Dr James, 1m 43s:

Welcome back to the old chestnut that us dentists like to bring up from time to time, or pretty much all the time, actually, which is how we should structure ourselves from the point of view of being limited or store trader. And the interesting thing is, it's not just a one and done, it isn't just something that has the same roles consistently year in, year out. They actually do change and reflex a little bit as well, and it can make sense for you to uh switch back on occasion depending on your pack setup and your pack situation, and that's exactly what we're here to talk about today. Limited company versus store trader. What makes sense for dentists? What's new, what's changed, what we need to know and how do we make this decision as best we possibly can. I'm joined today by specialist accountant to dentist, Mr. Amman Sakaria. It's gonna be a fun episode as ever. 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. Because it can to be blunt, uh, if you get it set up correctly, you can increase your take-home pay every single year without any extra work. You're doing exactly the same thing, but it's structured in a slightly different way. And maybe that's a good place to start. I'm an uh sole trader versus limited company. If we just start from the very basics, what do those actually mean for people who are brand new to this stuff, and then we'll build on that and move into the more intricate stuff with time.

Amman, 3m 48s:

Sure. Cool. So self-employed, essentially, you are the business, so the dental income that you are earning is going to be taxed in full at the end of the year once you deduct your expenses. So, typically speaking, because all of that income is taxed in that year, there's much less tax planning that goes into a self-employed kind of setup compared to a limited setup. I would say, secondly, in terms of structure, there is no legal separation between the individual and the income that's being earned. So if you were ever to be sued or if you were ever to go into debt, etc., creditors could literally come for your personal assets. On the flip side, a limited company is a complete separate legal entity. So by that, you've basically created a shield in the form of a limited liability. So you're not as much in the danger zone, shall I say, um, in terms of somebody coming after you and your personal assets being assets being at risk. Having said that, there's still no absolute protection, i.e., if directors are being fraudulent, etc., there could still be scenarios where their personal assets are at risk.

Dr James, 5m 6s:

Sure. So one benefit is there's a little bit of extra separation between your business activities and your personal assets, super high level, of course. Right, brilliant. So that's set the scene. And I guess the next thing to move on to is at which point should we begin to think actually a limited company might be the better option for us? Because we start out as soul traders, of course, as you were saying, sole traders are self-employed uh by default. So we really have to make the active decision as to when it's suitable to go limited company. Speaking, maybe speaking purely from the perspective of associates for the moment.

Amman, 5m 44s:

Yeah, sure. So from an associate point of view, as soon as an associate has finished their foundation year, so let's say this year, August 2026, they finished their foundation year. From September, by default, they will go straight into self-employment. So any income they earn again is going to be paid into their account, and they will have to save a proportion of that for tax on a self-assessment. In terms of setting themselves up, all they would need to do is register themselves for self-employment on the HMRC website. On the flip side, when an individual does decide to go towards a limited company, the setup is relatively similar but slightly different. So firstly on company's house, they would need to set up a limited company. That would entail various different dynamics of making sure you've got the right shareholders in place, um, making sure you're the correct director. There's also registered address and making sure that either you use your personal address and or you use a practice address, an accountant's address, etc. Um generally that is how a setup will look. In terms of the work involved, there's also a bit of a difference there. So when you're self-employed, typically, like I said, all of your income is taxed after expenses, that goes on a self-assessment at the end of the year. And I think that's where there's been obviously the main shift in the self-employed world. The making tax digital processes now come into play, whereby if your income, so on the 24-25 tax return, if your income was over 50k, at that point you then qualified for making tax digital, which kicked off from April 26. If, however, let's just say you were a again, a foundation year dentist last year and you came out in as an associate from September onwards, it could be that actually you fell within the threshold. So it could be that next year you need to start complying with Making Tax Digital instead. Secondly, on the limited company side, it's more to do with bookkeeping, potentially payroll, corporation tax returns, limited company accounts. Generally, there's more work involved because there's much more tax planning that can be that can be done within a limited company structure.

Dr James, 8m 3s:

Nice, but I think we were catching up just off camera before this. And you were saying that making tax digital is kind of even that out, hasn't it, by way of the admin burden a little bit more? But in your opinion, it's still a little bit more of an admin burden to be limited, even given the recent making tax digital changes that have been implemented.

Amman, 8m 22s:

Yeah, I mean it's an it's an interesting point, and obviously it's the first quarter of making tax digital. So I'm sure in six months' time I might have a different answer. But ultimately, the way that it looks at the moment is a self-employed individual who has to comply with MTD has to submit quarterly tax returns to HMRC, which is definitely more than was being done before. So they'll have four quarterly submissions as well as the end-of-year submission that they had anyway. Now, on a limited company side, it could be less, it could be more. I guess it depends on your relationship with your accountant, what kind of stuff you're up to, and what kind of communication you have with them. For us, typically for most of our limited companies, we will do a tax plan for the year. We'll have ongoing catch-ups just to make sure that they're not missing out on any tax planning advice. I tend to find that it does entail a bit more work than the MTD side.

Dr James, 9m 18s:

Gotcha. Okay, fine. Um, but as you say, it comes on your relationship with your accountant. And some accountants uh are not necessarily as involved by that, I guess you could say. So uh yeah, that's for the listener to decide, really. Uh, but it is a factor, absolutely, the the the the admin side of things. And I guess the main goal of shifting to a limited company would be to shelter some of your income from taxes. That's the would I would I be right in saying that that's the main benefit, or are there other ones out there that don't get talked about as much?

