Updated 26 Aug 2021
In this guide to Associate Dentist Expenses, I will detail the costs that can be claimed as an associate dentist and some of the intricacies of the tax system. I’ll cover the differences between the expenses a limited company and self-employed associate dentists can claim.
The expenses you can claim get an update with every chancellor budget speech and the new legislation each finance act brings. Discussing regularly with your accountant about your accounting for expenditure is the best advice I can give any dentist.
A self-employed associate dentist will pay 47% on all profits above £150,000 at a top rate of 45% income tax and 2% national insurance. By understanding and claiming as many expenses as is legally possible in your accounts, significant tax savings can be made.
I often get asked about the types of expenses you can claim when running a business. I have been asked all sorts of questions from can I claim for my dog? to can I claim for my wedding? Interestingly, the dog was allowable, but the wedding wasn’t.
If you have been self-employed for a few years, you have probably had discussions (or fights?!) with your accountant about your expenses. You know you’re allowed your golf club fees as a genuine business expense, but your accountant will see this expense differently. Remember, an expense does not have to be for exclusive business use or vice versa to qualify. Tax is complex and never simple. You might feel hard done by when your accountant tells you NO to claiming for your new £300 glasses acquired for use exclusively when working with your patients and surprised when they say yes to a £50 purchase for lingerie that can be classed as a company directors’ trivial benefit. It’s crazy but true.
Expenditure that leaves your bank account is easier to identify than costs that might be covered by an allowance or be paid out of a different bank account.
Every dentist should be able to claim payments for their GDC registration fees, indemnity insurances, lab fees, accountancy and accountancy software fees. Interestingly, the cost of preparing a personal tax return isn’t usually allowed as a tax deduction. However, there is a HMRC concession that does allow dentists the to claim the cost of their tax return if their only income is from self-employed dentistry.
Administration costs for stationery, printing, dentistry books, dentistry magazines, dentistry equipment and protective clothing such as goggles should all be claimed.
IT costs for computers, tablets and smartphones used in the business can all be claimed.
The following expense can often be overlooked by associate dentists. These expenses are often paid from personal bank accounts and need to be reimbursed as an expense or allowance payment.
Working from home expenses
There are modest allowances available for use of home of between £10 – £26 if you’re self-employed and home working for a certain number of hours and a £6 a week allowance if you’re a director or company secretary carrying out duties at home.
If you perform significant duties (study, administration, equipment storage etc.) in an identifiable part of your home (spare bedroom, garden office or garage etc.) you should consider claiming the actual business cost of your home on a % basis. Expenses that can be claimed include:-
- Light and heat.
- Telephone (apportion line rental and calls on non-dedicated phone).
- Capital allowances on own business equipment.
- Capital allowances on costs of business shelving erected for the office.
- Broadband costs.
- Rent or Mortgage interest / Finance costs (Interest relief could be restricted under the new rules for property businesses,)
- Council tax.
- Water rates.
- Repairs or re-decoration of a home office.
Dentists with a company will need to licence (rent) part of their home to their company. This creates a property letting business that would be declared as personal rental income on a tax return. The advantage of doing this is rental income is tax-deductible against the company profits and no national insurance is due. This makes it a more efficient way to draw company profits than a salary or dividend payment. Tax relief can then be claimed for the expenses % business use against personal income. Self-employed dentists can claim the property costs with all the other expenses when preparing their annual accounts.
Dentists trading as a limited company can get a number of employment-related benefits tax-free from their own company. These benefits will not be available to self-employed dentists. They can include bicycles, mobile phones, staff parties, certain life insurance premiums (know as relevant life insurance), pensions and pensions advice.
Finance costs of interest on loans are unlikely to be incurred, but if you do use finance to purchase a business asset these can be deducted. Bank charges can also be claimed on bank accounts. There is a nice £500 interest deduction you can claim if you are self-employed and using the cash scheme on any borrowing even if it’s for your home.
In my opinion, the most misunderstood expense of associate dentists is travel. The point to remember is any travel between your home and your regular surgery will be classed as commuting and commuting is not allowed as a tax deduction.
If you travel to visit a laboratory, bank manager, accountant, attend training, visit a patient or make a journey between practices for team meetings, the costs of these journeys can be claimed. These non-commuting journeys can be started from your home or practice.
If you’re working in a practice for a temporary reason and you are expected to be at that location for less than 24 months or, if you are expected to be there for more than 24 months and you spend less than 40% of your working time there, you are able to claim the costs of your travelling to the ‘temporary’ place of work.
Working at a location for a temporary reason or limited duration allows all travel costs including food, drinks, parking, tolls, all transport (rail, air, motor vehicles, motorbikes, ferry) and accommodation to be claimed as a business expense.
The following examples help explain the differences between a temporary and permanent place of work.
