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TAX TIP TUESDAY: Tax Advantages of Incorporation

Our 5-minute read – Tax Tips – for UK doctors and dentists will help you save tax, get organised with your tax affairs and make sure you meet important deadlines with ease.


This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. The Financial Conduct Authority does not regulate tax advice. 


Are you thinking about incorporating your dental or medical practice?

When you incorporate your dental or medical practice, you are setting up your business to operate as a limited company as opposed to operating as a sole trader or partnership. Despite the fact that benefits of incorporation have been reduced, there are still numerous benefits and tax advantages of doing so.

First and foremost, incorporating means your business is run completely separately, including filing taxes and other administrative functions from you, the owner. As a limited company, your practice is now a legal entity and not tied to an individual – be it the owner or manager, which means you’ll need:

  • dedicated company bank account,
  • allocation of assets,
  • separation during negotiations and winning contracts.

While this is not the complete list of requirements, essentially you need to make sure that all business operations moving forward will be independent from any shareholder interest.


Benefits of incorporating

The obvious benefit to the individual is that all funds and assets are not owned by shareholders, rather, they belong to the company itself. Shareholders in this instance are only responsible for debts to the portion represented by their stake in the company. This is a shift from operating as a sole trader who assumes unlimited liability for any debt incurred by their company.

Another massive benefit of incorporation is the fact that you will most likely pay less tax compared to a sole trader.

As a limited company, your practice will be subject to UK Corporation tax, which is decidedly less than the amount you’d pay in income tax.


For the 2018/19 tax year, the UK Corporation tax rate is set at 19%. This will only get better as the government announced plans to cut Corporation tax to 17% from April 2020.


This also opens up a new opportunity for taking a salary. Instead of drawing your entire income from the company, you can elect to take a smaller salary and draw more of your earnings from dividends. This reduces the amount of National Insurance Contributions you’re required to make as dividends are taxed differently, leaving more money in your pocket.

The advantages don’t end here. On top of tax benefits and limited liability, incorporation provides pension contribution benefits, easier funding and capital sourcing, company name protection, and ease of future sale, just to name a few.


Making the right choice for you

If you’re still on the fence about whether or not incorporation is right for you, objective guidance from the financial experts at Dental & Medical Financial Services and their network of accountants and professional advisers, may be just what you need to feel certain about your decision.


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