By Simon Vincent, Senior Tax Accountant at Hive Business.
In our work with dental practice owners we keep discovering shockingly poor advice given by accountants and dentists risk losing a lot of money.
We see it happen most often during practice disposals. Let me give you an example. A dentist who was referred to us was selling a practice. The practice was valued at £850k, but his accountant had come up with a tax bill of £250k.
We did a tax analysis and ended up with a bill of under £90k. The idea we came up with wasn’t anything fancy, it was a straightforward solution. Whereas the other accountant had got bogged down in the company structure and was trying to work within that to sell the shares, we stood back to give the situation a holistic appraisal.
Our idea was a lot simpler, but it worked. It made all the excruciating complexity completely unnecessary. When the other accountant sent us his notes on the tax costs of various ways to sell (excluding the cheapest, simplest method, of course), it took me and a colleague over an hour to understand them.
The client didn’t have a hope. On top of that, it was also clear that the notes missed out a few key areas, both technical and commercial. So the information was wrong, and impossible to understand. And it was going to cost the client an awful lot of money.
Maybe the accountant was out of his depth and wouldn’t admit it. Who knows, but how is a dentist supposed to know? This person had been his accountant for ages and seemed like a safe pair of hands.
Our aim at Hive is to make sure dentists understand what we’re saying. This seems to be lacking with traditional accountants, and it’s not just the way they present information, but the way they think — they can get stuck in a particular system of thought that can be counterproductive.
We speak to clients all the time who have been told by their accountants that the only way to extract money from their companies is with dividends, yet with those you pay very high tax — a minimum of 32.5% above £40k. That’s not good enough, and as an accountant you have to be more open to new ideas than that.
We met someone last week who took £400k out of his company and had to pay £150k tax on it. Above £150k the tax on dividends goes up even further to 38%. It’s not a good way to move money around but, again, his accountant didn’t have any tricks for him, nothing. The dentist wasn’t even aware there were options.
I’m not saying all accountants are like this, and obviously not everyone’s got £400k to lay their hands on, but you would hope that people could trust their accountant to protect them from wasting money. Presumably that’s an accountant’s ethical duty.
Disposals are the area where dentists with dud accountants get hit the hardest. We’re seeing growth in this area of tax advice, not necessarily because of more people selling, but because of the changing rules that make the tax work necessary. It’s become more desirable to sell the shares, so there are new approaches to tax planning that you should be made aware of.
We can provide a second opinion on the tax analysis of your sale so don’t get stung without realising — the numbers involved are so high that the tax charge can be ridiculous. Get in touch on 01872 300232 or email [email protected].