Dentists Who Invest Podcast

What Are Tax Loans And Are They Something That Can Help Me Or No? with Dan Fearon [CPD Available]

• Dr. James Martin • Season 4 • Episode 422

Share episode

Check if your dental practice qualifies for capital allowances here >>> https://www.dentistswhoinvest.com/chris-lonergan

———————————————————————
UK Dentists: Collect your verifiable CPD for this episode here >>> https://courses.dentistswhoinvest.com/smart-money-members-club

———————————————————————
Tax deadlines have a habit of landing right when cash flow is tight and growth plans are in motion. We dive into the practical world of tax loans for dentists and explain how to use them as a strategic tool rather than a last resort. From real numbers to real outcomes, we explore where a short, targeted loan can protect investments, smooth working capital, and keep expansion on track without sending the wrong signals to lenders.

We start by clarifying what a tax loan is, who offers them, and why terms cluster around six to twelve months with higher rates than standard borrowing. Then we look at the trade-offs: should you break an ISA or index fund, or keep compounding and bridge the bill? You’ll hear a case study where avoiding exit charges and market timing risk made the loan cheaper overall. We also share a lesser-known alternative—refinancing equipment or refurbishment spend already paid from cash—so you can replenish funds for tax, secure a lower rate, and spread cost over three to five years.

The conversation tackles HMRC Time to Pay, too. While the headline rate can look attractive, an active HMRC plan may act as a red flag to banks because HMRC ranks ahead of lenders, potentially restricting access to future finance for new surgeries or kit. We discuss how lenders view these arrangements, the impact on future borrowing, and how to weigh short-term interest against long-term flexibility. Finally, we outline how to apply for a tax loan, the documents you need, and the typical turnaround time so you can act before January bites.

———————————————————————
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.

Send us a text

Dr James:

January's coming up soon, and for some of us that means the deadline on which we have to pay our tax now. For some of us, that will be fine, and for some of us, well, it can lead to casual issues, and that's why it's so important to talk about the subject matter at hand today, which is tax loans. I'm joined by my expert on this very matter, Mr. Dan Fearon We're gonna be talking about tax loans why there are some misconceptions out there about them, how can somebody go about acquiring one, and also whether it can be super useful in the right instances and really help looking forward to this episode. As ever, you can claim your CPD for this episode within the official Dentists Who Invest Smart Money Members Club. Smart Money Members Club also includes multiple mini courses and webinar series on finance for dentists, including how to become as tax efficient as possible, as well as understanding investing. All of this content counts as verifiable CPD, and you can download your certificates there and then on completion of each lesson. In addition to this, we also include a whopping 10% discount on your dental indemnity and a 5% discount on lab bills for dental principals, amongst other perks and discounts for members. Please use the link in the description to claim your verifiable CPD for this episode. Dan, let's talk about tax loans because I feel like there might be a little bit of a stigma around these, and that's actually that's something that we need to work to remove because they can actually make sense, not just from the point of view of a cash flow issue, but also from the point of view of our investments as well, for reasons that we're going to cover soon. Would you say I've got that right?

Dan:

Yeah, no, that's true. You're right. They've they've got a bit of a negative stereotype. But I suppose sometimes they can be like a strategic tool to help you in terms of your planning going forward, really. So I suppose I can go through a couple of instances that most people look, you know, for for tax loans and and how that sort of works.

Dr James:

I I think that'd be good, you know, and I I think some case studies would be would be brilliant. And maybe because I'm just conscious that there may be a few people listening here today that are the tax loans term, the term is new to them. Maybe it would be somewhere we could start would be explaining what a tax loan is, how it differs differs from a normal loan, and then going from there.

Dan:

Yeah, perfect. So a tax loan, that's all it says on the tin, really. So a tax loan is what you would do if you tax. So that could be personal tax or corporational tax. They'll normally be done sort of over a 12-month period. So on corporation tax, 12 months. If you're doing personal tax and taking it in January, yeah, you can do that over 12 months. And then if you're taking it in the July period, because they know there's another tax bill coming in January, they'll normally do that over six months. But say they're there to sort of fund someone for the tax that's coming up. So really they haven't got to take like a lump sum out of their business to to cover that tax bill that they may be concerned about.

