Incorporating a dental practice

Introduction

As the landscape of dentistry continues to evolve, many dentists are rethinking the way their practices are structured. Traditionally, dental practices have often been run as sole proprietorships or partnerships, but more practitioners are now considering a shift to operating as a limited company.

Whether you're transitioning from an existing partnership or starting a new practice from scratch, incorporating your dental business can offer several benefits - from protecting your personal assets to potential tax advantages. In this guide, we’ll talk through some key things to consider before making the move.

What is incorporation?

Put simply, incorporation is the process of giving your business its own legal identity. This means your practice becomes a distinct entity in its own right, separate from you and your partners.

Once incorporated, your practice (typically structured as a limited company) can own assets, enter into contracts, pay taxes and even be held liable for its own debts.

As a result, your personal assets are generally protected if your business runs into trouble or owes money, which isn’t always the case if you’re not incorporated.

Why incorporate your dental practice?

An incorporated business structure can offer a number of advantages, including:

• Potential tax savings

As your practice becomes its own legal entity when you incorporate, you don’t need to take all the money your business earns as personal income. Instead, you can choose to pay yourself a salary, take dividends, or a mixture of both. This means you have more control over how much personal tax you pay.

What’s more, incorporated businesses typically pay a lower rate of tax on business profits (in comparison to tax on personal income). So, keeping some funds in the practice (rather than taking it all right away) can lead to real tax savings, especially if your business is doing well.

Tax treatment depends on your individual circumstances and may be subject to change in the future.

• Limited liability

Another benefit of incorporating your practice is limited liability – in other words, protecting your personal assets.

In simple terms, if something goes wrong in your business (a lawsuit or unpaid debt, for example), your personal belongings (such as your car, home or personal savings) are usually safe and off-limits to creditors. This can provide real peace of mind for practice owners.

• Making your practice easier to sell or pass on

Because an incorporated practice is its own legal entity, it’s usually easier for buyers to purchase the business as a whole. This includes your patient list, equipment, employees and reputation (or ‘goodwill’). As the transition is likely to be smoother, your business becomes more attractive to potential buyers once it's incorporated.

• Business models

Incorporation can offer you more flexibility to structure your practice for growth, including bringing in investors, allowing employees to become shareholders and creating a management structure that might not be possible in a traditional partnership.

• Relevant life insurance

As the director of a limited company, you may be eligible for ‘relevant life insurance’ – a policy that a business can take out to provide individual life cover. Premiums for relevant life insurance are typically treated as an allowable business expense, meaning the cost can be deducted from the taxable profits of the business.

• Pension contributions

Another advantage of becoming a limited company director is being able to contribute to your pension via your business. This can be a highly tax-efficient strategy, helping to reduce both corporation tax and capital gains tax while maximising your retirement savings.

You can learn more about making pension contributions via a limited company here.

Things to consider before incorporating

While incorporating your dental practice can offer many benefits, there are some areas that need to be considered before you start the process. These include:

• NHS treatment provision

If you’re currently providing NHS treatment (as an individual or as part of a partnership), it’s important to be aware that your NHS contract doesn’t automatically transfer over to your new limited company.

To transfer your contract, you’ll need to submit an incorporation application to the appropriate NHS authorities. Whether or not your request is approved will largely depend on how strong and well-prepared your application is.

Even though the practice itself may remain unchanged, the NHS will want to be sure your incorporated structure can uphold the same standards and obligations. This means you'll need to evidence factors like financial stability, regulatory compliance and continuity of patient care to be awarded the contract.

• Care Quality Commission (CQC) registration

When you set up a limited company, you must register it with the Care Quality Commission (CQC) before it can begin providing dental services. As part of this process, you’ll also need to appoint a suitable person within the practice to act as the Registered Manager and Nominated Individual.

If you currently have an existing CQC registration under another legal entity (for example, as an individual or partnership), you'll also need to apply to cancel that registration once your new company is approved. The CQC approval process can take several months, so it’s important to begin your application as early as possible to avoid delays.

• Transfer of assets

When you set up a limited company, you’re essentially transferring your practice assets to the new business. This transfer should be properly recorded in a comprehensive agreement that clearly outlines the assets that are being moved, how much they’re worth, how payment will be made and the exact date of the transfer.

As you may need to use this agreement to prove the details of the incorporation in the future, it’s wise to work closely with your accountant and solicitor to make sure everything is properly documented.

• Current workforce

Your existing workforce will automatically move over to the new limited company under TUPE regulations. This means you must follow all the legal requirements these rules set out for employees when you transfer.

Any self-employed clinicians will also need to sign new terms of engagement with the limited company. Skipping this step could cause serious problems for both you and them, from legal disputes to preventing clinicians from being able to claim their superannuation pension benefits.

• Property arrangements

How property is handled throughout the incorporation process is dependent on your current setup and plans for the future. If you’re leasing your premises, you might want to transfer the lease to the limited company. Just bear in mind that this usually requires your landlord’s approval.

If you own the property, you have a few options. You could transfer ownership to the limited company, or you could keep the property in your name and rent it to the company. When it comes to making this decision, it’s a good idea to get in touch with your accountant who will be able to advise you on the most tax-efficient approach.

How we can help

At Wesleyan Financial Services, our Specialist Financial Advisers have a wealth of experience supporting dental professionals with both personal and business finances.

We also work closely with solicitors and accountants who have specific expertise in the dental industry, ensuring you have access to a trusted network of professionals who understand your unique needs.

While you may still be wondering if incorporation is the right move for you, here are some ways we can help:

Personal finances

When you move from being a self-employed partner to a company director, there are some areas of personal finance you may need to review.

For example, if you have an income protection policy, you’ll need to let your insurer know about any changes to your income. A change in status can affect your policy and updating it will ensure you stay protected should you need to take time off work due to ill health.

Professional protection

Any leadership role can mean an increase in responsibilities - and potential liabilities. If something goes wrong you could face legal action, even when you've done your best to follow the rules. One way to protect yourself is by taking out a management liability insurance policy.

This type of insurance provides legal cover in areas like health and safety, which can be valuable when your employees work in clinical environments like a dental practice.

Wesleyan Financial Services is a broker and insurance products are provided by a number of insurers.

Making your money work harder

Whether you're a limited company or not, if your business is generating surplus cash, commercial investments could help you grow this capital and beat the effects of inflation over time.

However, if you think you may need access to this money in the near future, commercial investments may not be the right option for you. These investments are usually long-term, often locking your money in for at least five years before you see a return or get your money back.

You should also keep in mind that the value of your investments can go down as well as up, and you may get back less than you put in.