Amman, 9m 53s:

Well, I think the main one, yes, you can you definitely in certain circumstances, and I'm sure we'll go through a few examples, in certain circumstances you can use a limited company to save on taxes. Um, I think the other benefits are, of course, limited liability um and potentially utilising a limited company to invest in other assets, etc., later down the line as well.

Dr James, 10m 17s:

Makes sense. But yes, those would be the big ones, just to reiterate that I know that that might be common knowledge these days, but just worth just worth uh mentioning again. And obviously, some of the pros of being sole trader, once upon a time it was the admin burden. That's a little bit uh less uh or less of a discrepancy there, should we say, these days. Uh, but of course, it is important to mention that naturally you're gonna probably wind up paying your accountant more if you're limited as well. So your bill uh is gonna be higher too. Aside from that, yeah.

Amman, 10m 50s:

I mean, obviously, yeah, the the bill will likely be higher, but also the taxes differ in in their nature as well. So when you're self-employed, it's typically income tax, national insurance, potentially student loan on your self-assessment. When you're a limited company, firstly the company has to pay corporation tax on its profits. You can actually deduct a salary, um, which will be liable to income tax as well. That is a tax-deductible expense. You can also take out dividends, which is based on your retained earnings, which is essentially profit after tax. Um, and I think the interesting point to note there is with retained earnings, if you've got, say, 50k of retained earnings in your year, profit after tax, if you take 30k out, that does not mean that you then lose that 20k. That 20k just gets carried forward to future years. So what we sometimes see is dental associates will build up a large retained earnings pot that actually they could take out later down the line if they wanted to.

Dr James, 11m 49s:

Nice. And that's important to mention. And you know one other thing I I think doesn't get mentioned enough as well is that if you let's say you get 50k into your personal limb in the scenario where you have a limited company, you're actually able to keep more of that 50k as money that is spendable in your personal name versus if you're self-employed. Correct me if I'm wrong on this. And the reason why is you're paying dividends tax in the first example, so you're only paying uh 8% on everything between 12 or 8.5%, I believe it is.

Amman, 12m 23s:

It used to be 8.75, it's now 10.75.

Dr James, 12m 26s:

What? I was showing my age there, man. I remember when it was seven a few years ago. Okay, so you're basically paying 10.75 tax on everything between 12,550,000, right? Ish, okay. Um whereas in the example where you're self-employed, okay, or you're a sole trader, you're paying 20% tax on that. So if your earnings uh you you get you have less to spend in your own personal name, but your tax bill is roughly the same overall because obviously the dividends come after corporation tax. But you're able to keep more of that 50 set 50k in your you're able to spend more of that 50k, basically because you have more in your own personal name.

Amman, 13m 10s:

Yeah, I think there's kind of two points to that. One is probably when you look at it from an overall tax point of view, the actual tax diff doesn't differ too much when you when you actually take it out because ultimately you've got to factor in the corporation tax that you've paid as well. But I think what you're probably referring to is solely just looking at that 50k of personal income that you've earned, the tax is typically lower because ultimately dividend tax is lower and there's no national insurance on dividends either. Compared to if you're self-employed, you would have to pay class two and class four national insurance.

Dr James, 13m 44s:

Yeah, exactly. That's that's what I mean. So you have because that money that you can get into your own name, in your personal name, is friggin' gold dust, right? Because you can spend it whenever the hell you want. And it's where you can also get really whacked on tax past a certain point.

Amman, 13m 57s:

100%. And I think even if we just did a quick calc, zero to twelve and a half K is free, tax-free personal allowance. 12.5 to about 50k is roughly around 37,700. That tax at 10%, you're looking at about 4k of tax you would pay on your dividends. So ultimately you've taken out 50k and you've only paid tax of about 4K. So you're left with 47, 46k of the 50k withdrawing.

Dr James, 14m 25s:

Yeah. That's that's the exact thing that I'm getting at, right? You have 47k to spend in your own personal name, whereas you'd have much less than that. You maybe let's call it like 40k to spend in your own personal name if you were self if you were uh self-employed, right? You're still probably paying the same net amount of tax overall, right? Because of the corporation thing, but you have more that's spendable in your personal name. I just wanted to highlight that because I think don't people think I don't think people talk about that. Um, but yeah, anyway, cool. I think we've done. Um, I think we've covered everything that is worth mentioning on the tax side of things, really, when it comes to those two scenarios.

Amman, 14m 58s:

Yeah, I agree, I agree. I I think the next main point is then deciding on what whether firstly whether to go limited or stay self-employed, but I guess that is based on a number of factors. And I think uh what we mentioned obviously before that we we jumped on the podcast was actually what I tend to see a lot, and I think you probably see as well, James, is somebody will ask, what level of income do I need to earn in order to go limited company? Yeah, yeah. So ultimately we see that often, and the answer varies on a number of factors. So ultimately, I always say you need to explore three different areas within your life. Firstly, it's your career. So what stage of your career are you in? Have you just come out of foundation year and ultimately you're not quite sure how much you're gonna be earning, you're still exploring different practices, and you're not kind of sure what ways of working work best with you. In that scenario, the income you're probably gonna have over the next two to three years might be unpredictable, and you ultimately you don't even know if you're gonna specialise in something, for example. Whereas on the other side, uh somebody might have been in dentistry for say 30 years and they're coming close to retirement and they've been self-employed for 30 years. That also is interesting because if they've been contributing towards the NHS pension for 30 years, is it really a good decision to go fully limited and no longer be able to contribute towards your NHS pension?