Dr James:

Interest in business or investments, right? Because if it's in a personal name, it could be their ISA. Yes, yeah, exactly. Which is and I know we're and we're just really spelling it out for people today because there might be a lot of associates who are in that boat uh as well, of course, who are perhaps Wall Trader. Uh, but yes, anyway, worth mentioning. It's good to understand a little bit more about the terms, as in the over the period of time in which we need to make a repayment. Are we limited in terms of providers as well? Is there only certain people that do this?

Dan:

Well, there's there's a few providers out there that will um offer tax loans. There's not as many of these as the general ones, but yeah, there are a number of providers out there that can look at tax loans.

Dr James:

Interesting. And what does that mean, what are the typical what does what does all of this mean for the interest rates of these loans? Are they on the higher side?

Dan:

They they are on the higher side because I suppose for the the lender, they're only doing that over a short period of time. So there it's only like a six or twelve month period that they're looking to do over. So the interest rate probably around sort of 11%-ish normally. I know that sounds high, but again, it's a short-term lend, it's not like you've got that facility in place for you know five, ten years, because obviously 11% that would be a bit of a concern. So I suppose to give you an idea of what your repayments if you had a loan of 50,000 um over sort of 12 months, your repayments on that would be around 4,600 roughly per month. So yeah, it it c it covers it, they are slightly higher, but so it's just a 12-month period that you're looking at, and I suppose the rates are higher because obviously they need to make a return on the uh lending they're doing.

Dr James:

Sure. Well, you know, they are on the higher side, but having said that, uh, to use the example of the S P, as in the S P 500, using that as some sort of barometer as to returns you might be able to get even just by investing in index funds. I mean, I believe there's a stat on the SP. I know the long-term average is like 9.6% or whatever it is since the since the the 50s. Uh, however, I believe that over the last five years or so, the SP's returned something like 12%. Okay, so on that, on that logic, right, you know, it's still in and around what you might be able to achieve in the markets with a purely passive strategy. And you might be able to do a lot better than that if it's capital invested in your own business as well. So I can see, yes, they are higher, but it's still it's not like totally outside the realms of it being competitive versus what you might be able to achieve otherwise. But of course, not financial advice. We're just using this as some sort of yardstick comparatively. Okay, fine. Now that's that's interesting, and we've kind of covered the sort of situations in which they might be useful and the terms a little bit. Maybe it could be good to give us some, just as to what we alluded to earlier, some case studies or some real-world examples of where this can work for somebody versus maybe where it's not really so much of a good idea because we want to be impartial, of course. UK dentists, Dennist Who Invests now has an official platform where you can learn about finance and obtain UK compliant, verifiable CBD at the same time. The only platform that exists on which you can do both. The Smart Money Members Club has hundreds of hours of mini courses, webinar series, and live day recordings on all things finance slash tax efficiency for UK dentists. This includes complete courses on how tax works for UK dentists, finance so that you can invest and grow your own money, business so you can improve your profitability as an associate or principal, and for those out there that want it, there's also a mini course and how you can responsibly enter the crypto space using measured amounts of capital. I've gathered this content from the best of the best I could find in each respective area so that you know that this is how people at the forefront of each field advise their clients. The Smart Money Members Club also contains discounts on common things that UK dentists need to pay for on a regular basis. This includes a whopping 10% discount on dental indemnity, the offer to beat your income protection deal no matter what you're paying, and for the principals out there, 5% discount on lab bills and 10% discount on practice insurance. These are designed to offer hundreds, if not thousands, in annual savings. The purpose of this members club is to not only boost your monthly income but also manage your outgoings as much as possible and therefore create more profit. To celebrate the launch of the Smart Money Members Club, and given that the CPD deadline is coming up soon, I decided to offer the first month for this platform entirely for free. This offer will end in the coming weeks as soon as the current CPD cycle is up. To collect your CPD for this podcast episode using the Smart Money Members Club, feel free to use the link in the description of this podcast.

