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How Tax Planning for Dentists Can Help You Save Money

Dentistry is a great career. Dental doctors are highly compensated for their dedicated services. Plus, the dental profession offers a wide range of career options in both academic and clinical environments, such as private practice, education, public health, and administration.

A solid salary is just another perk of working in the dental industry. The average annual salary of a dentist in the United Kingdom is £72,000. This equates to a net salary of around $4,190 per month. 

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However, the tax rate increases with income level. This means that your salary would always be charged with the equivalent rate for tax.

Those who work in the dental field say that the stress level in the profession is higher than in most others. Along with their jobs and personal lives, dealing with taxes is one of the things that stresses them out.

Fortunately, Pearl Lemon Accountants is here to assist you with tax planning and other accounting needs. Talk to us today.

Types of Dentists And Their Tax Obligations

Self-Employed Dentists

Dental work performed by dentists with “self-employed status” is taxable as business income. They will be subject to income tax on any profits made per the trading income guidelines. 

A self-employed dentist is responsible for submitting annual self-assessment tax forms to HMRC and paying Income Tax and National Insurance (NI) contributions.

In some cases, dentists may work part-time at other hospitals or clinics. This scenario entails income from pay and other sources to be considered as trading income. Like ordinary employees, the company withholds class 1 National Insurance.

To avoid paying Class 4 National Insurance on your income as a self-employed dentist, you must make and verify adjustments to the ‘trading income’ when submitting your annual tax returns with HMRC.

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Employed Dentists

Dentists working for the Community Dental Service or secondary dental care are salaried employees.

Your company will withhold Income Tax and National Insurance (NI) payments from your salary as an employee delivering dental services. Following withholding, the business will submit a tax payment to HM Revenue & Customs (HMRC).

Tax Planning for Dentists

Take note that successful financial management includes careful tax preparation. You can minimise your tax liability and make the most of any tax relief by carefully planning your basic, advanced, and inheritance taxes.

Here are the types of tax planning you might want to consider.

Inheritance Tax Planning

If you fail to arrange for inheritance taxes properly, the wealth you leave to your loved ones may be subject to higher rates of taxation in the future. 

If your net worth exceeds the threshold, you might leave your loved ones with a hefty inheritance tax bill. Planning and consulting an expert can help you minimise your inheritance tax liability.

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Basic Tax Planning

Tax issues might arise for dentists who operate on a rotating schedule. With such a hectic schedule, you might miss the tax payments and pay penalties. This is simply a minor tax issue, but it might cost a significant sum of money in the long run.

Advanced Tax Planning

Different business structures have different tax and personal liability concerns. In addition, medical and dental offices can take advantage of estate, inheritance, and gift tax reliefs and deductions. All these factors and more will be included in advanced tax planning.

Tax Advice: Ways to Cut Tax Liabilities in Dental Practice

Whether you’re a dental student, a dentist in private practice, or something in between, you can save money by focusing on reducing your tax expense. Here are some ways to do that:

ISAs

The money you invest in an Individual Savings Account (ISA) is sheltered from federal income taxes. For those over 18 years (or 16 for a cash ISA), the maximum annual investment allowed in stocks and shares or innovation ISA is £20,000.

Most importantly, you won’t have to pay tax on any profits or dividends you earn from your investment.

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Pensions

If you invest in a pension plan, you can take advantage of the government’s generous tax relief. With full pension access available at age 55 (rising to 57 in 2028), these benefits are worthy of serious consideration.

You should first review the annual statement detailing how much you have contributed to your pension if you have an NHS pension. This is crucial since exceeding your annual allowance will result in tax liability.

Venture Capital Trusts (VCTs)

Venture capital trusts (VCTs) allow investors to put money into smaller businesses. If you keep your money in the investment for five years, the government will reduce your income tax by 30 %. Dentists who have exhausted their ISA and pension contributions at annual and lifetime levels can benefit significantly from VCTs.

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Inheritance Tax

For a couple with assets under £2 million who plan to leave their home to their children when they pass away, any assets exceeding £1 million will likely be subject to 40% inheritance tax.

 

However, you can give up to £3,000 to your kids or grandkids tax-free yearly (or £6,000 if you didn’t use your allowance the year before).

As a result, your estate’s tax bill will be reduced. If both spouses apply for the exemption, the annual savings is reduced to $2,400.

Donations to Charity

Giving to charity is an excellent opportunity to support the causes that are important to you while lowering your taxable income. A donor who pays taxes at the 40% rate can expect a refund of 25 cents for every dollar donated. 

While dental work can be difficult, managing your finances doesn’t have to be. 

Pearl Lemon Accountants is staffed with tax specialists who can handle your tax planning. We help dentists, and dental professionals all around the UK obtain the best possible rate on their taxes.

Learn more about our services.

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Pearl Lemon Accountants’ Tax Planning Services

Our comprehensive and deliberate tax and financial planning have helped dental professionals save thousands of dollars while ensuring maximum tax relief. We offer a variety of tax planning services, including the following:

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HMRC Tax Investigations Advice

A tax investigation by HMRC may be a stressful experience for any company, but there are steps you can take to ease the process. Each of our tax experts is up-to-date on the latest changes to tax law, compliance issues, and HMRC procedures, as well as the strategies necessary to deal with HMRC investigations.

Personal Tax Services

It is possible to stay on track with your professional and personal objectives while still meeting all tax requirements with the assistance of Pearl Lemon Accountants. Our individual tax preparation services cover everything from tax planning, investment, and more.

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Corporate Tax Services

We assist dental practices in fulfilling their corporate tax compliance obligations, such as filing tax returns, complying with HMRC’s electronic return filing requirements, and maximising tax deductions and incentives. 

With Pearl Lemon Accountants, you won’t ever be behind the tax-filing system. As an added service, we can assist you in creating business and life strategies to help you grow your finances.

Interested in our services? Talk to us.

FAQs

The other solution is to earn less. A dentist often works 4 or 4.5 days a week. If you earn at the 62% rate, lowering your annual income by £10,000 after income tax, National Insurance, and NHS pension will only result in a £3,556 decrease in take-home pay. That’s only £68 per week.

The best way to do it is to transfer taxable interest and dividends earned on cash and listed investments to a tax-free ISA.

Dentists who make pension payments will get a whopping 60% tax deduction. In particular, they should ensure they haven’t contributed more than £40,000 in a year or $1,250,000 in total.

Here at Pearl Lemon Accountants, we offer the services that best suit gamblers such as yourself.

So what are you waiting for? Book a call now.