Alternatively, you may put the cost of your car through your business, along with the costs of repairs, MOTs, servicing and fuel receipts. However, we would be required to remove the non-business usage proportion of these costs. For example, if you estimate that you have used your vehicle for 20% business use and 80% private use, then we would disallow 80% of these costs. The 20% that has been claimed may still be more than the alternative option of claiming mileage at 45p/mile.
Click to read about buying a car through a limited company.
- Any other business travel costs such as trains/taxis etc.
- Training and Course costs that are to ‘update pre-existing knowledge’, such as annual update courses etc. Course costs that enhance your technical knowledge cannot be claimed as a business expense. You have to tread carefully here as we have seen clients get into trouble with HMRC on this aspect.
- Subscriptions to the BDA, GDC etc.
- Professional indemnity insurance
- Legal advice relating to business matters
- Cleaning/laundry costs
- Printing, postage and stationery for business purposes
- Any dental materials purchased
- Accountancy costs!
- Any website or marketing costs you might incur
- A proportion of your telephone bills relating to business use
- A proportion of your home bills due to having an office at home to administer your business and put accounts records together (the HMRC flat rate is £4/week but this may be more depending on evidence provided)
- Loupes or other equipment that you will use for the purpose of your business
- Cost of study texts that you previously purchased as you will refer to these for the purpose of your business
- In addition, your business could ‘buy’ from you the cost of your personal laptop and printer that you use to administer the business if you have these
The above list isn’t ‘exhaustive’ so please feel free to ask if there is an expense that you have paid and are unsure whether you can claim. There is no additional fee for asking about these.
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.
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.
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.
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!
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.
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.
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.
Join the Samera Alliance
The Samera Alliance is FREE to join for all of our accountancy clients for the first 4 months – and the first 2 months are free for everyone else!
When you join the Samera Alliance, you get exclusive discounts on the consumables, products and equipment you need to build and grow your dental practice.
You will also gain access to our partners network offering services from insurance and compliance to IT and dental technology.
Simply join the group for free and you’ll benefit from reduced prices. It really is that simple!
10 things all good accountants for dentists have
You may be wondering why you need to hire a specialist dental accountant at all – surely any reputable professional accountant will be able to help a dentist? The fact is that dentists need an accountant who has specific knowledge of the legal and financial implications of owning a dental practice and/or practising as a dentist.
It’s vital that you hire an accountant who has significant expertise in the area of dental accountancy. Only an accountant who has this expertise can optimise your financial and tax position. However, simply having experience as an accountant for dentists does not make that accountant a good choice for you and your practice. There are several factors that you need to consider when choosing a dental accountant.
These are the 10 things we think all good dental accountants need.
Level of competence in the dental finance and tax arena
This is a consideration that is paramount. You need to make sure that your tax position is optimised. This is why it’s so important for the dental accountants you hire to have extensive knowledge of the tax rules that govern the dental industry, and how to use this knowledge to make sure you get the best possible outcome.
In addition to this tax knowledge, any dental accountant you hire needs to have experience of handling the complexities of finance in the dental industry.
Not all industries are the same. Being a great accountant in one sphere doesn’t necessarily translate into a great dental accountant. A great dental accountant has a wealth of knowledge and experience in the market.
Range of services available
You want your relationship with your dental accountant to be as productive as possible. For this reason, it’s useful if the dental accountants you choose can provide a range of different services. The services that you may require include:
- Dental practice payroll services
- Dental industry compliance assistance
- Corporate and personal tax returns
- Help with NHS tenders
- Helping with raising finance
- Financial advice and planning
It’s easier to deal with the same provider for all of this help, so choosing a dental accountant who offers a range of services makes sense.
Level of communication skills
There is little point in receiving advice about your tax and financial position if you do not understand it. Your dental accountant needs to be able to explain advice and information to you in a way that you can easily understand, so they need to have highly developed communication skills.
You need to have a defined and dedicated point of contact on whom you can rely at all times.
Effectiveness of planning
Financial and tax planning is one of the most important aspects of running a successful dental practice. If this planning is not in place, you could end up with a large tax bill that comes as a nasty surprise!
You need to be able to rely on the accountant you hire to help with your budgeting and planning, so they need to be able to demonstrate this attribute.
Level of accessibility and responsiveness
You need to be able to get information and support from your accountant quickly and easily. Your dental accountant should always have the same day or next day service for responding to clients’ queries.
It’s also useful to look out for special arrangements made that take into account clients’ availability and provide access to out of hours support. Our team are happy to discuss clients needs after hours as long as it has been pre-arranged.
Value for money
Choosing the best dental accountant for your practice does not mean choosing the lowest cost option – after all, cheapest rarely means best! You need to take into account factors such as experience, reputation and services provided when establishing which dental accountant provides you with the best value for money.
The last thing you want to do is be attracted by a great price, only to find that the accountants you have chosen are out of their depth, should you ever decide to take a major step such as buying or selling a dental practice!
Reputation and proven performance
Research is an important part of any decision you make regarding the hiring of a dental accountant. Look for any success stories that an accountant has. These stories can help to show you how the dental accountant you choose can help your business to be successful. You should also look for independent reviews of accountants before you make your final choice.
Ethos and principles
It’s vital that any dental accountant displays an ethos and principles that are aligned with helping you and your business to succeed. Important principles include:
- Provision of clear and accurate advice.
- Guarantee of up to date industry knowledge.
- Easy contact facilities.
- Honest and approachable manner.
Make sure that you are fully aware of the ethos and principles of the dental accountants that you hire.
Clarity of fees
You need to understand what the cost of your dental accountant’s services will be. These costs should be detailed upfront, so that you do not have any nasty surprises down the line. Make sure that the accountants you hire have a fully transparent pricing schedule and that they are happy to discuss costs for their services from the start.
Experience with dental practice purchases and sales
There may come a time when you are looking to acquire new or further premises, or when you want to sell your dental practice. This may not be the case when you first hire a dental accountant, but you have to be prepared for needs that you may have in the future. This is why it’s so vital to make sure that the professionals you choose have experience in successful dental practices purchases and sales.
Choosing a dental accountant is not a task that should be undertaken lightly. You need to make sure that you do not regret the decision that you make. The factors mentioned in this article should play an important role in your decision making process. The dental accountant you hire should be able to provide a range of services and be available when you need them. They should provide you with excellent value for money and their pricing structure should be transparent.
At Samera, we recognise the importance of a valuable relationship with our customers. We put our years of experience and expertise to use providing a range of vital dental accountant services to clients. Contact us about the dental accountant services we can provide for your dental practice.
Further Information on Dental Accounts and Tax
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.
As dental practice owners ourselves, we know what makes a clinic tick. We have been working with dentists for 20 years to help manage their accounts and tax. To find out how we can help your practice’s finances, book a free consultation or contact us today to find out more.
If you’re a dental associate 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. Book a free consultation or contact us today to find out more.