Dental accounting – Everything you need to know
Complete Overview of Accounting and Tax for Dentists
Accounting for dentists
Like any other industry, the dental industry has its own set of accounting and tax rules to comply with. If you plan to begin your career as a dental practitioner or are already providing healthcare services as a professional dentist, it is best to consult the services of a professional accounting firm. Clear House Accountants are dental accounting specialists that can help give professional advice and help you manage your finances in a more efficient manner.
Our in-house accountants have worked with a number of dental professionals. This has enabled them to understand accounting and tax requirements for dentists and dental associates in a detailed manner. Our accountants offer useful tips and strategies that can help dental professionals grow and prosper.
The dental profession
Dental services are one of the most sought out healthcare services in the world. This might be because dentistry is concerned with taking proactive measures for the prevention of dental-related diseases.
It has been proved through research that dental treatment is one of the most sought out treatments in the world. The NHS statistics have revealed that over 22.1 million adults consulted an NHS dentist in a period of 24 months – before 1st July 2018. NHS statistics also stated that over 39.7 million courses of dental treatment were provided in 2018-19.
Dentistry has branched out into several fields such as orthodontists, prosthodontists, oral and maxillofacial surgeons, etc. However, we will be discussing matters mostly related to general dentistry in specific and how accounting and tax influence dentists. A general dentist is someone who diagnoses, treats and maintains the health of his patient’s oral cavity. The oral treatment processes may include gum care, crowning, root canals, fillings, bridging and the provision of dental advice. The scope of a dental practitioner’s healthcare services transcends any age barrier and focuses on providing services to individuals of all ages.
The core purpose of a general dentist is to provide healthcare services and expertise to counter oral diseases. If ignored, such issues might lead to toothache, loss of teeth or other severe oral damages. General dentists provide a wide array of services that are vital for your oral health. To be able to manage their services, it is important for dentists to have a solid accounting mechanism that can help them manage their finances. Before we discuss the importance of accounting in dentistry. Let’s have a look at two of the many healthcare services that the majority of general dentists provide.
The most common dental problems faced by people are tooth decay and tooth gaps. A general dentist is someone who will help you identify the reason behind such issues and provide restorative services, like removing tooth decay or filling in the damaged tooth, as required. Other than common restorative services, general dentists also provide prompt treatment for serious dental problems like crowning to restore the natural teeth structure or bridging gaps in between them. Some general dentists also offer more advanced dental procedures like a root canal or dental implants.
Preventive services help you maintain the vitality of your oral health by hindering the infectious diseases to progress in your mouth. General dentists help ensure healthy teeth through regular examinations and tests. They use a number of machines to help them carry out X-rays and produce diagnostic images. They also provide a professional tooth cleaning service to keep the diseases at bay. Oral hygiene advice is also provided by these doctors to help you understand how you can maintain your oral health at home.
Other services may include cosmetic procedures to improve your teeth alignment or carrying out other procedures related to your teeth that are affecting other parts of your body.
Video: Dental Accounting Tips Making the Numbers Work for You
It is imperative for dental practices and dentists to use in-depth, accurate techniques for business planning, bookkeeping, accounting, and tax. Watch this video to learn more.
Dentists and tax
What if the dentist is employed?
A dentist providing dental services as an employee in the Community Dental Service or secondary dental care are often hired at paid posts.
As an employee providing dental services, your employer will deduct Income Tax and National Insurance (NI) contributions from your wages or salary. After deductions, the employer will pay the taxes to HM Revenue and Customs (HMRC).
What if the dentist is self-employed?
If a dentist is providing healthcare services under a ‘self-employed status’, their dental practice is considered as ‘business’ for tax purposes. Any profits they make will be taxed per the rules of trading income. Unlike employed dentists, a self-employed dentist is liable to report and file their Self-Assessment returns to HMRC every tax year and are also responsible for paying Income Tax and National Insurance (NI) contributions on an annual basis.
There are instances where a dentist might be employed part-time in other medical institutions. In such circumstances, their salary and other earnings might be taxed as trading income. The employer, like a regular employee, deducts class 1 National Insurance.
As a self-employed dentist, you will have to make and show adjustments to the ‘trading income’ when filing your annual tax returns to HMRC so you won’t have to pay Class 4 National Insurance on your income.
You can consult our team of medical accountants to help you work out your finances along with your annual tax returns in the most accurate manner.