Dr James, 16m 37s:

You'd have to do the math, wouldn't you? Because even if you do one UDA a year, you get your your top-up rate, don't you? Or you get uh uh what's the exact terminology?

Amman, 16m 47s:

You're still classed with uh as uh an NHS, you you still contribute towards your superannuation, so you're still within the NHS pension scheme, essentially.

Dr James, 16m 56s:

Yes, and then you get your you you it's CPI plus 1.5%, the multiple that it increases by, providing that you're still active, basically. Um obviously that uh the obviously that makes way more of a difference to you the bigger your pension pot is, but it's a numbers constant thing. We're just pointing this stuff out that it's worth knowing because actually sometimes accountants don't even know these sorts of things. I've seen accountants, I've seen accountants before who are not even aware there's a clash of interest between uh your you know you being able to actively contribute to the NHS pension and go unlimited. Sometimes they're not even aware, so they're not even gonna be aware of how um that affects the growth of your pension too.

Amman, 17m 35s:

100%. I mean, we had a case about two, three weeks ago where the individual has set up a limited company and she had no idea that she can no longer contribute towards a pension. And you're absolutely right that it is gonna increase by a certain percentage each year, and the longer you've been contributing towards it, the bigger your net pensionable earnings will be. So those final years are key to actually having the most growth compound, basic compounding over years, right?

Dr James, 18m 3s:

They are, they are absolutely, but anyway, I interrupted there. I think you were in full flow.

Amman, 18m 7s:

Yeah, no, it's all good. So the other, obviously, just off the back of that is within your career, you need to think about, and this is where limited companies self-employed, it's more of the long-term decision. So you might you might not be able to make the decision today. It could be where you see yourself going. So the NHS versus private split is also a key factor. If you're predominantly doing NHS work, then actually you're getting so much more benefit by contributing so much from your early years into the NHS pension compared to if you went straight into private work and you've never really been in the NHS pension, you can kind of disregard that factor straight away. 100% type of work again is interesting. So if you're a general dentist and you've got a high UDA contract, again, in that scenario, firstly you're NHS based, but secondly, you've got a bit more predictability. So you can kind of plan the next two to three years compared to if you're looking to specialize, uh the predictability at least for those first two or three years is going to be a lot less. So typically the easier route is to stay as you are and see where you land in two or three years' time.

Dr James, 19m 14s:

Yeah, or or worth mentioning that if your principal is willing, you can of course split your earnings.

Amman, 19m 20s:

Yeah, of course. So that actually depends. And again, that's part of the career factor, is if you're at a practice which is a large corporate, uh Roderick's, for example, it's much more challenging for you to go into a typical hybrid approach whereby the NHS income is in your personal name and private income is in the limited company name. Now, it is beneficial for a lot of people to do that because essentially they've got some of the benefits of a limited company and they've got the NHS pension, but some practices don't allow it, and mainly the corporates are the ones that push back on that.

Dr James, 19m 56s:

Yeah.

Amman, 19m 57s:

Yeah. Um, and again, within your career, it does income is definitely a big part to play. If you're earning 60k a year versus if you're doing 120k a year, there's a big difference there in the actual tax savings you might achieve for a limited company. Um 60k, you're probably not going to see much difference. If if not, it might be worse, you might be worse off. So the income does have a bit of a part to play as well.

Dr James, 20m 25s:

Nice.

Amman, 20m 26s:

Cool. Second main area I would say is your personal situation. So first thing I always tell uh when we're having conversations with leads is ask them whether how much they're paying out on a monthly basis. What is what does their lifestyle and bills look like? Have they got a high mortgage? Are they planning to get married next year so they need a lot of money? Are they gonna buy a house in the very short-term immediate future? All of that kind of stuff does impact how successful a limited company structure might be. Are they married? If they're married, does their partner go to work? What kind of salary is their partner earning? Do they have a student loan? So with a student loan, typically anything above around the 28, 29k mark is taxed at nine, well, I say taxed, 9% of that income goes towards your student loan repayment. So if you're earning 100k, a good 70K of that, 9% of that 70K is going towards your student loan repayment, of which some of the course is interest, right? Um NHS obviously as alongside the pension is the maternity cover. So if you're looking to go on maternity leave, that's something that you should factor in as well. Um, I would say generally, those are the kind of things that you need to be looking at from a private point of view.

Dr James, 21m 49s:

Nice. Yeah. Okay, well, let's listen, this is all very valuable stuff. I know that you said that we had two examples to work through in which, well, it was just examples of certain scenarios in which one or the other can make sense. So maybe now is a good time to go through those. Yep. 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 CBD deadline is coming up soon, I've 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.

