Incorporation can save dental associates tax
By altering the legal trading structure of a business from a sole trader to a limited company, it becomes a freestanding entity entirely separate from those who own or run it. This process is called incorporation.
There are many advantages associated with incorporation, such as having more beneficial options for paying wages. Incorporation also means that dental associates are able to make more funds available for retirement through tax deductible pension contributions.
Significant differences between running a business as a sole trader rather than as a limited company, relate to the amount of legal and financial responsibility undertaken for it. A sole trader both owns the business and is the business, and is liable for any financial obligations. Whereas following incorporation into a limited company, the owner would become a shareholder (and director) and may hold all, or a part, of the company’s share capital and responsibilities.
A limited company has the option to pay wages either via a salary or by dividends. Where a salary is subject to income tax and national insurance, dividends are paid from company profits after incorporation tax and may not incur further taxation, so less tax may be applicable if wages were paid in this way.
Another option might be to pay a minimal salary, that equates to the lower earning limit, and balance this by paying the rest as dividends. This will achieve even more tax savings and would reduce national insurance contributions.
A decision must also be made on who the official owners of the company (its shareholders) should be in order to save the most tax. Anyone can be a shareholder, shares can even be issued to spouses or relatives and this could potentially further reduce the amount of tax payable.
Anyone can set up a company by buying one online. Indeed there are a plethora of 'off the shelf' packages available, but these often come with as many drawbacks as there are benefits and can be confusing to say the least. The best way to ensure the right decisions whilst assuring the maximum tax benefit is to seek the help of a specialist tax advisor.
Figurit is a dedicated accountancy and tax service that specialises in the dental sector. Offering a solution for dental associates that protects their finances and tax, such expertise would prove invaluable when considering incorporation. Contact Figurit today to see how you could benefit from incorporation and for your free tax review (available until 30 June 2014).
For more information on our specialist accountancy and tax package exclusively for dental associates, visit www.figurit.co.uk.