How does the NHS pay self-employed dentists?
The payment arrangement for dentists on behalf of National Health Services (NHS) varies from region to region in the UK.
In England and Wales:
For the provision of primary dental services, General Dental Service Specialists are appointed after agreeing on a number of ‘units of work’ to fulfil every year.
These dentists have an annual income that is paid to them via monthly instalments, all year round.
In Northern Ireland and Scotland:
Although Northern Ireland and Scotland both have different payment systems, they have a common aspect to their payments. Both use ‘item of service’ payments, continuing care payments along with several grants and allowances.
Any NHS income received by the dentist is part of taxable income and must be reported correctly on the Self-Assessment or partnership tax return.
What about non-NHS income?
Most of the dental practitioners carry out private practice to earn on top of their regular income. Some practitioners usually end up earning more from their private practices as compared to the work they do with the NHS. The need to consult a private dentist arises when:
- Patients prefer to seek private treatment for health care.
- Patients prefer affordable NHS treatment privately.
- The need for cosmetic procedures related to dentistry occurs.
- Patients seeking treatment which is not approved by the NHS
There are also other sources of private work through which a dentist might get paid, for instance:
- By providing consultancy to other dentists.
- Through marketing dental products.
- By earning commissions on the sale of dental insurance.
- Through earning a rental income that is derived from renting out rooms or facilities to other dental professionals
Dentists are liable to report all of their taxable, non-NHS income on their Self-Assessment or Partnership tax return.
What specific records should dentists keep?
Like any other business, dental professionals are also required to record their finances and track them over time. Proper record-keeping and maintaining them on a regular basis, will help a dentist complete their tax returns on time and file them correctly.
There are some industry-specific requirements that medical professionals need to know. Below is a list of useful records that you need to maintain or you might be charged with heavy penalties later:
- Records of funding provided by NHS
- Patient fee receipts
- Petty cash books
- Records of retail sales
- Miscellaneous fee income
- Tickets for laboratory work
- Any expense-sharing agreements
- Agreement documents of rental income paid by technicians and hygienists
What expenses can be claimed by dentists for tax-related purposes?
We will discuss in this section about the expenses dentists and doctors are allowed to claim for tax-related purposes.
Here is a list of categories that mentions all the expenses that qualify for the tax relief:
Category 1: Cost of goods purchased for reselling or consumption
This includes any materials you use in your business or sell to your customers, the list below covers some of the goods that might be purchased.
- Filling materials
- Dentures, wires, or fillers
- Mouth wash
- Dressings, masks, bandages, protective goggles or glasses
- Materials consumed for cosmetic procedures
If any of the materials mentioned above are taken for personal use or consumption, it is considered as a sale at market value. VAT may be applicable in this situation, given these materials are standard rated at the time of sale.
Category 2: Wages, salaries and other staff costs
- It is necessary to carry out an Employment status check when hiring staff (receptionists, nurses, cleaners, etc.). Carrying out an Employment status check will help you determine whether the people you hire are your employees or self-employed.
- The salaries, gross wages or fees you pay to your workers can be deducted for tax purposes.
- If you make employer’s NI contributions, then you will be entitled to reclaim the National Insurance (NI) employer’s allowance through your payroll. No reclaims on NI are permitted if you have already claimed it back.
- You will need to operate payroll (PAYE) on your staff salaries (if they are employees) and deduct NI and income tax accordingly. You will also have to report about this to HMRC, which you can do through Real-Time Information (RTI).
- If you are providing Benefits in Kind to your employees, then the cost of the benefits you offer along with any Class 1A NI contribution can be deducted for tax purposes. You might have to fill in and submit form P11Ds to inform HMRC about any benefits you might have received or about any reimbursed expenses.
- Auto-enrolment for pensions is now mandatory for employers, subject to certain conditions.
- Even though a dentist or doctor might be on a contract with the NHS as a self-employed individual, they are still required to contribute towards an NHS pension scheme. As an employee, the NHS makes the employer contribution, and the practitioner makes the superannuation contribution. If the practitioner is self-employed, they are responsible for making both the employee and employer contribution. Both amounts are tax allowable as member contributions.
Category 3: Travel expenses (car and van)
- Travel costs incurred for business purposes can be deducted for tax purposes.
