How Can Dentists Reduce Their Tax Legitimately?

The Dental Business Guide Podcast Episode | 2nd February
George Bellamy and Arun Mehra

George Bellamy: Welcome back to the Samera podcast. I’m George and once again, it seems like we’re always with you, Arun. Arun, as I’m sure you’re aware, is our Managing Director of Samera Business Advisors and he has over 20 years of knowledge of the dental field and he’s just a walking dictionary on dental really, it’s fascinating. I mean, having a talk with him, so welcome back on the show.

Arun Mehra: Thanks, George. I’ve never been called a walking dictionary on dental anyway.

George Bellamy: I’m not sure if that is a compliment or an insult?

Arun Mehra: I don’t really know, I’ll take it as a compliment anyway and I suppose even more kind of specific, I suppose you’d call me a walking dictionary on not just dental but dental business.

Okay. I’m no expert in dentistry. I’m not a dentist. So I’ve seen so many situations with so many practices, and so many problems that people have faced again, I think today, I really want to talk about tax.

We’ve just gone through the 31st of January deadline and the same questions every year we get: How can I save more tax? And I think it’s been even more pointed this year as a result of cash flow issues for people because of COVID.

Be Very Careful – There’s No Magic Wand

So, how can you save more tax? There’s no I magic wand here, but the most important factor here is, and you’ve got to be very careful in this world, there are lots of people who espouse that you can save more tax by investing in this or doing that or doing some exotic type of thing.

Listen to our episode on how dental practices should structure their finances in 2021.

But I would really stress be very careful on that. Very, very careful. I know clients who’ve done things like that in the past, and they’ve got their fingers burnt and I think maybe about five or 10 years ago, it was a very common occurrence for particularly dentists getting involved in such tax planning schemes, and I know many who’ve had the wrath of HMRC on them as a result of it, because they’re all very questionable.

And the people who organise them or promoted them have all kind of disappeared, and the person left carrying the can, ultimately, is the dentist who thought they were investing or doing something proper and, legitimate, and obviously, it turned out to be not so good in the first place.

So you’ve gotta be very careful about such tax planning situations. So now, subject to avoiding that, I suppose the next point really is – evaluate your tax structures.

Evaluate Your Tax Structures

What kind of organisation have you set up? Are you set up as a sole trader or partnership? Are you limited company? Now the tax rules change every year and you should be really looking at what are the best options for you over the long term.

A few years ago, dental limited companies were very attractive, they still are, not just for the tax benefit, but obviously, for the limited liability status you get with them as well. But there are certain options and certain better ways to run your business, if it’s set up in a company.

If you’re looking to grow a group or grow a business, again, you have to then start thinking, not just having one company or having a mix of sole traders and companies (which I’ve seen and which is a mess), you want to ultimately grow it into a group. A corporate group which has been planned and organised properly, which then minimises the tax basis or structure as well.

Get Expert Advice

Now, this is obviously not the time, every situation is different, I’m not gonna bore you to tears on different structures today. But bottom line, you need to make sure that if you want to plan, you need to get good advice.

Read our article on 10 vital things to look out for in a dental accountant.

Okay. Now, there are lots of good tax experts out there. In our team, we have people that can certainly help you, but plan and organise but also remember tax rules change every year. So what you might do this year may be different next year.

George Bellamy: Yeah, just completely not affected next year.

Claim For Everything You Can

Arun Mehra: Correct. So you’ve got to be careful, okay. But I suppose one of the real basic points of this is making sure that you also are claiming for everything in your business and that goes back to organisation.

I’ve seen so many dentists, whether it’s an associate or a practice owner, that they haven’t organised their affairs, financial affairs, particularly well. So they miss out invoices, miss receipts, papers are in different places and ultimately, if you haven’t got those pieces of paper, your accountant can’t make those claims for you.

Organisation is Key

So you’ve got to make sure that you’re claiming for everything and therefore, you’re organised. Now, how do you get organised? If you listen to another podcast, we’ve talked about automating your finance function, check that one out, and you’ll understand how we do that using Xero, Hub Doc and a streamline process.

So, in a nutshell, tax is a hot topic in a dental business, okay. Dentists tend to earn quite well. Obviously, you’ll get questions from people, how can I reduce my tax bill, but there are legitimate ways as I said, by making sure you’re deducting everything, pension contributions is another, that type of thing and then obviously structuring it right. So talk to the right people, seek out the right advice and there will be people out there to help you on this.

George Bellamy: Amazing because yeah, I am just a head in the sand, if you will with tax. It’s one of those things which I just shut a blind eye to and just don’t pretend it exists. But obviously there are ways you can legitimately reduce your tax bill, as you’ve just said, and it is really fascinating actually, like, we’re not fascinated, fascinated is kind of the wrong word.

But it’s interesting to know that there are ways you can legitimately do that, because obviously it wasn’t there, last year, there was a mass amount of reports of footballers who actually they’re tax evading and unfortunately, they all got caught or fortunately I should say they all got caught.

You know, tax evasion is everywhere, it’s probably every business owner in some sort of sense, like big I’m thinking cooperation wise, probably tax evades and all that lot because, you know, you look at Amazon, for example, you know, that their headquarters Amazon UK, for example, their headquarters aren’t even in the UK. Is it, where is it? In Ireland or is it in Guernsey? 

Arun Mehra: I think it might be Ireland and I think you’re right, George, I think ultimately, it’s these large corporations that have dozens and hundreds of people in their teams.

Read our top 10 tax saving tips for dentists.

Actually I know some of the guys that actually work at Amazon, who I trained with as accountants many years ago, and how they actually manage the taxes for such large corporates and how they cleverly do it. They’re all smart people but they’re doing it within the letter of the law. Okay, that goes back to governments not being on top of this when people like Amazon and others are ahead of the curve.

They know what they’re doing. But unfortunately, the average dentist, or the average dental business doesn’t have the resources of people at Amazon to be clever and inventive. So, in the absence of that, you just need to be organised. Seek the right advice from the right specialists, like with anything, okay, and you’ll be able to then hopefully, minimise your tax bill without the wrath of HMRC knocking on your door. 

George Bellamy: Amazing. Well, thank you for saying that and sitting down with me and talking to me about tax. 

Arun Mehra: You’re still awake aren’t you?

George Bellamy: Just about, you just saying that I was nodding off a bit, but it’s one of those things which people try to turn a blind eye to, but it’s so prevalent and so important, you actually take care of it, and you’re on top of it and whatnot. So no, thank you for taking the time to talk to me about taxes and catch you on the next one.

Arun Mehra: All right. Cheers, George.

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