Amman, 23m 58s:

Absolutely. Just one more factor to think. So we've got the career, we've got the personal situation. The final thing to think about is investing and your risk appetite. Are you the type of person who is a bit more of a risk taker or are you a bit more risk averse? So, do you, for example, want to diversify as you grow and you start to earn more money? Do you want to diversify into stocks and shares, potentially buying a property? Uh is it your goal to own your own practice one day? That kind of stuff is also really important because if you've got, say, a five to 10-year goal, that really helps paint the picture of this is how much I'm actually saving by going limited. And ultimately, that money within the limited that you do save could be used to facilitate some of those purchases later down the line.

Dr James, 24m 49s:

There you go. Yeah, oh yeah, thanks for reminding me. I I remember now you said there were the three main uh things that you're going to use to decide that. So that's that's very useful. And um, yeah, you want to obviously consider your asset choice, and then you want to consider where the asset is placed by way of the structure of that, whether that's in the limited company, whether it's in the personal name, uh whatever you you decide. Uh, really, really, really worth weighing that up and uh not ignoring uh the fact that you can uh depending on your situation, um, it can make a lot of sense to actually just take the money out and put it in your personal name and take the tax hit a little bit of front, or at least there's an argument to be had on that front, uh, particularly if you're using an ICIN, your plan is to compound uh long term, depends on your situation as well. But it's not always better to keep the money in the limited company, and you have to really decide to yourself. One of the biggest things to decide to yourself is okay, cool, how much money am I actually going to keep in this limited company after everything is said and done and paid for? Uh, because really that's his primary purpose is to act as a tax shelter. And if you're taking everything out and investing it, well, there's less of a reason or a necessity that you might have one, I guess. And that can be one of the key things that you have to decide is what is the actual goal for this money. Whereas if the goal for the money is to you know shelter it as much as possible and eventually get a dental practice, that can be something that makes you lean towards having a limited company.

Amman, 26m 16s:

Yeah, 100%. And I think that is the crucial point, is sometimes you've got to think five, 10 years time, where do you want to be and what do you want to be doing? If it is that actually you do want to just build up on your ISA and you could take the actual extra 20K and you could earn that personally, you might be better off staying self-employed. But if you're thinking, I for sure know that I want to buy a practice in five, 10 years' time, what you're actually doing is let's say the additional 50k that you keep within your company, let's say over a 10-year period that gets to 500k, right? That 500k could then be used to purchase a practice. The the crucial thing is that 500k has not been taxed personally on you. Whereas if you had taken the money out each year, being taxed on it and then decided I want to buy a practice is kind of too late because you've already, well, you can still buy the practice, but you've already been taxed each year to get to that point.

Dr James, 27m 15s:

Yeah, and that's that's that's a huge one. It's starting with the end in mind, basically, and figuring, figuring that sort of stuff out because obviously that can expedite things or give you that much more of a cushion whenever that day comes. And that's that's a very common one right there, uh, which can mean that actually, uh, as we'll come on to the worked examples in just a second, it can mean that even if your earnings are a lot less than somebody else, it can make sense for you to go limited and for them to stay as a sole trader, basically, depending on what they're doing with the money. So it's really not a black and white situation.

Amman, 27m 49s:

Yeah, 100%. I've actually had one other example that's come into my mind of why some people transition over. So a lot of people, uh a good 10-15 years ago, they they were buying properties within their personal name. And obviously, back then the rules and regs were completely different to how they are now. So when you've got a property in your personal name now, you only get a 20% tax credit. So if you're within that tax bracket, that 20% tax bracket of zero to 50k, ultimately there's made no real difference to you. But if you're a self-employed dental associate and you're between, say, 50 to 125k, which is the next tax bracket at 40%, you're actually way worse off because you cannot deduct the full mortgage interest on your self-assessment. So, what we're finding is dental associates, some of them with this kind of setup where they've got a few practic uh buy to let's in their own name, it actually is advantageous for them to go limited company because all of a sudden, because they can now determine how much salary and dividends they take out of the business, if they keep themselves under the 50k threshold, they then don't lose out on deduct, they can deduct all of that mortgage interest essentially.

Dr James, 29m 6s:

Nice, amazing, man. Very cool. Okay, cool. Well, there's some really great discussion there, some really good food for thought. And I think this is actually built on a lot of the previous content that we've done on Soul Trader versus Limited Company. In that we've been really thorough and really comprehensive and covered a lot of the pros and cons. Go on.

Amman, 29m 25s:

Yeah, you just cut out there. You just cut out there, so I'm not sure if that bit will come through.

Dr James, 29m 30s:

Uh it should it should come through, it should come through. Uh because it records on both sides, you see, so we should be fine. Uh, but yes, anyway, um yeah, just as I was saying a second ago, we covered that to death. Uh, long story short, it's a little bit of a discussion, more than a black and white thing, but these are a lot of the parameters that you can use to decide. And one extra thing that we have uh which will help you decide is some of those worked examples that we were hinting at earlier. So maybe now is a good time to jump in with those.