Dan:

Yeah, of course. I suppose the what you're talking about, the investment side of things, we've we've done this uh quite a few recently where a client has decided to take a tax loan instead of breaking an investment that they have. Because obviously, breaking that investment, the charges that would be related to that were higher than what they would pay out on the loan. So instead of breaking that uh investment, taking that money out and paying their tax, what they've done is let that investment roll, and then basically just taking out a tax loan and cover their tax and you know under 12 months payments over that. So we say it's not always for people in financial difficulty, it's using uh you know that the tax loan as a tool to be able to, like you say, keep that investment rolling and then still being able to cover the tax bill. So that's an example that we're coming across more and more. I think as people are thinking, okay, it makes more sense for me to keep that investment going and I can just take a loan to cover my tax. Another um example, and although we're talking about tax loans, but it's like a slightly different look at it, really. So you may have a business that's in the growth sort of phase and they're they're making good money, they want to sort of add another surgery, uh and they've what they've done is use the cash that they've got within the business. So they've had a great year, they've got this extra money that's sitting there, okay. What I'm gonna do, use that money to buy some equipment, uh, but then maybe they've got to the end of the year and obviously maybe not factored in that okay, I've got a tax bill because I'm doing quite well. And uh instead of sort of paying that and getting a tax loan, we can sometimes come to that at a slightly different angle, really. Because if they've used the money within the business to buy equipment and maybe do some uh uh uh refurbishments of the practice, what we could do is get those invoices that they've already sort of paid for from the cash and refinance those. So, yes, they can use the money for tax, they won't have to do it over the sort of 12 month period and they won't have the higher interest rate. But what we would do is just do a a normal loan for them or an asset finance loan, and then basically re-refinance what they've already paid out for to pay their tax because they've already used that money within the business, and it's a great way of doing it, and you sort of get away from the high interest rate and the the uh the sort of 12 months repayments, and you can spread that out over sort of three to five years, so it's a great way of doing that. So they still cover their tax, but you're just refinancing um the money that they've already paid out for.

Dr James:

Ah, okay, so that's I guess that's why it can be a good idea to speak to a broker or something along those lines. You might you might think this is a good idea, but actually there's other options on the table and you want to understand the whole of the field of play. I guess one example that springs to mind, Dan, is that there will be some people out there who think to themselves, well, why would I take out a tax loan if I can just speak to HMRC and stage my repayments? And I believe maybe you know this better than me. What's the interest? I know HMRC do offer that as a service. I believe their interest rate is something like one or two percent over base or something along those lines, right? I might have to look that one up. Do you know?

Dan:

I don't know that off the top of my head, what what their repayments are, but yeah, you're right. You can take uh your payment plan with HMRC. Sure.

Dr James:

I think um what I do know is that the rates are like let's call it like say the current Bank of England interest rate is like one percent. So I believe HMRC would probably offer you terms. Sorry, the current Bank of England interest rate is like four percent, is what I meant to say there. So uh HMRC's terms would be like one and a half over that. So it would wind up being like five, six percent, right? So if that's what you can get versus HMRC, and that's I'm playing devil's advocate here slightly, yeah. And and 10, 11% is what you can get on the tax loan. Am I right in saying what's the is is it still a good case to argue that you should get a tax loan versus uh just request repayment terms with HMRC?

Dan:

Yeah, I think the yeah, but like I said, yeah, HMRC are there to to help you in in terms of doing that. The I suppose the only problem is with you take the HTMRC payment plan, what you could be doing is sort of cutting off um avenues to more finance in the future. So as far as the banks are concerned, obviously you should be covering off your your tax bill each year, you know, but your tax comes in, you've you've got to pay it, and that's what they like. HMRC can sometimes seem a bit of a red flag for the banks because HMRC would be the sort of the third lender or they would be like the first lender. So if they're lending you money, HMRC can call upon those funds before the lender. So they don't really like it when you've got an agreement in place because obviously they rank below that because they go to the top and they go below. So what could happen if you're applying for something the bank may say, okay, we're not comfortable with that because you haven't paid your tax, or we have got an issue because you know they may not approve something if you do it that way, because you've got that line with HMRC there, they rank above the bank. So it could close off some rect like avenues for you. So the business is fine, everything's okay, but you want to grow or you want to buy some extra equipment, they're gonna ask you for your taxes up to date, and that could be a problem. And also, you still got penalties with HMRC, there's still interest in there that will be accruing. So you can do that, but it could close off some avenues for you in the future if you're looking to take out more finance. And they're pretty straightforward to arrange the tax loan. The only information really they will need will be a set of accounts and the confirmation of the taxes outstanding. And the turnaround time's quite yeah, really quick, a couple of days, and they can get the funds available to yourself. So if anyone's interested in speaking about a tax loan, they can reach out to me at dan at seromod.co.uk or give me a call on my mobile, which is 07815-087-4888.

Head Shot

Dr. James Martin

Host