Dentists Who Invest Podcast
Official Podcast of the Dentists Who Invest platform. Talking all things investing, money and finance with a dental spin. Have you ever wondered how you can grow your wealth and protect your hard earned money as a Dentist? We've got you covered. Featuring famous guests such as Andrew Craig, Edward Zuckerberg and Benyamin Ahmed we delve deep into EVERY aspect of finance to educate and empower ALL Dentists.
Dentists Who Invest Podcast
Ltd Co Vs Sole Trader: What You Need To Know For This Tax Year with Amman Sarkaria
You can download your FREE report on how you can avoid financial mistakes as a dentist using the link just here >>> dentistswhoinvest.com/podcastreport
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Should you operate as a sole trader or through a limited company? For dental professionals, this decision can impact everything from tax bills to long-term wealth. In this essential episode, specialist dental accountant Amman Sarkaria breaks down the financial, legal, and practical implications of each structure — updated for the 2025 tax year.
Amman walks us through real-world comparisons, including a £130,000 income example that shows how dentists could save up to £25,000 annually with the right limited company setup. Learn how to optimise your salary-dividend mix, make use of electric vehicle deductions, and even employ family members legally and effectively.
But it’s not just about tax perks—we explore NHS pension eligibility, IR35 risks, and whether a Ltd Co truly fits your career stage and lifestyle goals.
Whether you’re newly qualified or restructuring your business, this episode delivers the insight every UK dentist needs to make an informed, strategic decision.
Listen now and maximise your tax efficiency this financial year.
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Disclaimer: All content on this channel is for education purposes only and does not constitute an investment recommendation or individual financial advice. For that, you should speak to a regulated, independent professional. The value of investments and the income from them can go down as well as up, so you may get back less than you invest. The views expressed on this channel may no longer be current. The information provided is not a personal recommendation for any particular investment. Tax treatment depends on individual circumstances and all tax rules may change in the future. If you are unsure about the suitability of an investment, you should speak to a regulated, independent professional. Investment figures quoted refer to simulated past performance and that past performance is not a reliable indicator of future results/performance.
We haven't done a podcast in quite some time which talks about the pros and cons of self-employed versus limited company, particularly with what has changed in 2025, and what I mean is getting granular from the ground up and really explaining the basics rather than just explaining new stuff that's come along recently.
Dr James:We're all to recap, and that's why why I've got Mr Amman Sarkaria today with me on the podcast specialist accountant to dentists. We're going to be talking about limited companies a definitive list of all the hacks that one can employ or use whenever they have that structure, meaning tax deductible expenses and other things that one can use to be tax efficient. As well as that, we're going to go into some of the legal ins and outs and what this means for your tax position, with worked examples. Well, it's pretty overdue that we talk about limited companies versus sole traders again, because, even though we have done some content on that recently, that was more reflecting on what's changed, whereas what I've always felt we need for a long time is a podcast that just covers everything from the bottom up, the ins and outs, the pros and cons, and that's exactly what today is. So, on basis, I suppose a good place to start, Amman, would be to go through sole trader versus limited company legals and how it's set up.
Amman:Yeah, no problem, James. So firstly from a legal point of view it's completely different.
Amman:So if you're self-employed, you are basically the entity, so there's no difference between yourself as an individual versus the work you are doing. So if, for example, you were ever pursued by creditors, they could come to your personal assets and they could potentially take your house, your cars, your savings, etc. There's no real separation on the limited company side. There is separation, so you're basically shielded by limited liability. So essentially what that means is if ever you were sued or there was debts and somebody was chasing you, you would not have any risk of your personal assets being taken. The only caveat to that is, obviously, if you're a director and you're doing things from a fraudulent point of view, that might impact it. But generally speaking, it's purely protected and whatever's in the limited company is at risk.
Amman:So I think that they're the kind of legal aspects that are different. But also, I guess, if you're self-employed, anything you earn in that respect is therefore then taxed on you. So if you earn 120k, all of that 120k after your costs will be taxed. On a limited company point of view it's legally different. So as a shareholder you run the business sorry, as a shareholder you own the business but as a director you run it. So shareholders are typically paid dividends whereas directors are paid a salary. So I'd say that's kind of the general overview of the legal differences between the two very nice.
Dr James:And then I guess, a nice thing to segue into next, which is the part that everybody's very interested in, is the tax rates and how that works yeah.
Amman:So just before I go to that, I'll just give you a quick idea of if you're just starting out in dentistry, obviously you've done your foundation year. At that stage is your obviously your call to decide if you want to be self-employed or if you want to be a limited company. The registration process is pretty simple for both. So if you're self-employed, you basically just need to complete something called an SA1 form, which is basically just telling HMRC I've earned XYZ via self-employed income, so I need to do an assessment and send you whatever tax is due. On the other hand, if you're a limited company, you register with companies house, so there's a bit more technicality with it, and you then have to have certain number of shares and it depends on, like, what the value of the share is and how much you can pay yourself based on your percentage of holding of the business, and also you would then need to register for specific taxes with hmrc. So that would be your standard ones, like corporation tax, payroll, sometimes vat, but for a dental associate often then they don't need to register for VAT. So that's the differences from a registration point of view, from a taxes point of view, which I know, like you said, is quite a hot topic. It's very standard across the board.