Amman, 29m 57s:

Sure. So we've got two examples here, and both are made-up scenarios, just to give the listener an example of what we what you need to factor in when making the decision. So you've got person A, let's say Charlie. So Charlie earns 10k a month and he's just started his career. So he's he's a couple of years out of foundation year. He's in a fully private practice, and he's he's got a student loan. So he's graduated, he's got a student loan. He's living at home and he's living with his parents. He's also got a sister who is currently a student at university. On top of that, he's determined that actually, because he's living at home and he will be for the foreseeable, he does not need much income on a monthly basis. He only needs about £2,000 a month after tax to basically live and go on holidays, et cetera, all that kind of disposable income spend on whatever he feels necessary. So in that scenario, he also well, he also wants to diversify. So he wants to invest in properties, etc. Now, in that scenario, if you look at the two different structures, actually the tax advantage of a limited company is so much more. So he's earning 120k a year. Now, one of the main things that we've not yet discussed on is discussed is as soon as you go over 100,000 pounds in income, you start to lose a proportion of your personal allowance. The personal allowance is 12,570 pounds. So for every pound you go over 100,000, you lose 50p of the personal allowance, which essentially means if you get over 125,000 in income, you've basically lost all of the 12,500 of personal allowance. Now he's earning 120k. So he's still got a small amount of personal allowance to play with. But because he's lost a large proportion of that personal allowance, his actual tax rate, so his income tax, his national insurance, and the student loan repayment, between 100 to 120k is 71%. So basically, on that income, he's paying £14,000 in tax and he's keeping £6,000. If you actually look at the overall tax he paid in that scenario, he's paid £51,000 in tax once you factor in all of the income tax, national insurance and student loan. So he's left with £69,000 in his back pocket after the tax year's finished. Now, if you look at it from a limited company point of view, firstly, he could employ himself as a director. So a director is an employee of the business and they're entitled to a salary. Because his sister is not in work and she's a student, he could potentially employ her in the business. Now, it has to be legitimate employment. So she could help him with admin-related stuff, she could help him with social media, potentially helping out on accounting, accounting and tax queries, etc. He could also employ her. Now, there's two or three benefits to that. Firstly, he could pay her her personal allowance, which is tax-free. So she's not going to get taxed on it. He's also keeping another 12 and a half K within the family that otherwise would have been stock in the limited company. He's got an expense now of 25,000, the two salaries put together, which will save him at least 19 to 20% in tax, if not 25%. So 20%, let's just say, is a £5,000 corporation tax saving. And then finally, because he's got two directors on the payroll, he will also not have to pay employers national insurance, which he would have had to have done if it was just himself. On top of that, because he only needs $2,000 a month and he's getting £1,000 or so from his salary, the additional $1,000 he'll take out via dividends, which, like we said earlier, is taxed at a much lower rate compared to self-employed income. So actually, compared to the self-employed group, in this scenario, he pays corporation tax of 21,000 and income tax of about 1,300 pound. So that's a roughly a 30,000 pound difference in tax just on having two different setups for the same scenario. Three basically three months worth of work, 30k, 10k a month, about three months worth of work that he saved in tax.

Dr James, 34m 41s:

Nice.

Amman, 34m 42s:

Yeah. Also, he's then got 60k in retained earnings. And like we said earlier, if he has got, like we said, that he's got um an interest in investing property, he could probably put down a deposit on that for with that 60k if he wanted to. And that does require a different kind of structure whereby you move money around either through a loan or dividends. Um but ultimately it's it's a tax-free way of doing it rather than taking the 60k out, being taxed on it, and then buying property.

Dr James, 35m 13s:

Yeah, nice. Yeah, 100%.

Amman, 35m 16s:

Cool. We've then got person B who's Sarah. Now, Sarah is a bit more of a workaholic, so she's earning 12.5k a month, 150k. So she's earning 30k more than Charlie is. She's a general dentist, she's been in the game for 25 years, and she's probably only got five or so years left of work. Her husband's in work, she's got kids who are also employed there in work. She's got a large NHS uh target, so she's doing 6,500 UDAs at £14 per UDA. So that is roughly £90,000 for the year in NHS income, about 60% NHS, and about 40% private. She also doesn't have a student loan because she's been paying it off for 25 years, and she's got large monthly outgoings. So she's got a large mortgage to pay for, she wants to give uh her grandkids gifts, etc. etc. Now, in Sarah's situation, because she probably needs all of the money each month, she actually it doesn't make sense for her to go limited. Firstly, from an NHS point of view, she's already been contributing so much throughout the 25 years. If she went limited, she could no longer contribute. Secondly, if you look at it from a tax point of view, if she takes all of the money out of the limited company, she ends up paying 64K in tax, which is corporation tax plus income tax. The tax she would pay if she was self-employed would be 58k. So there's about a 7,000 pound difference between self-employed versus limited, as well as the fact that she'll have additional fees compared to self-employment if she was limited. She'd have probably a bit more responsibility, and she would then obviously no longer be part of the NHS as well.

Dr James, 37m 17s:

So there you go. It really is, it really is a conversation to be had, and it doesn't. But you've just completely that you've just demonstrated that kind of goes out the window, really, uh, when you depend on your circumstances and what have you. But yeah, interesting food for thought. And uh thank you once again for covering this so comprehensively in today's podcast because there'll be a lot of stuff on there that's useful for the listeners, particularly with how it's changed in 2026, which is what we were referring to uh in some parts earlier. I mean, you know, one thing I wanted to ask just to round off this podcast, which I think will be super useful. Everybody's obsessed with tax-deductible expenses, and we could sit here and we could rhyme off all the obvious ones like I don't know, CPD or professional registrations and indemnity and things along those lines. How about the ones that most commonly get missed, in your opinion, or your most commonly reminded people, reminding people of in your work as an accountant? I think those would be the most useful ones to talk to over the time that we have left.

