Refitting any commercial location is a big commitment, but installing new equipment in a dental surgery requires careful consideration. With the needs specialist equipment, combined with general health and safety requirements, you’ll need to ensure that everything you invest in is suitable for use in a medical environment.

Whether you’re kitting out a whole new surgery, replacing out-of-date equipment or renovating your reception area, there are various factors to consider. As well as making the best use of your space, choosing colour themes and evaluating branding opportunities, you’ll want to ensure that the furniture and equipment you choose is long-lasting, hard-wearing and safe for use in a surgery.

In addition to this, you’ll need to consider the financial implications when you’re buying new dental equipment. Like any business, dental surgeries have access to a variety of financing options, but there may be specific finance arrangements designed to facilitate the renovation or restructure of medical practices. As well as obtaining a business loan or private investment, for example, NHS dental surgeries may qualify for reduced-rate borrowing schemes or government grants.

With various choices open to you, it’s important to explore your options carefully. Whilst it might be tempting to go with the first financing option you can find, even a slightly lower interest rate could save you a considerable amount in repayments.

By taking a strategic approach to your surgery refit or upgrade, you can access the best dental equipment and the most cost-effective equipment.

Considering the tax implications of buying new equipment

As well as taking your time to find the best financing option available to you, you’ll need to consider how your purchases will affect your tax liability. Whether your surgery operates as a limited company, a partnership or you’re running as a sole trader, any expenditure could have tax implications.

Unfortunately, few people realise the opportunities available to them when it comes to strategic tax planning. By considering the tax implications before you buy new equipment for dentists, you may be able to make your purchases at the right time in the financial year, and minimise your tax liability as a result.

Buying equipment for my dental practice – what first?

Before you make any purchases, it’s advisable to get independent financial advice, as well as objective tax advice. If you don’t have an in-house team to handle these matters, there are a number of professional service companies that specialise in financial advice, accounting and revenue advice from medical practitioners and dental surgeries.

The unique structures of private dental practices and NHS dental surgeries can mean that special tax and accounting rules apply to your business, so getting professional advice can help to save you a significant amount in the long-run.

When you’re considering buying new dental equipment, for example, an accountant or tax adviser will be able to confirm whether your proposed purchases will be considered capital expenditure by the HMRC, and what this could mean for your business.

Whilst dental purchasing new equipment is predominantly about getting the most advanced and effective equipment and enhancing patient care, planning these purchases strategically will have a considerable impact on your annual tax liability.

Larger and more permanent items are often deemed capital expenditure, as they aren’t used and replaced regularly. If you purchase dental equipment, such as a dental chair, X-ray machine or computing system, for example, this is likely to be considered capital expenditure. In general, any money you spend on capital expenses won’t form part of your profits. Although it will certainly need to be included in your accounts, money the company invests in capital expenses doesn’t usually form part of its profits, even if the funds have come from business income.

Although businesses can remove the cost of capital expenditure from their profits before they are taxed, there is a cap on this. Known as the annual investment allowance, your capital expenditure can be deducted at a rate of 100%, providing you don’t exceed the annual investment allowance.

Calculating your capital expenditure

If your dental surgery operates as a limited company, you’ll be required to pay corporation tax on your profits. At the current rate of 19%, you would, therefore, pay corporation tax of £38,000 on profits of £200,000.

However, if you were to spend £35,000 on capital expenditure, such as a dental chair and X-ray machine, the cost of these items would be deducted from your profits before corporation tax is applied.

Profits of £200,000 would, therefore, become profits of £165,000 once the above capital expenditure has been subtracted. You would then pay corporation tax at 19% on your profits of £165,000, totalling £31,350.

Using this example, it’s easy to see how strategic financial planning can help to reduce your tax liability and minimise the amount of corporation tax your business will need to pay to HMRC.

What is the Annual Investment Allowance?

As highlighted above, you will only be able to deduct capital expenses from your profits up to the annual investment allowance. Prior to 2019, the Annual Investment Allowance, or AIA, was set at £200,000. This meant that you could only deduct a maximum of £200,000 from your profits as capital expenses.

However, on 1 January 2019, the Annual Investment Allowance was temporarily increased to £1 million. This staggering rise in the AIA means that limited companies could, theoretically, spend up to £1 million on capital expenditure and subtract 100% of it from their profits, before their corporation tax liability is calculated.

With the opportunity to save a considerable amount in revenue, many companies have chosen to refurbish, expand and renovate throughout the course of 2019, in order to take advantage of the generous Annual Investment Allowance increase.

It’s important to remember, however, that the increase to £1 million is only temporary. From 31st December 2020, the Annual Investment Allowance will revert back to £200,000, which will reduce the amount of capital expenditure you can deduct from your profits by a fifth.

While it’s unlikely that the majority of dental surgeries will need to invest £1 million in capital expenses in order to buy new dental equipment or refit their premises, using a significant proportion of the increased AIA in 2019 could be advantageous, particularly if had existing plans to refurbish your premises.

When does your financial year-end?

For tax purposes, the financial year runs from 6th April to 5th April, effectively covering parts of two calendar years. However, businesses needn’t have the same accounting period. In fact, every company can specify its own financial year, so your accounting period could run from 1st April to 1st March, for example.

As the temporary increase in AIA is due to end on 31st December 2020, you’ll need to plan your capital expenditure carefully in order to take full advantage of it. If your business financial year ends on 31st March 2021, for example, some of your capital expenditure may occur between the period of 1st January 2021 and 31st March 2021.

Although these expenses occur within the same financial year for your business, they fall outside of the increased AIA allowance, because they would take place after 31st December 2020.

To account for this, HMRC has introduced a hybrid allowance for any companies whose financial year ends on any other date than 31st December. This hybrid allowance equates to £800,000, with a maximum £50,000 allowance for any capital expenditure which occurs after 31st December 2020.

For many businesses, it may be beneficial for them to purchase new dental equipment and use their capital expenditure prior to 31st December 2020. If their financial year ends on a different date, the hybrid allowance will still apply, but they won’t be caught out by the £50,000 maximum which is applicable to any capital expenditure which takes place after the deadline on 31st December 2020.

Identifying capital expenses when you’re buying dental equipment

Whilst the Annual Investment Allowance does give you a relatively generous scope to minimise your tax liability, only genuine capital expenditure can be deducted from your profits under the AIA. If you send money on structural repairs, for example, this is more likely to be buildings expenditure, so you won’t be able to deduct it from your profits under the Annual Investment Allowance. Whilst you may be able to reduce your tax liability by calculating your buildings expenditure when you eventually sell your premises, it doesn’t constitute capital expenditure.

Identifying which items are capital expenses and which aren’t can be tricky, especially as HMRC doesn’t provide particularly clear guidance regarding the nature of various assets and expenditures. Whilst the temporary increase of the Annual Investment Allowance does give businesses a great opportunity to invest in capital expenses and minimise their tax liability, you will need to pay heed to the deadline and the application of the hybrid allowance.

As there are so many complex rules governing capital expenditure and tax liability, it’s worth getting professional advice before investing in new dental equipment or furniture. With the right financial and revenue advice, however, you can successfully invest in your business, take advantage of the increased AIA and reduce your tax liability accordingly.