Amman:So if you're earning a salary or if you're self-employed, you get the first £12,500 personal allowance which is tax-free. From that to £50,270, it's at 20%. Above that, up to £125,000 is 40% and above that is then 45%. So if you earn £100,000 as a dental associate, as a self-employed individual, that will all be taxed on those rates as well as some national insurance. But if you're in a limited company that's where you can actually just pay yourself a smaller salary and that's typically what directors do they'll pay themselves up to the personal allowance. That's twelve and a half thousand. They'll have no income tax on that because you've used your personal allowance.
Amman:But there is some national insurance pay on that, which is for the employer, ie your limited company. That's usually at 15%. The rates have just changed from 13.8% to 15%. So you end up actually paying a bit more than you would have last year. I think it's around £1,100. You pay for national insurance on that salary portion.
Amman:But the good thing is the rest you can take out as dividends. Now dividends, the tax rates are lower. So where it's 20% for a salary, the dividends is 8.75%, and then where it's 40% dividends it's 33.75, and so on. Also, with dividends there's no national insurance as well, so you save on that aspect too. Yeah, so I'd say that's the main difference from an income tax point of view. Obviously, with a limited company you do have to pay corporation tax on your profits, so that can range. So there's a bit of a sliding scale, but it can range between 19% to 25% depending on how much profit you actually make. So obviously that needs to be accounted for as well and we can run through an example to kind of give a real example of actually how the numbers work, if that would be helpful.
Dr James:I think it would be, and just one thing to really drive that home, what we were talking about just a second ago. It's also important to mention that the dividends come after corporation tax right.
Amman:Yes. So yes, I'll show you in the example. And you're exactly right after corporation tax. So salary is tax deductibles, ie you can deduct it as an expense before you look at your corporation tax bill. So if you're deducting a salary through your limited company at 12 and a half thousand let's say your corporation tax rate is 25 percent you will probably save around two and a half to three k off your corporation tax bill just by putting through a salary.
Amman:So in a lot of cases, even though you're paying the additional one thousand pound or so in national insurance, you're going to make more back by actually putting it through, because it's tax deductible, whereas dividends, on the other hand, it is after corporation tax. So it's whatever reserves are left in the business. Um, and that's also kind of I think dentists sometimes get confused as to whatever's left in the business in that year. That's all that they can take. But actually if you have retained earnings from previous years, you can also use those as dividends, as long as you've got the cash in the business. So if you've got 100k from the previous two or three years of retained earnings which you've not taken, you can take that from your business in the current year good to know.
Dr James:So I think the terminology is that they become distributable right that's right.
Amman:That's right. So even if the cash doesn't typically move from the company to yourself as an individual, you can still declare it as long as you've got the retained earnings there. Um same with salary, if the salary, if, for whatever reason, you want to keep that twelve and a half thousand within the limited company, but you know that you should be really utilizing that personal allowance, you can still as long as you and obviously this is something that we would do as accountants as long as we submit the forms to hmrc, the payroll submissions. It doesn't necessarily mean that the money has to transfer over.
Dr James:There's just an accounting adjustment in the accounts to show that actually that money is still owed to you at year end yes, yes, and I almost jumped into a whole big story about how that happened to me once, but I'm not gonna sidetrack this podcast, so let's keep it. Let's keep it on topic, shall we? Anyway? You said you were gonna have a worked example yes, so I've got an example here.
Amman:So basically I was. It's an example that I ran through with a dentist last week, so they're self-employed and they've earned 130k from last April to this March just gone.
Dr James:So in that period 130k.
Amman:If they were self-employed which obviously they were at that stage, they would have to pay. Based on the bands that we've already discussed, it would be 45K in income tax and it would be 5K in national insurance. So that's 50,000 pound Without looking at student loan. 50,000 pound in tax off 130K income or profit, should we say so at that stage you're looking at about 8080,000 left in your business, well, in your own personal account. On top of that they would also have to pay student loan. So student loan works on a scale. So if you're earning under about £28,000, you don't have to pay any student loan. Above that you have to pay 9%. So if they've got income that's taxable at 130k, take off the 28k let's just call it 30k. It's 100k that's going to go towards that's nine percent. So nine thousand pound in student loan that they're going to have to pay. So they've paid 50k in tax. They've also paid 9k in student loan. So about 60k. So you're almost at about 50 to 50, 45%, 50% overall income that you've lost by being self-employed.
Amman:Now, if you are a limited company, it doesn't always work where there's a tax benefit. So if you're in a position where and this is where an accountant should be sitting with the dental associate to kind of figure out what their monthly outgoings are and whether actually they would be better off to just stay as put. And if somebody needs all of the money every month, then usually it's probably best to stay self-employed for the short term anyway. But let's just say you actually decide that I want to be as tax efficient as possible, so I'm only going to withdraw 50K from the business. In that scenario we would take out 5.5K salary and then we would take out about 37K dividends to get you to that band. So from that point of view you'll have £12,500, which is tax deductible. So your profits will go down from £130k to £117k. That £117k will have corporation tax on a scale, but let's just say around 20% to 25%. That figure of corporation tax is £27k. So that means 27k is taken off your profits. Whatever's left after that you can then declare as a dividend.
Amman:But obviously you want to be as tax efficient as possible. So you're only taking out 37,000. So the 37,000 will be at 8.75%. So that works out to be about 3k, 3,200 pounds. So that works out to be about 3K £3,200. So from that point of view what you'll end up with is you'll have a corporation tax bill of 27K, you'll have an income tax of about 3K on the dividends and you'll have the national insurance of 1,000 that you have to pay for the salary. So that's 31,000.
