TIME FOR DENTISTS TO BRUSH UP ON THE POTENTIAL ADVANTAGES OF INCORPORATION

Dental practices in Wales are set to benefit from a possible tax bonus if they take advantage of new regulations due to come into force on 31 July 2006 about how they can structure their businesses.

Previously dentists were restricted to operating either as a sole trader or as a partnership, with all the implications of unrestricted liability.

The new regulations – which are the result of changes to the 1984 Dentist Act after four years of lobbying - will offer dentists the possibility of setting up as a limited company or as a limited liability partnership, and therefore enjoy the potential benefits of limited liability status.

The move co-incides with the new Register of Dental Care Professionals, which will require dentists, dental hygienists, dental therapists, dental nurses and dental technicians to register by law to practice in the UK.

According to Peter Griffiths, Senior Tax Advisor with professional advisors Broomfield and Alexander, the opportunity for dentists to practice through a limited company could mean they may benefit in terms of tax.

“The new rules mean that dentists may be able to extract value from the business in a tax efficient manner on incorporation of an existing business,” he said.

“For many, there will also be the attraction that they will no longer have to pay income tax at 40% on profits earned but not yet extracted from the business”.

Peter listed other advantages that the regulations may create, including dentists being able to reduce their income tax liability by extracting profits from a company through dividends and the opportunity for tax efficient pension planning.

“By operating as a limited company or as a limited liability partnership, they will be able to keep ownership of the business separate from the management of the business, include staff as shareholders and offer share options to incentivise staff to encourage growth of the business. Future retirement planning may also be easier.”

Peter warned, however, that dentists considering incorporation need to seek advice well in advance of a planned incorporation to ensure that any opportunities are maximised.

“Certain administrative issues may take time to deal with. For example, anyone wanting to include the words “dental”, “dental practice”, “dental surgeon”, “dentist” and “dentistry” in their company name would need to seek approval from the Professional Standards Directorate, General Dental Council – which could take up to four weeks.

“Additionally, dentists seeking to utilise a creative company name may find that their original choice has already been taken.

“So to maximise the possible benefits, dentists should be talking to their advisors well in advance of an incorporation to ensure that they do not require future emergency treatment.”