- Travel costs incurred through your everyday commute are not tax-deductible, given that the attendance at the employment is ‘regular and predictable’.
- The type of travel costs you claim is dependent on whether the company is claiming Flat (fixed rate) Deduction or Actual Costs incurred.
- The amount of money you can claim may vary depending on what kind of vehicle you are driving and whether you are using it for business purposes or private use.
- If you are already claiming fixed rate deductions, you are not allowed to claim capital allowances. Keep in mind that any adjustments you make while claiming capital allowances must be for private use only.
- Traffic violation tickets for speeding, parking, and congestion are not tax-deductible.
- Travel and subsistence expenses (cost incurred due to business travels that include the cost of the meal or drink) are tax-deductible.
- Accommodation costs incurred while business travel is also tax-deductible, given that the travel is considered as business travel.
Category 4: Rent, rates, power and insurance costs
- You may claim the utility costs incurred by the surgery.
- Public liability, locum cost, and professional indemnity insurance can be claimed for tax purposes.
- You may be provided with an allowance if you use your home as a clinic or if you are providing consulting that is tax-deductible. Doctors and surgeons who conduct surgeries or consulting rooms from their residence can benefit from this.
- You may claim certain types of costs depending on whether the business claims Flat (fixed rate) Deductions or Actual costs. Flat rate can be claimed without any proof, or you can always claim an estimated portion of the costs, which can include the share of:
- Home Insurance
- Council Tax
- Mortgage interest or rent
- Utilities and water rates
Category 5: Repair and maintenance of property and equipment
You may claim small equipment as an expense as well. The list may include:
- Dental drills.
- Blood pressure cuffs and monitors.
- The cost incurred for repair and maintenance of any medical equipment is also eligible for a tax deduction.
If you buy expensive equipment with an estimated life of at least two years or more, such as beds and reclining chairs, these items will be capitalized. However, you might be able to enjoy full relief under the Annual Investment Allowance. Using any of these assets for personal consumption will adjust to the capital, allowances claimed. Our brief guide to capital allowances is a good starting point if you are new to this.
Category 6: Phone, fax, stationery, and other office costs
- You can claim the expenses incurred for using mobile and home phone for business purposes.
- You can claim the cost of a diary/appointment book or any online appointment software you use.
- Stationary such as pens, paper, stamps, ink, etc. used for business purposes can be claimed as well.
- Business magazines or periodicals that help you keep updated may be claimed too.
- Subscription fees, IT costs, and the cost of software used by the company (Office software, bookkeeping software and more) qualify for relief.
Category 7: Advertising and business entertainment costs
- Marketing costs for advertising online, in papers or magazines qualify for tax relief.
- Expenses incurred for running a website may also qualify for relief.
Category 8: Bank interest and other loans
- The expense incurred for the purchase of business equipment or capital qualify for relief.
- The expense incurred for sponsoring a capital contribution to the partnership can be claimed.
Category 9: Bank, credit card and other financial charges
- You can claim bank charges or credit card charges incurred for business purposes if you can prove that you have a separate account for the business.
Category 10: Accountancy, legal and other professional fees
- Membership fees and subscriptions for a trade association or professional body can be claimed.
- Accountancy fees may qualify for relief too.
Category 11: Other business expenses
- Protective clothing such as gloves or apron qualifies as business expenses.
- Laundry costs for cleaning and maintaining protective clothing, uniform and towels can be claimed for relief.
- The cost of buying a uniform that has to be worn for duty or has a business logo qualifies for relief. Ordinary clothing is not eligible as an expense.
- Training costs to increase your productivity and upgrade your skills qualify for tax relief. However, training costs incurred to learn new skills or attain a new qualification counts as a capital cost and is not eligible as an expense.
Category 12: Trading and property allowance
If the costs mentioned above sums up to less than £1000, you can alternatively claim the trading allowance, which is a fixed £1000 worth of tax break from profits.
What about accounting for VAT?
As a dentist, accounting for VAT can get very complicated. We advise you to speak to a VAT accountant to manage your finances efficiently and accurately.
If you wish to calculate the VAT levied on you manually, then you must consider the list below to help you account for your VAT correctly.
- According to Group 7, Schedule 9 of the VAT Act 1994 (VATA), Health services deemed as qualifying are exempted from VAT.
- Services provided in the form of medical care can be exempted from VAT if the provider of the services is enrolled or registered on the official statutory register. The register for medical practitioners may count as an appropriate statutory register.