Amman:So that 31,000 compared to the original 50K as a self-employed, there's about a 19K difference there in tax, which obviously is quite a lot. It works out to be about 1,500 or so a month. So it's a chunky amount of money. But that also doesn't factor in the student loan. So because you've now only withdrew 50K from the business, you only actually have to pay student loan at 9% on the difference between 50K to 28K. So you're paying 9% on about 22K, which is about 2K. So if you actually compare the two, in one scenario you've got 50K tax and 9K student loan. In the other one you've got 31K tax and about 2 to 3K student loan. So you're looking at about 25K difference there just by being tax efficient, and obviously in that scenario you are only living off about £4,000 a month. So it only works, like I said, in certain circumstances.
Dr James:You know, the tax savings really are huge whenever it works out. Here's one thing that I'd like to point out as well that I've always noticed about being self-employed versus a limited company. Let's say you get paid. Let's just say there's an associate that's getting paid 50,000 pounds a year, right? Or? Or actually no. Let's go one better. Let's say it's like 60 K, okay, cause then they're in the into the higher tax rate, right? Basically, obviously all of that's going to be income tax or taxes, income tax, right. And then you've got the national insurance and you've got the student loan as well. And even let's say they have a limited company and they only take 50k out of the limited company. So obviously they're paying the corporation tax, um, on it. And let's say they're paying. Then they're paying dividends tax on it, right? They? Proportionally, even though I still I think you actually possibly pay.
Dr James:Yeah, at that level I'm trying to think about this you possibly pay a little bit more tax overall if you're paying the corporation and dividend together. Do you know what I mean? Because the effective tax rate might be like a little higher, certainly at the basic level. Are you with me? Because it's only 20, isn't it? You know?
Dr James:But the key thing to remember is that, even though you you actually pay a little bit more tax as limited in that scenario, but you do get more, you do weirdly get more money into your personal name, right, if you think about it, you still get more money because of that 50k and we'd have to crunch the numbers, um of the of that 60k that they're earning. Let's say they're paying 20k tax if they're limited and let's say they're paying 25k tax if they're in a personal name. No, sorry, sorry. Let's say they're paying 25k tax if they're limited and then 20 if it's paid in their personal name. But the point is that most of that tax comes from money that's in the limited company, right, do you see what I mean? And then that actually gives you a little bit more bang for your buck, uh, with an isa as well, because to say, you need to get the money into your personal name, you need more of it, and then you have, therefore, you've got more to contribute.
Dr James:So I think this whole thing, it's it's really not two things, I guess. Really I'm saying it's not clear cut, but the other thing, the other thing I'm saying as well is that even at that level, it can sometimes make sense. Depending on your goals for your money like, say, for example, you want to max out your ice every single year, it actually makes sense to pay a little bit more tax, weirdly, overall of course, and I think, if we're talking purely from a cash point of view, yeah there's also we'll probably touch on it later is the nhs superannuation.
Amman:So if you're self-employed, you're obviously contributing to that. If you're now in a limited company, you're not going to be contributing towards that. So whether there's pros and cons to both and obviously the nhs pension is great but purely from a cash point of view, on a a monthly basis, you'll also be saving by not contributing towards that. So if we're looking at it purely in from that scope, then you definitely there are options where you have more cash on a monthly basis.
Dr James:It's interesting, isn't it? And this is where it links into the whole investment piece side of things as well. Um, but but I, the reason I, sir, I gave that little example just then was I think people make it too much about purely how much tax they can save, and there's actually more to it. Do you know what I mean? There's other factors and sometimes it can be a good idea just to pay a little bit more, like what I was saying. Anyway, moving on, okay, cool work we've. We've done the example. Yeah, we did that, didn't we?
Amman:We've gone through the example, so the next point would be actually well, okay, I'm paying 27,000 if I'm a limited company. Let's just run through some of the benefits of limited company. We can look at some of the negatives, but okay, so you're paying 27,000 in corporation tax, but that's not through some of the benefits of limited company. We can look at some of the negative, but okay, so, you're paying 27 000 in corporation tax, but that's not from a self-employed point of view. It's similar to limited company, whereby there's certain expenses you can deduct, but you do tend to have more leeway with limited companies. So if we just look at it from a limited company point of view, they're paying 27 000 pound in corporation tax based on that example.
Amman:If we to stick with that, they're also paying 1100 or so to national insurance for the salary that they're deducting of 12 and a half k. But that's not set in stone. There's things you can do to remove the national insurance completely and also bring bring your corporation tax bill down. So the first thing would be actually looking at can I employ a family member to do some of the admin side? So there has to be a commercial justification for employing somebody and obviously you wouldn't be able to pay them 50k.
Amman:But if you want, if somebody wasn't in a in a job, or somebody say 18, 19 and they're at university and you think actually that person can help me with some of the admin side, dealing with an accountant, maybe the social media side there's nothing stopping you from paying them 12 and a half thousand. Not only then are you saving an additional two and a half thousand in corporation tax because it's again tax deductible. You're also now eligible for the employment allowance scheme for national insurance. That essentially means if you have two directors within the firm or an additional employee, you don't have to pay national insurance up to 10, 10 and a half, 10, 500 pound. Oh nice. So you basically save that 1 100 pound that you otherwise would have just had to pay.
