Many dentists are considering the incorporation of their practice.
Incorporation currently provides greater tax efficiency as the switch is made from self-employed income to a combination of earned income, dividends and possible goodwill payments form the sale of the practice to the incorporated body.
However the drive to reduce the tax burden can create problems in other areas. We can advise on the implications surrounding the valuation and disposal of goodwill and the treatment of income received under NHS contracts with the Primary Care Trust.
Another important consideration is that reducing the tax burden could reduce NHS pension contributions. The contract value previously paid to the practice is instead paid to the limited company. Contract values comprise more than one element and not all of it can be considered as earnings for pension purposes.
There are further issues to be considered regarding the recognition of dividend payments in relation to the NHS pension scheme and the ruling by HMRC that dividend payments do constitute relevant UK earnings for other pension purposes.
Contact Tyas & Company for further advice.