Be informed and be prepared
Discover some key Advice for new dental associates in 2016
If you are in the process of securing your first dental associate post, or you have already started your self-employed career, then the following accounting, tax and financial suggestions and recommendations will be relevant for you.
Register as self-employed
You should register as self-employed with HM Revenue & Customs (HMRC) within three months of becoming self-employed to ensure you pay the correct income tax and National Insurance.
How do I pay tax and how much should I set aside each month?
You should pay HMRC direct. Tax payments are due at the end of January and July each year. If you become self-employed in August 2016 you may not have to pay your first tax bill until January 2018. It is good practice to set aside 30 per cent of your annual income for tax. Don’t forget that you will also have to pay Class 2 and Class 4 National Insurance through self-assessment and some of you may well have student loans to repay.
Do I need an accountant?
An accountant will act as your business and tax adviser, this will involve keeping you compliant with the law and tax regulations – submitting your annual tax return and preparing your annual accounts and providing you with advice on offsetting your taxable income with business expenditure. So do keep your receipts and make good records of your expenditure, including any business or professional courses you attend. Your accountant should have good working knowledge of the dental sector and be aware of the nuances that only exist for those working in the NHS. We would also recommend that your accountant is a member of the Institute of Chartered Accountants of Scotland.
If you are thinking about buying a practice, then your accountant will help you with sourcing funding, creating financial projections in terms of your business income and meeting your liabilities as they fall due. They will also help you to structure the business to minimise your future tax bills. Lenders will look for at least five years post-qualifying experience and a deposit of between 10 per cent to 25 per cent of the purchase price.
Where can I get advice?
Martin Aitken & Co run financial and tax awareness sessions in association with dental schools for those beginning their dental careers. We also regularly attend the Scottish Dental Show at Braehead (13 and 14 May), the FGDP (UK) Scotland Study Day in December and we will be attending the BDS Undergraduate Conference in March. If you can’t wait until then, send Jayne Clifford (firstname.lastname@example.org) an email with your queries.
Turning to your personal finances: mortgages, savings and protection
To get a mortgage, most lenders will require you to have two years of self-employed accounts as evidence of your income and your ability to repay the debt. The new Help-to-Buy Individual Savings Account (ISA) is worth checking out as you save towards your deposit. Cash ISAs are always a good option for those early in their dental careers.
You can currently save up to £15,240 per tax year and you won’t pay any tax on the interest or have to declare it on your annual tax return. For longer-term savings, Stocks & Shares ISAs are also worth considering as part of your investment strategy as both capital gains and income will be tax free.
If you arranged an income protection policy while still at university, or at the start of your VT year, you should review this policy to ensure the cover is still adequate. You should also make a will and set up a Powers of Attorney. No one likes to think about dying, however, dying without a will can leave those you leave behind with significant financial uncertainty. Scottish intestacy law is complex, archaic and can be unfair. So, don’t leave others to deal with your finances if you are no longer around or if you are unable to deal with them yourself.
The purpose of this article is to provide technical and generic guidance and should not be interpreted as a personal recommendation or advice. Martin Aitken Financial Services Limited is authorised and regulated by the Financial Conduct Authority. This is based on our understanding of current HMRC rules and guidance which may be subject to change. Tax advice, will writing and Powers of Attorney are not regulated by the Financial Conduct Authority.
About the authors
Jayne Clifford is a director at Martin Aitken & Co.
Alasdair MacDougall is a director of Martin Aitken Financial Services.