Dr James:If it's just you on the payroll, see that is a hack and question if they're a director, okay, let's say you just have them on paper as a director do you actually have to pay them some money to qualify for that?
Amman:yes, so you would have to pay them. Okay, but the idea is most people will do it with a spouse, so the money stays within the family and they'll pay a wife or a husband or if their child is, say, 17. But the idea is to keep it within the family. But you do need to show that you're making that payment, otherwise hmrc could say well, actually there's doesn't look like it looks like you're doing this just to reduce your tax bill I was.
Dr James:I I imagine you know they're not stupid. They've closed all these little loopholes and things, um, but it's just worth asking, isn't it? If it's just the ins and outs of it? Uh, because obviously, as you say, what that would mean is you could just all these dental associate limited companies out there could have another director, just their own paper, just to save on national insurance. But it doesn't work like that. You have to pay them at least something.
Amman:No, you do. But the way I see it is okay. Yes, you do, but if you can keep it within the family, then ultimately you're still gaining and, yeah, you're not even gaining the twelve and a half thousand. You're actually gaining more because you're going to lose your 1100 national insurance. You're also going to save about two and a half k to three k and corporation tax bill. So your 27k ct but bill will become 24k. Yeah, looking at a net impact of about 15 16k good to know.
Dr James:Good to know any other big hacks that we can think of yes.
Amman:So the idea is to reduce your corporation tax bill as much as possible, but obviously keeping it commercial. So there's no point buying things like cars etc if you're not going to use them. Or you're just using this £100,000 that you've got in your business bank account to reduce your bill, because ultimately there's probably better ways you could spend that money through investments, through properties etc. But if we're looking at it purely from a how to reduce your corporation tax bill point of view, a car is a great way. So let's just say, this individual's made 130k in his company and at the end of the year he's thinking actually I'm going to have a very big tax bill here. So what he could do, he could buy an electric car.
Amman:So electric cars, it has to be new, but it does this is where there's a big difference as well between self employed versus limited company and especially for dentists. So if you're a limited company you can deduct the full cost of that car against your profits. So you've made 130k. You can deduct 100k. New tesla, new porsche, as long as it's new and it's electric and there's no CO2 emissions, even if you use that car privately. So not just for business miles but also for private use day-to-day you can still deduct 100% of that cost off your profits. If you're self-employed, however, you have to proportion it. So if majority of your time is spent personally and for dentists it usually is, because work travel is classed as is everything business related except for your day-to-day commute. So obviously for most dentists their business travel is only really going to be two practices and back. Obviously you do have courses etc. But probably less than five, ten percent is going to be business travel. So you're not actually going to save a lot by putting that car through the buying the car and reducing your bill. Obviously if you're a limited company you will save 100k off your profits, ie 25 in. That is 25 000. So you're looking at quite a big saving by buying that car. There is, of course, a catch to it. There's always a catch. Um, you have.
Amman:You are then liable to benefit in kind tax if you use that car personally. So the way benefit in kind tax works is you're taxed separately on the purchase of that car as a benefit as an employee, so as a director, but also on other benefits like fuel. So if you buy the car and you do use it personally, the way that it works is there's a formula, and the formula to keep it brief is you look at the list price, you add on any extras and take away any contributions that you've made personally. You can only make five thousand pound contribution personally. After that you can't deduct anything further. That price is then times by a percentage based on the emissions of the car etc. And if it's a new car and the electrical range usually for pure evs new evs it's going to be three percent. That three percent is then times by that list price and that is then added onto your income for the year and you have to pay tax on that. So it can be beneficial depending on what type of car you buy.
Amman:If an individual buys a non-electric car, firstly they're not going to have the 100% deduction. It's going to be either 18% or 6% depending on what car they buy. They're also then going to have a higher benefit in kind percentage applied to that list price and so they're going to be taxed even more on their income. So typically it's probably a no-go if it's. If it's electric, that's the only way it really works and usually let's just say, for example, the list price is a hundred thousand and your percentage to that is three thousand three percent. As an electric vehicle, that's three grand. That you'll add to your income tax bill if you're in the um. If you've already used up your basic rate band and you're in the band higher, let's just say you get taxed 40 on that, you're looking at paying roughly about 12 to 1500 in your income tax, which, given you've actually reduced your corporation tax bill by 25k, it's actually not too bad um. So that's where it can be beneficial if you use an electric vehicle makes sense, makes sense, and they've had that.
Dr James:It previously was zero percent benefit and kind of it's like three right, isn't it?
Amman:yeah, so I was going to touch on this. So this is this is where it's becoming a bit more difficult for cars to be popular business. Each year from now until 2029, they're going to be increasing that percentage, but they've increased it from last year to this year two percent, three percent, next year it'll be four percent and then it'll start to increase by two percent, I believe, and by 2029 it's going to be capped at nine percent. So it is they're making it increasingly more difficult. But also, it's not even just the tax point of view you have to think about. It's actually from a commercial point of view.
Amman:Do you think that that car is going to keep its value, or is the car actually just going to lose value by 2030k anyway, and actually in the next two years you're is going to keep its value? Or is the car actually just going to lose value by 20 30k anyway, and actually in the next two years you're probably going to lose that money elsewhere? So, yeah, it's. It's never black and white, like you said, so there are always pros and cons to it it's, I think it.
