No matter how your dental practice operates, whether as a limited company, partnership or a sole trader, tax is one of those things that just can’t be ignored. There are lots of ways that a dental practice owner can save money and reduce their tax bill in an entirely legal way.
We have known many dentists that pay more than they need to and maybe this is something you have done in the past.
We’re going to discuss the main issues around tax that all dental practice owners can benefit from. Making use of this information might help you to reduce your tax bill and that’s never a bad thing in our book!
There are some forms of expenditure that qualify as tax-deductible expenses. You can significantly reduce the amount of tax you end up paying if you gain a better understanding of what’s tax deductible. The general rule is that any expense that is “wholly and exclusively used for business purposes” is tax deductible, but we’ll explain more about what that means in practice below.
Advertising Your Dental Practice
Advertising is considered a necessary expense for your business (and we think it’s really important!) so this is an example of an expense that’s tax deductible. That’s why spending on advertising should be tracked and noted carefully throughout the year so you can benefit from tax relief at the end of it. It could be the cost of a newspaper advert, printed campaign, or even sponsored social media costs, for example.
Motor Expenses Relating To Your Dental Practice
For your motor expenses and other travel costs to be allowable tax-deductible expenses, the journey has to be 100% for business. So, if you’re moving between two places that are related to your work and are necessary journeys for your work, the associated costs are tax deductible.
An example of this is when you visit a patient at their home or travel to another practice or hospital to carry out work there. This is something that some dentists do relatively regularly, and they can claim those expenses on their tax returns as long as there’s no personal element to the journey.
So, what about the journey from your home to your practice and vice versa? Generally speaking, the travel expenses associated with these journeys are not tax deductible. That’s because getting to and from your home is not “wholly and exclusively” related to business.
If you own a vehicle that is exclusively used for your dental business, the following are tax deductible;
- Road tax
- Vehicle branding
- Insurance costs
- MOT & servicing
Bank Charges and Interest
Any of the bank charges you incur throughout the year are allowable for tax relief, as long as they’re business bank accounts. You can’t claim tax relief for any costs caused by late penalties and things of that nature.
In terms of bank interest, a proportion of any interest caused by your business capital account being overdrawn is tax deductible.
Direct Costs For Your Dental Practice
- Drugs & instruments
- Lab Fees
- Technician charges
Legal & Professional
Legal and professional fees are something that every dental practice will incur, and it’s important not to forget that they are also tax deductible. Here are some examples of these type of costs;
- Legal costs
- Accountancy fees
- Valuers or agents fees
Cleaning Your Dental Practice
Cleaning your dental practice is obviously vitally important for reasons of general hygiene and cleanliness for customers. For that reason, the costs of buying cleaning products or paying cleaners to clean the practice are tax deductible.
Dental Practice Business Rates
When you own a practice, you owe the local council a certain amount of money in business rates each and every month. These costs are allowable for tax relief. Residential rooms in the property should be considered separately because these wouldn’t be suitable for tax relief.
General Supplies For Your Practice
As a dentist, you have to pay for various basic and general supplies on a regular basis. This can cover anything from magazines for the waiting room to dental supplies and medicine. These things are also tax deductible, as well as any clothing items that are used solely for business use.
Not everyone knows this, but entertainment for staff, such as Christmas parties and things like that can also qualify for tax relief (to an extent!) so don’t go crazy.
If your business’s internet usage is confined solely to business matters and nothing more, the expense will be tax deductible. However, if it’s partly used for personal things, you will have to apply a business percentage and calculate how much of the annual cost is dedicated to business usage.
Heating, Water and Electricity For Your Dental Practice
Powering and heating your practice comes at a considerable annual cost and this cost is tax deductible, as long as the property is only used for business matters. The same applies to the practice’s water rates.
Mortgage interest is an allowable expense for anyone who owns their business property with a mortgage. If it’s not used only for business, this doesn’t apply to the whole mortgage payment you make each month; only the interest portion. But if the property is used solely for business, the whole mortgage payment will be tax deductible.
Business Consultancy Costs
Every business owner can benefit from taking a step back and evaluating their goals with a professional dental business coach. If you’d like help reaching your goals from dental experts, contact us to book a free consultation.
And if you’re local, come with us on a Business Wild Walk for a refreshing approach to business planning.
Things sometimes go wrong in your practice and repair works of various kinds need to be carried out. There are various rules that apply to the tax deductibility of these costs but they do generally qualify for tax relief.
Basic things like batteries and light bulbs are also allowable.
When they relate directly to your dental practice, the wages and employers national insurance contributions are considered tax-deductible by HMRC. As well as;
- Staff training (and continuing professional development training)
- Staff welfare
- Staff pension contributions*
- Staff recruitment
- Staff subscriptions
The amount you must contribute to the pension scheme for employees is determined by the scheme’s rules. However, if you’re using the scheme for automatic enrolment there are minimum contributions you must pay.
The minimum contributions that you must pay into your staff’s pension scheme are shown in the table below – they’re currently a total contribution of 5% with at least 2% employer contribution.
Minimum contributions are being introduced gradually over time. You will usually pay pension scheme contributions either as a fixed amount or based on a percentage of earnings.
The expenses relating to your phone usage are judged similarly to your internet usage. In other words, they often have to be split along the lines of how much of their usage is related directly to the business and how much related to personal use of various kinds. This applies to mobile phones as well as landlines. You’ll have to come up with a percentage of the expense that’s used for business matters.
If you make charitable donations to a UK registered charity, these are tax-deductible so make sure you keep records to enable your accountant to claim this on your behalf.
If you’re looking to get involved or donate to a charity, please read more about Dental Mavericks who deliver emergency dentistry in Lebanon and Morocco. Volunteers and donations are always needed.
Travel & Subsistence
- Any travel to a training course
IT & Software Costs
Whether you use Dentally, Software of Excellence, Carestream R4, Systems for Dentists or any other dental software it’s important to note that the costs (along with any other IT used solely for the practice) are tax deductible.
If you’re looking for dental software for your practice or thinking of changing click here to read our review of the four main dental software providers.
Miscellaneous Dental Practice Expenses
There are a lot of expenses to consider when you own and run a dental practice, here are a few we can think of that are also tax deductible;
- Professional subscriptions
- DDU/Professional Indemnity
- Locum Fees
- Associates Fees
- Domiciliary expenses
- NHS levies ( BDS + GDC)
How Much Tax Will You Pay if You Buy another Dental Practice?
When you buy a dental practice, there is no tax relief on the price you pay for it.
However, the cost can be split various way to cover different things and some of those costs can be tax deductible. For example, the portion that covers the cost of any equipment included in the purchase can get tax relief under capital allowances.
Your overall income for the year might take a hit when you’re paying for the purchase of a new practice. You can deal with this by submitting a claim to reduce your tax payments for the current tax year on account of your income going down. This will save you some money and help deal with cash flow issues after the purchase.
If you’re looking to buy a dental practice, we can help.
There’s a lot of information to take on board here, but it’s worth the time and effort involved in understanding it because, in the end, it’ll help you to save money. We know that dentists don’t want to pay more tax than they’re legally obligated to pay, and there’s no reason why that shouldn’t be true for dentists as well. So, bookmark this page and refer back to it when you need it or get in touch for further professional help and assistance.
Taxes are a complicated matter that should be handled with care. If you run a dental practice, you might want to consider hiring a Chartered Accountant who specialises in the industry of dentistry. A competent dental-specific accountant can help with your taxes while making sure that everything runs as smoothly as possible.
The Peloton provides accounting & bookkeeping services for dental practices in the UK as well as tax and business advice. Get in touch today to see how we can help.