Dental Associates Limited Company vs Sole Trader ?

Dental Associates Limited Company.

We are often asked the question by Dental Associates whether they should trade as a limited company or as a sole trader.

Well, the answer is never as straight forward as one would want, as each client has a different situation so it is important your situation is assessed for your needs.

Since When and Why?

Dental Associates have been able to trade as a limited company since July 2006, which has been attractive as it is possible to obtain a favourable overall tax rate. Along with the increase in student debt and higher property prices, it is easy to see why this appeals to many.

How do Dental Associates Limited Company work?

A limited company is a separate legal entity, of which the dentist becomes both Director (I.e. an employee) and a Shareholder (therefore can take income as dividends).

As such, there is a blend of different tax rates at play to consider – income tax (employee and dividends), national insurance and corporation tax.

What about my Superannuation?

The NHS Pension Scheme does not allow Dental Associates who operate as a limited company to make contributions. This is a big factor to consider as dentists working in the NHS will forgo the benefit of the Employer contributions which are based on 14.3% of NHS pensionable pay.

It is possible, however, to set up a private pension scheme, which your IFA can advise you on.

What are the savings?

Below are two summaries, the first shows the tax position with an Associate as director and shareholder and the second shows the position with Associate as director and shareholder, but also their spouse as an additional shareholder to utilize the spouse’s unused tax-free Dividend Allowance.

Associate as Director and Shareholder

Tax due
Associate profits     Self Assessment 2017 Company 2017 Company 2020
£60,000 £16,463 £14,545 £13,495
27% 24% 22%
£80,000 £24,865 £23,745 £22,290
31% 30% 28%
£100,000 £33,262 £32,945 £31,085
33% 33% 31%

Spouse as an Additional Shareholder

Tax Due
Associate profits     Self Assessment 2017 Company 2017 Company 2020
£60,000 £16,463 £12,920 £12,845
27% 22% 21%
£80,000 £24,865 £22,120 £21,640
31% 28% 27%
£100,000 £33,262 £31,320 £30,435
33% 31% 30%


Conclusion about Dental Associates Limited Company

As illustrated above the tax savings are there for an associate trading as a limited company, however, the loss of the superannuation needs to be considered.

For a worked example for your personal situation please get in touch or contact us via our online form.

Recorded Webinar

We have also recorded a webinar on how to save tax with limited companies for Associates – please watch below it is only 4 minutes long

 

It's only fair to share...Share on FacebookShare on Google+Share on LinkedInTweet about this on TwitterPrint this pageEmail this to someone