Dr James:I think it comes from again just what we were saying earlier looking at this myopically, purely from the number, the perspective of tax. Right, because it's like, yeah, you've bought the electric car and it's 40 000 pounds or whatever you know, and you save a great whack on tax, but it's ultimately only ever going to be a depreciating asset. You know, might you be better off just taking the corporation tax hit and then investing it into something else? Or how about or or or? There are certain investments that are tax deductible as well, you know, like courses, for example, and things that are relevant to your dentistry.
Amman:So we've got to remember that 100 and I'll run through some of those ones. Actually there's no caveat to them, you can actually just deduct them. But just to touch on that again. Also, I think and I've seen this a lot is a lot of forget to mention that when you then become come to sell that car, there's a balancing charge. So you will eventually have to pay some tax on that electric vehicle because you've sold it. The tax written down value of that product is nil on the main pool, the capital allowances pool. So you will have to pay some tax back on sale. So ultimately, yes, you might save 25k in the short term, but there are other implications that mean that actually it's not going to be a pure 25k saving.
Dr James:There we are. Okay, brilliant.
Amman:You said you had some other examples yes, and just to finish on that, if you're self-employed, best thing to do is just claim by the 45p deductions that you're allowed. So if you've done 10 000 miles you get 45p of that back. So four and a half thousand as an expense through the self-assessment nice other bits to.
Amman:So expenses that you can get away with. I say get away with because it always feels like you're getting away with HMC, yeah, but yeah. So obviously for dentists, stuff like indemnity insurance, professional subscriptions, gdc, bda, etc. You can also put through equipment scrubs. So if you're buying like a digital scanner, for example, that can definitely get put through.
Amman:The way you want to look at it is is it wholly and exclusively for the business or is there like a duality of purpose? So that's the kind of thing that HMRC would look at when they look at an individual expense. Technically, anything can be deducted as long as it's purely for the business. And I guess that brings me to an interesting point with travel and courses. So with courses there's a, there's a specific rule that states if it is a course that is enhancing an existing skill set, that's fine, you can put it through.
Amman:If you are trying to learn a new skill and it's vague as to what that actually might be.
Amman:So for example, a new Invisalign course, an Invisalign course, that would probably I would put it through as an existing skill base, but at the same time I can see it also being challenged as to say, well, this is actually a new skill that you're now learning. So it is a bit of a gray area. But if it is an existing skill and we deem it to be an existing skill you can put through the cost of the course, the accommodation, the travel, the meals, everything that's in relation to that course. So let's just say you've got a three-day trip in Barcelona because the course is abroad. You could deduct those flights, the accommodation and any meals and the course expense itself, as long as the trip is wholly and exclusively for the business, for business purposes. Now, obviously, a few incidental trips now and again in the evening going out to you, et cetera, that kind of stuff is fine. But if you're going for a three-day business course and actually you're there for seven days, you would then have to probably look to proportion some of those costs.
Amman:I see also on that. It doesn't actually matter the cost of the course or the travel. So I know some dentists will think actually if it's very expensive I probably wouldn't be able to put that through the business. That's not the case. So even if you're traveling by private jet to that course, because for whatever reason let's just say there was no other available flights and you've hired a private jet, you can still put that through the business, as long as you can show that it's because you had to get there at a specific time and it was for the business. Obviously you'd also want to make sure there's some commercial justification for that as well, and if you're, if your turnover is 70k and you spent 10 grand on a private jet hire, I'm not sure that you'd be able to pass.
Dr James:But yeah, I was. I was gonna say what about in the example where there's abundant economy flights but you still decide to fly private? That's not okay. So much is it it's, it's not.
Amman:But if you can show that actually there's a reason and you're going to do work on the private jet and you had reason to go on that private jet, as long as you can show that it's purely for the business, yeah, you get away with that same with, for example, let's say you've got a laptop and you want to buy a laptop bag, you could buy a 20 pound bag for amazon from amazon. Or you could buy a 2000 pound000 Louis Vuitton bag, laptop bag if that laptop is already in the business accounts and it's purely for that laptop.
Amman:Ie, you can't really use a laptop bag to put a picnic in, for example. You can put that through the business because you're showing that actually it's wholly and exclusively for that laptop, which is a business asset.
Dr James:You know what? I actually always thought that to myself. I actually suffered from that as well. You know that belief because I always thought to myself, if I'm putting something through here that is just like, you know, it's a bit OTT, you know, or I'm spending a little bit more than I need to on this, is that still fine? So, basically, it is within reason. Is what you're saying?
Amman:Within reason there's a bit of a gray area when it comes to business meetings versus entertainment. So that's the bit where there's a bit more of a gray area. So you can't just put through a hundred pound meal and say it's actually a business meeting. So the way that entertainment and business meetings work are if say, for example, example, you're a dentist and you need to pop out to meet a recruiter, or you're looking to set up your own practice and you want to go see a practice owner who said that they'll have coffee with you or a quick lunch, that would probably be a business meeting.
Amman:As long as you can show that there's no alcohol and that it's within a reasonable price period and we kind of say under £30 per person is roughly what you want to work towards. For it to be a business meeting, that then means it's tax deductible and you can put it through the business account. Nice, if you're starting to go down the route of there's alcohol available and there's more of an entertainment field towards it, you can still use your business account. So you can still use company cash, but it is not tax deductible. So when we come to work out your corporation tax bill, you have to add that portion back on, just to show that actually we're not taking any tax off now or another way of saying that is, it comes out of your profits rather than your gross.