Amman, 38m 23s:

Sure. So yeah, I'll I'll go through uh two or three that I think are the big ones that dentists tend to miss. Now, I think the first thing I would say is whenever I have these conversations with clients, I would always say that I will give you all of the information and I can show you and tell you what is tax deductible and what you can be putting through the business. But just because something is tax deductible does not mean that you should do it. You have to look at it from a full commerciality kind of point of view. Yes, you might save two, three grand in tax by putting a certain expense through the business, but you still have to pay 10 grand to put that expense through the business. And could you be utilizing that 10,000 pound better elsewhere or saving it for retirement, for example? I think cars is is a is a huge one. So the tax savings with specific cars are massive. I'll give you an example. So if you let's just say you had a hundred K profit in your limited company at the end of the year, and before you get to that year-end point, you want to reduce that as much as possible. Theoretically, what you could do is buy a new electric car, but you would then get a full tax write-off of the value of the car. So let's just say it's a hundred grand electric e-tron and your profits are 100k. But that 100K minus the 100K capital allowance from the car reduces your profit to zero. So you then basically do you've saved approximately 20 to 25% in tax, 20,000, 25,000 pounds. Now, if you're self-employed, typically a dental associate won't be doing much business mileage. Business mileage doesn't count if for traveling from home to the practice, it's for outside of ordinary commuting, so going to a course, visiting your accountant, etc. etc. So they probably do 10 to 15% of business miles in the year. Now, with a limited company, you get a full tax write-off. However, when you're self-employed, it's proportioned by the business use. So if you're only doing 10% of business mileage, actually you're not going to get much of a tax deduction. And ultimately, self-employed dentists are typically better off just going down the mileage uh allowance route, which is 45p the first 10,000 miles and so on. I think the other thing to note there is obviously if you buy a car, it's it's a massive outflow of cash. The other side of it is leasing. So with leasing, it it can vary depending on the emissions of the car. If you've got a fully uh zero emissions car, you will be able to deduct 100% of those monthly costs. If, however, it's got over 50 grams per kilometer for CO2, then you can you get a 15% disallowance. So essentially you can only deduct 85%. I think, James, one of the interesting points here is typically an outflow of cash of 100k is is quite substantial. And most associates probably wouldn't want to do that. If, however, you are leasing and the lease term implies that the car is going to be yours at the end of the five-year term, you can accelerate those capital allowances. So you could theoretically get the full capital allowance deduction of the value of the car if it's a new electric car that you're leasing, even though you're paying for it on a monthly basis. Yeah. So for example, let's say you're paying £500 a month, £6,000 for the year. If the value of the car is 80K, you would get that, and it's a new electric car that you're leasing with the view that actually, as per the term, is going to be yours at the end of the five years, you would still get that full capital allowance deduction at the start rather than it being spread over a period of time.

Dr James, 42m 48s:

Cool. I I'm just trying to get my head around that. So uh you would get the full capital allowance at the start of the just the entirety of your tax bill, like the other tax that you had to pay. I'm just not quite sure how that works.

Amman, 43m 4s:

Yeah, so essentially, let's just say you've got 100k of profit, and the first option was you buy a new electric car for 100k, it reduces your profit by 100,000 pounds, you've then got zero profit, you've then got zero tax.

Dr James, 43m 18s:

Yeah.

Amman, 43m 19s:

The other option is if you lease it. Now, if you lease it, you're not buying the car by via cash, you're basically making monthly instalments over, say, 60 months, five-year period, and in certain circumstances you will own the car at the end of the five years, in others you won't.

Dr James, 43m 35s:

Yeah.

Amman, 43m 36s:

If the term and the agreement is that you own that car at the end of the five years, instead of the monthly deductions being allowable, you actually get the full capital out of the car in the first year.

Dr James, 43m 52s:

Yeah, it just it just seems like so you get a huge uh allowance off your tax bill up front, basically. Yes, essentially that that sounds like it shouldn't be the case, but it obviously is right.

Amman, 44m 5s:

It is because essentially what you're saying is that you you you basically own that car, it's gonna be yours. You just pay the payment terms are different compared to if you're paying. Sounds like a massive hack.

Dr James, 44m 17s:

So basically, in other words, what you're saying is that if your company makes a hundred grand, you're gonna be you're gonna owe zero corporation, and the car's worth a hundred grand and you're paying that off over however many years, you're gonna pay zero corporation tax, okay, but you're gonna have all that liquid cash in your bank account, okay, uh, and only be paying 500 of it each month, which you're gonna have subsequent cash flow to help offset anyway. Of course. That's why I couldn't understand it because I was like, is that true? Yeah, it just sounds too good to be true, but that's actually ridiculous.

Amman, 44m 49s:

It's true, and it is a hack. I think what you just need to be mindful of is yes, you don't have to make uh a massive cash uh payment in that first year, but more than likely, or it depending on the term, there might be interest on it, right? So over the course of the five years, you probably will pay more than 100k for the car. Um, but you've got that full first year deduction rather than spreading it.

Dr James, 45m 14s:

Do you get the 100k plus interest or just 100k?

