Dental associates are having their rates cut as they go back to work. Two things have made this so: practice owners incurring extra costs because of new protocols designed to mitigate Covid and principals stepping in to do more clinical work themselves. Whatever the specifics, it’s safe to say everyone is expecting revenue to be lower.
So where does that leave associates? I have a few clients who have cut their associate rate to 35% and are working with their associates to restructure things so they take home the equivalent of what they had before. They’ve been looking at a different sliding scale that rewards a higher gross while having a lower basic rate. They’re looking at ways to help associates increase their gross and cut their lab bills.
If you’re an associate let’s hope you have a boss like that. There’s not a lot you can do if you don’t, but there is something that all associates can do now to save a comparable sum of money to the drop in commission: tax planning. I speak to lots of associates on £120k or £130k who need their tax return doing and they keep putting off the decision to incorporate.
It’s human nature to delay and, to be frank, admin is boring. Many associates aren’t quite sure who to believe and so the level of trust you have with your accountant is critical. You won’t make the decision to set up a limited company if you have doubts about the motivation of your accountant. And anyway, it’s easy to kick the can down the road because changes to tax structures take a while to pay off. It’s not immediate, so it doesn’t feel immediately pressing.
Given your current position, however, this decision is more pressing than it has ever been. You could be saving £30k a year, and if you take action now you could change your January payment. That’s likely to be a big bill because you probably deferred your July payment. We advise associates earning £100k and above to incorporate because beyond that number your tax rate goes up sharply. If you earn £120k you will pay a tax rate of 62% on the £20k that is over £100k (a whopping £12,500).
If you’re earning £150k you could save £30k in tax because incorporation enables us to manoeuvre how much you’re earning in any one year. There is flexibility and options. Some associates might be earning £120k but only need £50k to live off, so they can immediately stop paying tax on funds they don’t need.
Setting up a limited company (incorporating) is a simple process for associates. We can do it in a couple of weeks, so you could be all set by the end of July or early August. Broadly speaking all you need to do is set up a bank account, switch your direct debits over and get your associate contract redrafted with your company name. We talk you through this with a checklist and sort everything else out ourselves.
Business incorporation can be complex for dental practices because the new business must be registered with the CQC, it needs a new card machine which can take six weeks, and there may be a need for solicitors, especially in mixed practices, whereas for an associate it’s a stop-start. One month you’re providing your services as an individual, the next your company is providing them.
Associates themselves are the only block here. Perhaps 2020 is not a great time to be a dental associate but if you earn above £50k, do yourself a favour and think about the money you could be saving if you finally do the thing you’ve been talking about for the last few years. Give me a call if you’d like to start the process.