Dr James:Yes, right, that's why I that's the little, that's what plays in my head with that sort of stuff, just from the point of view of the you know maths and calculations.
Amman:Okay, brilliant yeah, I'm loving these hacks.
Dr James:By the way, these are great.
Amman:The thing to watch out there is make sure you're having those conversations with your accountant. We see so many new prospects or clients that come over and we'll do a quick review of the previous year and there's so much that's been put to entertainment. But when we ask the dentist, they say actually that was just a quick business meeting or as a quick coffee that I had with a recruiter, which actually shouldn't have gone through as entertainment is actually a legitimate business expense. So it's definitely worth making sure that you don't just assume the accountant's going to know that information, but if it is a business meeting, make sure they know that amazing yeah, and there's a few other expenses as well.
Amman:Quickly run through, sure? So the difference between self-employed and limited if you're're self-employed, you could probably take 20% of your mobile phone contract and put that through the business if you're using it 20% of the time for business purposes. If you're a limited company, you can put that full phone cost and the contract in the business. So let's just say you want to buy a new iPhone for for a thousand pound and your phone contract's 50 pound a month. You can put that full 1000 pound and the 600 pound yearly contract cost through the business, even if there's a private element to that. So even if you're privately using the phone, it can go through the business accounts and is that tax deductible?
Dr James:tax deductible? Whoa interesting.
Amman:All of these things are good little ways of just saving small amounts of tax and and is that tax deductible? Tax deductible, yeah, Whoa interesting. All of these things are good little ways of just saving small amounts of tax and before you know it, you're saving quite a lot. Obviously, you would have discussed previously, James, pensions is a great way.
Dr James:Pensions is a fantastic way too. It is. It is a great way, you're absolutely right. Where I sometimes I see and listen I'm sure you're not like this sometimes people come to me and they say, hey, my account. I asked my accountant how to save tax and the accountant said, yeah, just put more money in your pension, right, and yes, you can do that like it will reduce your tax bill, but you're also not gonna get your money until you're 57, you know. So you can't have to weigh up whether that is what you want, and it might be, don't get me wrong, it might be. If you're going to contribute to your pension anyway and you're already rolling up some cash in there and investing it, then yeah, fine, you know, be strategic about it, but don't just do it just purely for the sake of saving tax, like it shouldn't be. That in and of itself that makes you do that.
Amman:That's the only that's my little two cents on pensions 100 and I think it's the same with all of this stuff is you need to be making sure you're having those conversations with your accountant about what your short, short-term plan is, but also your long-term plan, and as long as your accountant is giving you a full picture at least then you can make an informed decision.
Amman:If you're just being told, put it in your pension, but you don't even know that you have to wait until you're 55, 57 to take some of it out, then you're not going to be able to make the right decision.
Dr James:And the other example of that would be people who just buy stuff for the sake of it, just because it's tax deductible, Like, yes, you're saving tax, but you have way less money overall. You know you kind of want to make that decision because you need it, and then the tax is a factor in that decision. At least that's how I see it anyway.
Amman:But there are certain things which I would say you should do anyway. So, for example, you also are allowed, say you've got a limited company and it's one director. You can are allowed, say you're you've got a limited company and it's one director. You can also have an annual event whereby you go for, say, food and it's on the business, and it has to be for like an annual reason, like christmas or summer party or something like that. Yeah. But the good thing is you're probably thinking, well, you're a director, who are you gonna, who are you gonna go in? The good thing is you can actually take a spouse with you, a partner, so and they also get 150 pound, even though they're not anything to do with it. You get 300 pound from the business that you can put through as tax deductible expense for a meal or an event or something that you want to go to as like an annual party nice, we'll see stuff like this is good.
Amman:Yeah, absolutely have a little party and I always tell my clients this you cannot go 1p over one pound 150 really, even including like travel etc. You're not allowed to go over 1p because then it becomes a benefit. So you have to keep it below that. You can't have a 600 pound bill and then pay 300 by the company and 200 elsewhere brilliant.
Dr James:I'm loving these little factoids.
Amman:By the way, these are so useful any more other ones I can think of um, obviously you've got relevant life insurance. You can put that through the business. So people often think that you can't put life insurance through the business without it being a benefiting kind. But if it's a relevant life insurance plan, you can same with. You can Same with income protection. So I think with income protection you have personal income protection and executive income protection. You can only put executive income protection through.
Amman:So make sure you're taking out the right plan and you want to be speaking to the right people when you do go for these things. But that is tax deductible alongside stuff like annual medical checks, health screenings, trivial benefits I know it's been quite a hot topic on the Facebook group. So with trivial benefits you can have, as a director, six £50 vouchers throughout the year, used on anything, as long as it's not a cash or like a cash equivalent. So it can't be like you can't go to the bank and just take 50 pound out from your voucher, for example, as long as it's like an amazon voucher and as long as it's not a reward for performance. So obviously you would just say it's like a birthday or something like that and you're taking out 50 pound gift again, you can't be over 50 pounds, so you want to keep it as six separate 50 pound vouchers throughout the year, and that's per employee, if I'm right.
Dr James:Right, isn't it?