Amman, 45m 18s:

Um that's a good question. I think you would probably be you'd get the interest as well because it's it's um yeah, you would get the interest as well.

Dr James, 45m 28s:

So the car is worth 100k, but you get 107k, for example, tax write-off basically.

Amman, 45m 33s:

Yeah, that's right.

Dr James, 45m 35s:

Okay, that sounds really good. Ultimately thinking if I get an electric car die unleashed. Here we go. Holy

Amman, 45m 43s:

Yeah, exactly. I think that it's important to mention that there are disadvantages to it as well. So this is where I say that actually it's not all about yes, I've got a massive tax deduction in the first year. It's also looking at the bigger picture. So firstly, let's just say you do buy that car for 100k in the first year. You've got the write-off. That car is now valued at zero on your capital allowances pool. So when you come to sell that car, let's just say you sell it for 70k in four years' time. That 70k compared to what it's valued on your sorry, your capital allowances pool shows a 70k profit. That then goes onto your corporation tax return, and you then have to pay corporation tax on that 70k.

Dr James, 46m 35s:

Really? Okay. Well, I can deal with that because I'm paying, I'm still paying less corporation tax overall, right?

Amman, 46m 43s:

You are, but then also this is where dentists, which is it's a it's a good way to think about it, but you also need to think about the car itself. So am I buying a car that's gonna depreciate so much that actually I might not I might save on taxes, but I'm gonna lose in real term because the cash value is a lot less. So you might buy a car for 100k and you sell it in four years. And let's just say electric cars, they've not been great at retaining their value. So let's just say for this calc, it's 50k when you come to sell it. Yes, you'll pay less tax because the 50k profit is is lower than 100k profit, but you've also lost the 50k that you've already paid for the car, which is the depreciation.

Dr James, 47m 29s:

You the the car whizes out there tell me, well, electric cars is gonna be harder, but if you're really smart and you know your cars, you can get certain ones that appreciate as well. I'm told anyway, that's where you have to be a real whiz with your cars. I don't know if that applies to electric cars though. Uh because um, yeah, well, they're just completely different from um, you know, traditional internal combustion engines, aren't they? Uh so I don't actually know as the answer in that one, but I'm just sharing that out loud because I have heard people say that to me before, and it's like, ah, and that's not you know, that only applies if you aren't clever with the cars that you're buying, right? Like if you get like certain limited edition models and stuff like that, you can drive them and they still appreciate in value, I'm told, apparently.

Amman, 48m 10s:

Yeah, but I only know that for certain like Porsche 9-11s, etc. So I'll have to think about that.

Dr James, 48m 17s:

Yeah, I don't know if it applies in in this example to electric cars. And just one quick question because we should really move on, because we've talked about this a lot, although it is very interesting. Uh, is the car in the company's name or your name? It's in the company's name, right?

Amman, 48m 29s:

It will be in the company's name, yes.

Dr James, 48m 31s:

Um you can drive it as much as you want in a personal sense.

Amman, 48m 34s:

So, this is the other slight disadvantage. Now, if you buy if you buy a car through the limited company, there's a very high chance that you're not going to be just using it for business purposes. So there will be a personal usage for that car, which is basically you as a director earning a benefit from the business. That benefit is called a benefit in kind, and that would go onto a benefit in kind P11D form, and you would essentially have to pay tax at your marginal rate. So let's just say you're in the higher tax bracket, you would have to pay 40% tax on the value of that benefit. Now, the value of that benefit is determined by a number of factors. One is list price, so the list price of the car. Second is any add-ons extras that you've paid, then minus any personal contributions that have been made. That figure is then applied to a percentage, and the percentage that it's applied to is dependent on the emissions of the car. So if it's a fully electric car, it could be four, four percent, around the four or five percent. If it's a uh a pure guzzler, want of a better word, it's 37%. So all of a sudden, let's just say the car's valued at 100K, 4% of 100k, you're only adding 4,000 pounds onto that onto that tax return. You need to pay 40% of that 4,000 pound, which works out to be about, let's just say, just under £2,000. As opposed to a car that's very high in emissions and it's 37%. Now you're adding £37,000 onto that P11D, and you have to pay 40% on the £37,000.

Dr James, 50m 18s:

Nice. Yeah, I get it. I get it. Yeah, fine, cool. Anyway, I sense there's probably more to that than what we can we can cover today. Maybe we should rattle through. You said there were three really cool tax-deductible uh things we should talk about. Cars is one of them.

Amman, 50m 31s:

Yeah, I think the other one is use of home allowance. So, use of home is another good way for, and I must stress again, it's different for self-employed versus limited company. When you're self-employed, you typically get about £10 a month that you can deduct on your self-assessment. So about £120 give or take. It depends on the number of hours you're working from home when you're when you're self-employed. Now, when you're a limited company, you've got two or three options, but two main options. The first option is you just go with the standard allowance, no questions asked. And that's six pounds a week, about £312 for the year. The second option is where you actually formalize some kind of rental agreement between yourself as the individual and the limited company. And in that scenario, what would happen is let's just say you've got um a two-bed flat and you're renting it out, and it's got two bedrooms, it's got a kitchen diner, and it's got a couple of bathrooms, for example, lawn suite and an a main bathroom. What we would do is we would look at a calculation of how much rent you're paying, what your council tax is, all of the bills in terms of gas, electric, internet, etc. We would then add that up on a in terms of a monthly cost. We would then apply a proportion to that. So if you're working in one of the bedrooms and the bathrooms don't count within the calculation. But let's say you've got kitchen diner and you've got two bedrooms in the flat. So that's one-third of your living space that you're working in. So let's just say the total cost for the month are 3k. You could then apply a third to that number, which is £1,000 a month. You then apply another percentage to it, which is how often you are working in the flat, which could be 10%, 15%. It's not going to be 50, 60%, because obviously you're in practice most of the time. That figure that you then work out. So let's just say it's 15% is £150 a month. £150 a month across a 12-month period is £1,800. Now, what you could do is firstly you could deduct that as a legitimate business expense through the limited company. So you get corporation tax savings between 19 to 25%. Secondly, the business will owe you that money back from the limited company tax-free via a director's loan account. Thirdly, you're personally also earning income, right? I.e. the limited company is having to pay you £150 a month in order for you to basically work, in order for the business to work in this premises. That should go on your tax return as £1,800 rental income. But you can offset that because the £1,800 is based on your actual expenses anyway. So you've actually put it on your tax return, but the tax the taxable income is zero. So you don't actually get taxed on it. But also on your self-assessment, you don't get taxed on it.

Dr James, 53m 58s:

Nice. Okay, so this can this can be called this can add up, right?

Amman, 54m 3s:

Yeah, for sure. I mean, the slight caveat again, just like with the cars, there's always a caveat, is if there's a couple of stipulations. Firstly, if you're renting, you you should probably check with your landlord that they are happy with the situation. If there is some kind of agreement in place, then yeah, absolutely go for it. But if there's not, that's where it can get a bit of a bit sticky. If, however, you're you're not renting and it's a mortgage and it's your own property, there's also a tax implication there. So if you were to sell a primary residence, i.e., the house you're living in, typically speaking, when you come to sell it, there's no tax, then there's no capital gains, it's your primary residence. However, if HMRC argue that actually there's part of that house has been used for a business, some capital gains might be due on that property when you come to sell it.

Dr James, 55m 1s:

Interesting.

Amman, 55m 2s:

So the way that you could kind of get around it is you put up a contract between the business and yourself, whereby there's a non-exclusive use of any room at any particular time.

Dr James, 55m 14s:

Right.

Amman, 55m 15s:

But I would always say that that's the kind of advice that you really need to speak to your accountant about. And two, you might even need a solicitor, for example, to draft a contract and make sure it is proper.

Dr James, 55m 25s:

Gotcha. So providing your landlord agrees to it, it's way more easier if you're a renter, right? If they agree to yeah, makes sense. Okay. Um very valuable stuff. Uh you know what? We should probably do a podcast on exactly all of this stuff at some stage. But I'm gonna I'm conscious we said we'd go for the hat trick, and we've done two out of three now, and we could probably talk more on those. What was the third one?

Amman, 55m 49s:

Yeah, I mean, there's so many smaller ones like mobiles, trivial benefits, etc., etc. I think the other ones that dentists tend to miss is the kind of advice that James, you would probably be giving to dental associates through the day. So the pension side, the income protection, the relevant life cover, those kinds of costs, whilst what I tend to see is obviously a lot of our dental associates, especially our client base, is is younger, right? So they don't tend to look at the relevant life cover as much. They don't really look at the income protection. They always kind of kick the can down the road and say, we will have a look at that in five, 10 years' time. But ultimately, firstly, they're tax deductible. Secondly, it's great to have those kind of policies in place because ultimately, let's just say you are off work for a three-month period and you're the director and shareholder of your business, all of a sudden your business has gone from $8, $12, $15k a month to zero because you're earning no income. If you've got a policy like income protection in place, firstly, it's allowable. Secondly, you will then get a payout for those periods of time where you're not working. I don't know if you want to jump into that, James.

Dr James, 57m 12s:

You know what? You know what I think we should do. Is like I say, I'm just 2% conscious this podcast is like 15 minutes long. Now let's let's leave that where it is in terms of it being something that can signpost people to start thinking about the three most important things that people miss. And then what we can do is we can make a follow-up podcast uh which probably covers that because you could probably talk for like maybe 10, 15, 20 minutes and all the various ways people can do that. But uh Amman, I just wanted to thank you for your time today. That was that was literally great, man. Like there's there's a lot of stuff in there. If anybody wants to reach out to you off the back of what we said today, how are they best off finding you?

Amman, 57m 50s:

Yeah, I mean, obviously they can they can obviously reach out to yourself, they can also uh go on our website, so www.capitalelevation. So that's c a p I t a l elevation, e-l-e v A T I O N dot co.uk. Or you can drop me an email, and that's Amman. So that's alpha mike mike alpha november at capital C A P I T A L Elevation, E-L-E-V-A-T-I-O N dot Co.uk.

Dr James, 58m 19s:

Nice. Or it's important to mention that you can also find Amman on the Dentists Who Invest Facebook group, should you so wish as well. That's Amman Starcaria. In the meantime, Amman, thanks so much for your time and wisdom today. Hope you have a great Friday and great weekend, and we'll see each other soon.

Amman, 58m 33s:

Absolutely.