Many of the 970 dentists who undertook Dental Foundation training in 2014 will move to a self-employed associate job shortly, if not already. Chartered accountant Adam Hemingway at specialist dental accountants PFM Townends and independent financial adviser Jon Drysdale share their top 10 financial tips for dentists embarking on self-employment.
- Don’t forget to register with HMRC
It's important to let HMRC know that you're self-employed as soon as possible. If you don't tell them, you may have to pay a penalty. Your accountant will be able to register on your behalf and receive copy correspondence from HMRC. This means you won’t miss important deadlines.
- Save for tax National Insurance and Student Loan repayments
It is important to know how much tax to pay and when you need to pay it. Your accountant should calculate this for you. Don’t rely on anecdotal evidence of how much you will need to save. For associates with largely NHS income it should be possible to accurately predict the amount of tax you will need to pay. You should save for this from the start of your new job, even though you may not have to pay any tax or student loan repayments for some time. Remember that you’ll need to set up a direct debit to pay Class 2 National Insurance contributions straight away.
- Record keeping is important
Being a self-employed associate means you are now running your own business. Keeping accurate records of income and business related expenditure will ensure your accountant advises you on the correct amount of tax to pay and claims the appropriate tax relief where possible. Make sure you retain practice payslips as these contain important information such NHS Pension deductions.
- Set up a bank account for your new business
You don’t need a ‘business’ bank account but it is advisable to set up a new current account which into which your practice income is paid. Business related expenditure should be taken from this account. This ensures business income and expenditure is separated from the multitude of personal credits and debits.
- Claim back business expenses against tax
Associates can claim for the cost of some courses and study materials incurred before they started their first job and ongoing training. It is important to provide your accountant with records of any expenditure related to work. A dental accountant will know what claims are acceptable.
- Check the NHS Pension portal
The annual reconciliation report (ARR) is completed online and this is your opportunity to make sure your pensionable pay is recorded correctly. This will affect your pension at retirement so it is important to get it right. A dental accountant will be able to confirm you have made the correct NHS Pension contributions and deal with any queries relating to the online portal.
- Use your ISA allowance
A total of £15,000 can be deposited in a cash ISA account in any one tax year. This is a bank account where interest is not subject to income tax. It is a good place to hold the savings you make for your tax liabilities. A cash ISA can be linked online to your current account for easy access. Rates tend to be low.
- Get your income protection in order
Most associates will expect a stepped increase in their income and subsequently personal expenditure is likely to rise. It is important to protect this income as employer sick pay is no longer available or will be limited. Existing income protection polices may not provide sufficient cover especially if you signed up to a plan in your final year at University. The sooner you do this the less expensive it will be.
- Save for a house deposit
Most lenders will require a deposit of 10%, although some lenders will allow 5%. Many high-street mortgage lenders won’t lend unless you have at least 2 years self-employed accounts so finding a lender sympathetic to dentists is important. Use a specialist dental financial adviser to source the best mortgage for your requirements.
- Use specialist advisers
We have witnessed some serious problems for clients who have been ill-informed by an accountant who isn’t dentally aware. Many times this involves NHS Pension rules for associates, failure to claim business expenses correctly, or a general misunderstanding of the NHS Pension portal. We therefore strongly recommend that you engage a dental accountant who has chartered status and is regulated by the ICAEW. (Institute of Chartered Accountants in England and Wales).
Visit: http://pfmdental.co.uk/sections/view/26/associate | Call 01904 656 083
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