Amman:that is. That rule is actually specific to directors. Oh right, employee, who's not a director? But they're just a standard employee. There's no cap on that. So you can get a number of gifts, but obviously it has to be commercial and also you need to make sure you it doesn't look like it's contractual. So if you're paying somebody a voucher of, say, 100 pound a month, then it becomes a consistent theme and it looks like actually that should just be part of a, like a bonus. It has to be one off points of the year where you give them a gift understood.
Dr James:Wow, okay, that's interesting. Um, so just to go back to what I was saying a second ago, it's not per employee, it's per director. Right? They each get the 300 pounds, don't they?
Amman:the directors is yes, yeah, so if you're a director, you can have 650 pound vouchers in one. Actually, if you're an employee, that 300 pound stipulation is not there. But you just cannot. You got to make sure that you're not doing it on a consistent basis, because then it will become actually a bonus and you'll be taxed on it yep seems reasonable to me um, just seeing if there's anything else I can think of that might be helpful.
Amman:I think actually another helpful one is use of home. So this is interesting because there's two to three different ways that you can do this. But it gets more complicated and a bit more risky the as you go to the third option. So first option is you just declare six pound a week as a use of home. So as a limited company director you'd put through about £312 for the year as an expense for you using your home as anything business related, social media, etc, etc. Option two is you take a percentage of your bills your variable bills, not the fixed bills, your variable, so like your electricity rates, your water, gas, etc. Internet usage but you kind of have to show that you being at home is increasing those bills. Are you the one right? Okay, it gets tricky and it's something that you can't. For dentists it's a bit more difficult than other industries because obviously if you're working from home 24-7, you probably can actually claim something For dentists. That's a bit more tricky.
Amman:The third option, which is even trickier, is you have a rental agreement between the limited company and yourself as an individual. So you're basically charging the limited company a monthly fee to say well, you're using my home as like a business premise, so I want to charge you rent. This is risky because obviously dentists probably won't typically be using their home that much throughout the throughout the week. Secondly, it's risky because there are CGT implications to it. So if you come to sell your home, if it's your main residence at the moment, there's zero tax if you sell your home. But if there's a business element to that home, then HMRC could say actually there's a proportion of that sale that you need to pay on cgt on. So you essentially need to have a contract in place to prevent that from happening. So yeah, I try my best to avoid it if I can. But I have had a few dentists who've come to me in the past and say that this is what we want to do, so we've explored it.
Dr James:Um, but yeah, it is very risky at times interesting and then I guess that would just be, uh, considered a rental income then from your. The business pays you rental income and then you get your basic tax relief right well, this is the thing.
Amman:So yes, it's rental income, but you can offset that against the bills you are paying. So actually, if you've got, say, say you're, say you're, say you're charging your company and it has to be market rate, but let's just say you're charging your company 200 pound a month to borrow the, the office room in your house, that's 2600 pound that you would have to put on your self-assessment as rental income. You can offset that by £2,600 of expenses, because you're saying that's the expenses that I've paid in the business for my use of my home.
Dr James:Right, I see, okay. So in other words, basically what that would mean is that your expenses that you'd usually what we usually would be coming out of your net, okay, as in your expenses for your house, right, that would usually be coming out of your net after tax. They're now coming out of the gross of that money, basically, so you have more cash it wouldn't actually impact anything from a self-assessment point of view.
Amman:You would just declare the income that you've received from your company but you would offset that income against expenses you've had to pay anyway to live in the house. So the impact will be nil. So on your self-assessment you'll have rental income £2,600 and then you'll have an expenses line. That expenses line will be you as an individual, what you've paid for personally. So you would have personally paid two thousand. You're saying that the contract that you've agreed with your limited company is based on the bills that you think you're going to have to pay for the limited company being here. So the £200 a month is based on you adding up your mortgage, your council tax, your electricity, your water bills. You then apply a percentage to that and you use that as the monthly fee that you charge the business. You then offset that income that the business pays you against the cost that you've determined that you're going to be paying for the business to use it.
Dr James:Right.
Amman:That is then a nil impact on your self-assessment, but you still have to be paying for the business to use it right. That is then a nil impact on your self-assessment, but you still have to declare it so you wouldn't pay any additional income tax on it and the business can obviously deduct it as a tax deductible expense, but it's you still have to deduct it because technically it's a business I understand that now.
Dr James:Okay, useful, so you basically have in other words, you basically have a little bit of extra cash to pay the expense of the house. In other words, yeah, it's another way of saying that.
Amman:One thing I would say with that is, like I said, you probably can tell it's quite tricky. So you need specialist advice and sometimes you even need a solicitor in place to make sure you've got the right agreement in place between the company and the individual good thing to mention.
Dr James:Be careful out there with that one guys. Holding company structure, as we said, we talked about that, didn't we?
Amman:so this is kind of. I'll keep it brief because it can become very complicated and I don't want to confuse any of the associates. But essentially what happens in this scenario is you've got excess cash in your business and we obviously talked about things you can do within your business, but, like you rightly said, sometimes you don't want to put more money towards a pension or you don't want to buy a car, so you've still got this cash pot that's building within your business account. What you can do is then start to look at holding structures, and basically a holding structure is you have a limited company at the top. They own different companies as subsidiaries, so typically they'd have more than 75 percent ownership of those companies. What you can do is you would have a trading company ie your company as a dental associate and a separate investment company ie an SPV property company and then you'd start to look at how you can move money around the group tax-free, so dividends that are paid up to the holding company are tax-free. The holding company then looks at intercompany loans or the different other subsidiaries that it has. So that's a great way to obviously move money around and not be taxed personally, where you would have, say, 100k spare and you might have to take it out personally to buy a property. You're first going to have additional income tax to pay on that and national insurance. Then you've got to buy the property. If it's in a limited company group structure, you've basically moved that 100k around or having to pay any additional tax. That property company then buys the property with that 100k.
