Dentists who want to incorporate can still explore this option despite the changes introduced last year following the Chancellor’s Autumn Statement, according to NASDAL member, Nick Hancock. It may not be quite so favourable or so straightforward but may still be beneficial for some dentists, in the opinion of the specialist dental accountant with Albert Goodman LLP.
Incorporation has become very popular since being made legal in 2006, with approximately 23% of dental practices incorporated since then. Prior to December last year, the two important tax advantages of incorporation were tax savings when transferring goodwill to the company and tax relief on the goodwill write down in the company/
Since 3 December 2014, ER is no longer available where goodwill is transferred to a company related to the transferor. A related company will broadly be one owned by the dentist, or any of his business partners or relatives
This means a tax charge at 28% will now apply to any gain realised on the disposal of goodwill on an incorporation of a business, although there are ways to defer this charge depending on how the business is incorporated. Nick points out, however, that a 28% charge might still be quite attractive if the dentist is making profits that would otherwise be taxable at 42-47%.
In addition to the withdrawal of ER on goodwill from 3 December 2014, the company can no longer get full tax relief on the write down of the goodwill over the course of its useful life to the company, in many cases only getting relief for its cost on any eventual disposal of the business by the company.
Nick commented: “Dentists should not be deterred from investigating incorporation or from incorporating a newly acquired practice. However, the order of the transactions can be important and relationships between the practitioners should be carefully considered.”
“For some dental practices, incorporation remains a beneficial option but one that should be explored with caution and with the right advice.”