Our view has always been that incorporating can be beneficial but will depend on individual circumstances. Dentists needs to know how they will manage a range of factors, outstandingly withdrawals from the business. The limit on withdrawals is one of the factors that has changed in the 15 years since dentists were allowed to incorporate.
When a dental practice is incorporated, the cost of the goodwill has to be amortised, or off-set over a period of roughly five years. If the value of the practice was £500k, then a notional charge of £100k has to remain in the business until the good will is written off. This reporting requirement is a bitter pill to swallow for the sole trader who has always had full access to all their earnings.
We provide a feasibility to any client considering incorporation so they can weigh up all the aspects which might affect them, such as:
• How to extract income from their company
• Amortisation of goodwill
• Moving the balance sheet of the practice into the limited company
• The Director’s loan account
• Staff contracts – employees must be employed by the company
Whether to incorporate may not seem like one of life’s big decisions, but as a dentist, it could be among the most critical choices you will make, and that includes career, marriage and where you live!
Any dentist who wants to incorporate should be given the option of a detailed feasibility study by their accountant. Anything else would be a dereliction of duty.