Amman:It sounds great and it is good, but there are a lot of the pros and and. Some of the negative sides are obviously business asset disposal relief. So if you ever come to sell the trading company, it's just you that owns it Personally. You get business asset disposal, which is now 14%. So that's changed since last year as well. Yeah, that kind of becomes very tricky to get that because you've obviously then also got now non-trading companies within the group structure and the holding companies owning everything. So it's very difficult to get that 14%. Also, it has implications for inheritance tax and potentially later down the line in terms of how the estate is taxed. It's more complex, there's more accounting fees.
Amman:So all of those things are the negative side. Obviously we've discussed the positive side. But also asset protection is a very big positive. So as a dentist, if you were to say, be sued, like we said right at the start, the business assets are liable. But through a group structure you can actually move those assets around tax-free. There's no cgt implications at all. So in that scenario you're kind of ring fencing the operational risk. So you're moving some of those big, say commercial properties over to the other side of the group. So your firm that's trading. If it's ever sued they can't go for some of that stuff.
Dr James:Yeah, you know, and just on that as well, on the business asset disposal relief thing, that's why it can make way more sense to have, like, say, say, an associate company or something like that, but it can make way more sense to potentially have that in a holding company right Versus your dental practice. You know cause? You're never going to, actually you're never going to sell your associate company. It's not really got much value. It's literally just a. It's literally just a bank account. You your money in right, whereas, but for your dental practice, obviously if you want to exit at some stage, it can make a big difference.
Amman:If there's a holding company above it, you're actually going to pay more tax 100, but also it's holding companies are really typically there, for if you've got two or three trading companies not investment companies, but trading companies yeah, and one trading company is making a big profit, another trading company is just a startup. You've invested a lot of money and it's making a loss, yeah, you can keep those losses around the group. If you're actually thinking, actually I just want to buy some properties, buy to let's, etc. If you own separately both companies, you can still do a loan between the companies because they're connected via you. So usually that is the simplest way to do.
Amman:It is you just have two separate companies that you own. Both of them. They loan the trading company loans to the property company and it's just a loan. Then on the balance sheet and you can do that with no interest as well. Then on the balance sheet and you can do that with no interest as well. So that's probably the smoothest, most simple way to do it. I think if you're looking from a property investment point of view, very nice.
Dr James:We said that we're just going to touch upon some of the things to be aware of in terms of cautious, I guess with limited companies as well, didn't we?
Amman:yeah. So obviously the nhs pension is great and there's a lot of benefits to being in the NHS pension. So that's one thing you need to determine is, if you are a limited company, you can't contribute via superannuation. So you can obviously set up your own private pension through SIPs etc. But you can't. You're no longer part of the NHS pension scheme and also that means that you're no longer going to receive maternity pay as well. So that's one negative or something to think about.
Amman:Um, second thing I would say is if you're ir35, basically and ir35 is a big topic with within the medical industry as a whole, to be honest, because hmrC are looking at cases and they are trying to sieve out those that they think are probably should be just self-employed rather than limited companies.
Amman:So essentially, to keep it brief, it's it's a rule in place to prevent somebody who should be just receiving money through self-employment or employment, to stop them from setting up a limited company and doing all the weird and wonderful stuff that we've kind of discussed above. Um, I think what you need to ensure is your contracts are watertight. So you want to make sure that the contract specifically states that you're not entitled to holiday pay, you're not entitled to sick leave. You're kind of in control of your own patients and the work that you provide and obviously you pay for your own indemnity insurance. So all of those things kind of help prove that actually you're your own person and you can have a limited company. But that's something to think about as well before just setting it up is is my current contract showing that and will the dental practice be willing to change contracts to my limited company? Because some people will just set up a limited company and the practice will be reluctant to change contract from your name to the limited companies yeah, um yeah, they can.
Dr James:They can be a bit of a stickler about that one, can't they? You know what I mean, and you need to get your docs in a row, particularly if you're separating your pay yeah, in the private and nhs 100.
Amman:So I think ultimately it's good to have these conversations with your accountant. You do want to have a look at things like how much cash do I need on a monthly basis? How much will I actually save if I did it by one or two different ways and make sure the accountant knows those short-term, long-term plans so that you can actually have a five-year plan, rather than how much tax do I need to pay over the next 12 months? And we have got a brochure, James, actually. So if any of the dental associates want a brochure, they can obviously drop you a message or they can reach us through the website. So the website is wwwcapitalelevationcouk, so that's c-a-p-i-t-a-l elevation, e-l-e-v-a-t-i-o-ncouk, and that brochure.
Dr James:You showed it to me.
Amman:It's more of a pdf or an ebook rather, because it kind of walks you through living, companies and taxation and everything right so we've got a few examples in there on different earning brackets and what you'd likely be paying if you say around 90k turnover, and then also what you're likely to be paying around 130k turnover. Also, we've got some of the deductible expenses that we've discussed, but also quite a few more pros and cons. Yeah, so I think it's quite handy. Hopefully you thought it was useful, James.
