Dentists can claim allowable deductions from their profit for all costs associated with the dental practice business.

Navigating the minefield of dental expenses and tax deductions can be a complex task that requires compliance with intricate HMRC regulations. To combat any confusion, the Hive experts have rounded up the top frequently asked questions and examples of where tax planning is vital for your dental practice.

In this comprehensive guide to dentist taxes, we provide information on:

• income tax
• National Insurance
• the tax year
• paying your tax bill
• tax relief
• tax planning
• dental associates’ accounts

Income tax for dental practices

If your dental practice is trading as a limited company, then your personal tax will be based on the salary and dividends that you draw from the company. Your National Insurance contributions will be based on your salary in this instance. The company will be taxed separately on its taxable profit.

If your dental practice is trading as a sole trade or partnership, then your personal tax will be based on your share of the taxable profits of the practice. In this case, your National Insurance contributions will also be based on your share of the taxable profits of the business.

In both cases, any other income you receive in a tax year (e.g. rental, investment) will be added in as well and will impact how much tax you pay.

Your personal tax bill each year will be calculated by means of your annual self-assessment tax return. Self-assessment tax returns must be filed with HM Revenue & Customs by 31 January following the end of the tax year.

The tax year

You will pay tax on all your relevant income received within a tax year: this is called income tax. The tax year runs from 6 April one year to 5 April the next – for example, the 2022/23 tax year runs from 6 April 2022 to 5 April 2023.

As well as income tax, you will pay National Insurance contributions which are also based on your level of income.

As the end of the tax year approaches, you will need to start gathering together all the information and records needed to complete your tax return. For your business, this will include ensuring that the bookkeeping is all up to date and accurate.

Paying tax

Payments of personal tax are due twice a year – by 31 January and 31 July – and these are known as payments on account. The easiest way to explain how the system works is to look at a specific example:

Year one

If your first year with income taxable under self-assessment is 2021/22, your first self-assessment tax return would be due for filing by 31 January 2023. At this point, you would have to pay all the taxes you owe for 2021/22 as well as the first payment on account for 2022/23. The payment on account is calculated as half of your actual tax bill for 2021/22, on the basis that this is a reasonable estimate of your income for 2022/23. In effect, you will pay one and a half times your actual tax bill for 2021/22 on 31 January 2023.

Then, on 31 July 2023, you will make your second payment on account of 2022/23 tax, again being half of your actual tax bill for 2021/22.

Subsequent years

By the time your tax bill for 2022/23 has been calculated, you will have already made two payments on account. At this point, the total already paid is deducted from your actual 2022/23 tax bill. If the estimate is too high and you have overpaid, the difference will either be repaid or deducted from your 31 January 2024 tax payment, depending on timing. If the estimate was too low and you owe more tax, the difference will be due on 31 January 2024.

On 31 January 2024 and 31 July 2024, you will also have to pay new payments on account, based on your actual 2022/23 tax bill, and the whole process repeats.

Tax relief for the dental industry

Dentists can claim allowable deductions from their profit for all costs associated with the dental practice business. This includes, but is not restricted to: membership of professional bodies, professional indemnity insurance, advertising and marketing, accountancy fees, rent and rates, training costs, staff costs, cleaning and laundry costs, and telephone and internet costs.

These business expenses should be recorded within the bookkeeping records for your business, whether that is by means of a simple spreadsheet or accounting software. At the end of the year, all these records should be passed to your accountant, who will use them as a basis to calculate your taxable profit.

Tax relief is also available when making pension contributions.

Tax planning

Tax planning is investigating ways in which a tax bill can be reduced. There are a number of ways that a dentist can benefit from tax planning:

• Depending on individual circumstances, incorporating a self-employed business can lead to substantial tax savings;
• Profits can be reduced by ensuring that all business expenses are claimed for

Dental associate accounts and tax explained

Self-employed Associates currently benefit from a dispensation with HMRC which says that they will be deemed to be self-employed provided they use and follow a BDA model contract. However, this dispensation is due to be removed with effect from 6 April 2023.

While the current dispensation is in place, the taxation of associates has no impact on practice owners. Some associates trade through limited companies and some trade as self-employed dentists – either way, it is the responsibility of the individual associates to ensure they are keeping appropriate records, submitting their tax returns and paying their taxes on time.

Once the dispensation is removed, it is possible that the situation may change somewhat. The BDA consider that the removal of the dispensation will have little impact. However, the responsibility for determining whether an associate is self-employed or not will then fall on the practice owner, and as a practice owner you will be expected to use HMRC’s CEST (Check Employment Status for Tax) tool to assess each self-employed contractor.

HMRC have identified that although associates may be using the model contract, they are not actually working within the terms it sets out. As a result, it is possible that the main impact of the change will be that associates alter how they work.

FAQs on dental taxes

• How do dentists reduce taxes?

Dentists can reduce taxes by: ensuring all tax deductible expenses have been recorded within the records of the dental business, whether that is a dental practice or a dental associate; making pension contributions (again this can be company contributions or personal pension contributions); considering purchases of equipment on which capital allowances can be claimed.

• What expenses can dentists claim?

Dentists can claim for expenses related to running the business. This can include, but is not restricted to, business expenses such as advertising and marketing, membership of professional bodies, professional indemnity insurance, cleaning and laundry costs, rent, rates, training, and telephone.

• Are dentists self-employed?

Practice owners trading through a limited company are not classed as self-employed. However, many practices are run as self-employed businesses, either as sole traders or as partnerships.

As mentioned above, currently dental associates are deemed to be self-employed due to an HMRC dispensation.

• What can a self-employed dentist claim for?

A self-employed dentist can claim for all tax-deductible expenses directly related to running the business. This can include, but is not restricted to, business expenses such as advertising and marketing, membership of professional bodies, professional indemnity insurance, cleaning and laundry costs, rent, rates, training, and telephone.

Enlist the help of dental tax professionals 

Now that you understand the key points related to dental taxes, get the help of the experts to advise and implement your tax strategy and spot opportunities for your business.