- Medical care, surgical treatment or other medical services provided in any hospital or state-regulated medical centre are exempted from VAT.
- According to Group 12, Schedule 8 of the VAT Act 1994 (VATA), prescription goods provided under the supervision of a registered pharmacist counts as zero-rated.
- Any service that qualifies as non-therapeutic is not exempt from VAT. The primary purpose of medical services is to save, regulate or boost the health of the patient so as a result, any medical opinion provided for compensation claims or for giving blue badges is not exempted from VAT.
- In some instances, the locum GPs may believe that they are ensuring the provision of standard-rated services to agencies instead of free healthcare.
- Provision of medical items to patients according to the National Health Service (NHS) regulations, along with oxygen supplies, are deemed as standard rated. Provision of drugs or health-administering appliances to patients is exempted from VAT.
- Any dental service or dental prostheses provided by a professional dental technician is exempted from paying VAT.
- You can willingly enrol under VAT if you are dispensing zero-rated, standard-rated supplies or reduced rate supplies. Once those supplies exceed the registration limit, you will be liable to register for VAT.
- You may enjoy a partial exemption for VAT if you register for it.
- Doctors or dentists can collude by forming Cost Sharing Groups. This type of collusion can help them ease the burden of administration costs by sharing and passing on to each doctor or dentist members of the group without accounting for VAT.
Points to consider:
Doctors and dentists can now form a partnership or operate as sole traders to enjoy a number of benefits.
- In case a doctor or dentist forms a limited company or LLP, they can claim limited liability protection (if the client has filed a claim against the services provided)
- For incorporation after 2012, there will be no deduction for Goodwill Amortization.
- Entrepreneurs Relief can be claimed by those practising cosmetic work against intangibles such as patents or registered trademarks. However, the ER can not be enjoyed in terms of goodwill provided to a limited company.
- Surgery premises are usually declared outside the limited company. When paying the market rent as a sole trader or partnership you need to be very vigilant to be considered eligible for an Entrepreneurs Relief
Accounting tips for Dentists:
This section will cover some useful accounting tips for dentists. As the competitive landscape gets tight, it’s very important for dentists to employ accurate and efficient techniques for their business’s tax planning, bookkeeping, and other financial aspects to prevent themselves from landing in the quagmire of fines and penalties.
By learning and implementing the tips provided by our healthcare accountants, dentists can increase the probability of thriving their dental practices to the next level.
Start learning about the basics of accounting and finance.
Learn about all the important accounting and financial terminologies before consulting an accountant for their practices. Start with the most basic ones and make your way towards the more complicated ones. You must educate yourself on the basic differences between cash flow and profits. Poor cash flow management can result in cash shortages which might lead you to go bankrupt.
Incorporate an easy-to-use accounting software in your system
Ensure that you employ a widely used accounting software to get hold of your dental accounting responsibilities. Choose a software according to the size of your business and the number of clients you deal with on a daily basis. A software fit for the needs of the business reduces the probability of errors, increases productivity and efficiency and also helps you get a better track of your financial records from time to time.
Related: Review our best accounting software guide to choose the most suitable software for your business.
Cut down your expenses by employing effective cost-cutting strategies:
Dental equipment is costly to purchase, and quite often the dentists have no other option but to buy such equipment to fulfil the services demanded by their customers. For this reason, dentists need to employ cost-cutting methods to ensure that they don’t suffer from losses, which can result in tremendous financial consequences.
We advise you to hire a dental accountant to help you reduce your medical expenses and save as much as possible. A professional accountant providing bookkeeping services is trained to spot any embezzlement or discrepancy. He is also trained to identify any potential tax reliefs that can be very lucrative for your dental business.
Seek an accountant’s expertise
Just like you seek a doctor’s advice for any medical problem, dentists should always turn to professional accountants to track the services they are providing. As a dentist, it might be impossible to identify fraud or theft on your own. Therefore it’s essential to get a professional accountant on board who can help you audit your invoices, receipts, and other financial records regularly.
Clear House Accountants are professional Accountants in London who provide holistic solutions to professionals and businesses from different industries. With years of experience in the accounting industry, we offer accounting for dentists and doctors to help them learn more about their tax obligations, identify potential tax reliefs and work out their annual tax returns accurately.