Example 1 – Associate with multiple permanent places of work
Darren is a dentist and lives in Plymouth. Darren has two different associate contracts and permanent places of work, one in Plymouth and one in Exeter. He is an associate dentist at a practice in Plymouth 2 miles from his home and every Monday and Friday he can walk to and from work. He also works in a practice in Exeter from Tuesday to Thursday. It takes Darren 2 hours and is a 90-mile round trip in his car to get to and from work in Exeter. Darren has spoken to his accountant and knows any travel to a permanent work location is a commuting journey and not allowed as a tax deduction. There is no tax relief for any of Darren’s journeys from his home to Plymouth or Exeter. It is Darren’s choice where he lives and works. Like all of the employees at the practices, the costs of getting Darren to his permanent places of work must be paid by him as a personal expenditure.
Darren should consider if the extra travel time and costs of getting from his home to the practice in Exeter are reflected in his pay. If they are not, he might want to consider asking for an increased rate of pay or working closer to his home.
Example 2 – Associate sent to a temporary place of work for less than 24 months – with a significant change to their journey
Darren’s Plymouth practice have asked him to work in their Truro practice. To cover a temporary 12-month maternity absence. It’s a drive of 1.5 hours for 55 miles.
This is an inconvenience to Darren as he enjoys walking to work but he is keen to help out and agrees to the change. He negotiates extra pay to cover his increased travelling time and costs. Darren knows from his accountant that he can claim all the travel costs to Truro as a temporary work location because he’ll be working there for less than 2 years. Darren now claims his Monday and Friday travel costs between his Plymouth home and Truro as a travel cost of his business.
Darren spends the next year driving to Exeter for 3 days with no tax relief on his travel, and driving 2 days in Truro with tax relief on his travel.
Example 3 – Associate sent to a temporary place of work for more than 24 months
Darren does a great job in Truro. Due to increased patient demand after 6 months, Darren is offered the option to work in Truro for an additional 24 months. Darren is enjoying his work and accepts extension.
Once Darren knows he will be working in Truro for a total of more than 24 months it ceases to be a temporary place of work. Darren now knows he will be in Truro for a total of 30 months he must stop claiming tax relief on his travel costs. Darren can retain the claim for the first 6 months of his travel only.
After accepting the contract extension Darren knows there is no tax relief on his travel costs He asks his practice to increase his rate of pay to cover the extra tax he will now be paying. They agree.
Example 4 – Associate sent to a temporary place of work for less than 24 months – without a significant change to their journey
Darren’s Exeter practice is closing for a 3-month refurbishment. He has been relocated temporarily to a different practice within the city of Exeter. His journey time or costs to Exeter do not significantly change during refurbishment.
This change has made no significant difference to Darren’s commuting journey and is not recognised as a temporary place of work. HMRC show this in their internal manual with examples of what is and isn’t a significant change
Example 5 – Associate sent to a temporary place of work for more than 24 months for less than 40% or more of their time
Darren’s Exeter practice has acquired a new surgery in Glastonbury, Somerset. They struggle to recruit new dentists. Darren is told he must go to work in the Glastonbury practice every Wednesday for the next 3 years. He is paid nothing extra for the increases in his travel costs or time.
Darren knows that despite being in Glastonbury for more than 24 months he will be in Glastonbury for less than 40% of his working time over those 3 years. Glastonbury will qualify as a temporary place of work as he will be there for a limited duration allowing Darren to claim for all of his travel costs.
It is not cost or time effective for Darren to drive the 2 hours 100 miles home to Plymouth on a Wednesday night to return drive the 45 miles 1 hour to Exeter on a Thursday morning. Darren decides to stay overnight on Wednesday in a Glastonbury hotel. All of Darren’s hotel and food costs are tax-deductible including a £5 tax-free allowance he can pay himself for the incidental costs of overnight stays. Darren’s drive the next morning between Glastonbury and Exeter will qualify as a tax-deductable journey. His Thursday evening journey home from Exeter to Plymouth is not tax-deductible as Exeter isn’t a temporary place of work for Darren.
Parking expenses at or close to work are often forgotten
One often overlooked item of expense is the cost of car or motorcycle parking at (or close by) a place of work. If you are a dentist with a company, it will be possible to claim for the cost of parking at or near your permanent or temporary workplace. This can be paid for directly by your limited company or claimed on expenses without any personal tax implications.
This expense is not available to self-employed dentists unless associated with a temporary place of work.
You have two options with your car, van or motorbike.
1) Rent it to your business for an agreed mileage rate.
2) Claim a deduction for the actual running costs.
Claiming the actual running costs is where the greatest difference lies between operating as self-employed or as a Limited company and is covered in a separate article.
Unless you are working as a locum it’s unlikely you will have any significant business mileage to claim. However, when you do, the simplest option is for your business to pay you a mileage rate: car or van for 45p a mile, motorcycle 24p a mile or bicycle for 20p a mile. This is a tax-deductible expense for your business. You will need to keep a diary of your journeys with the date, reason, location visited, and number of miles travelled.
Your second option is to have the business own a vehicle and pay for all the running costs of fuel, insurance, tax etc. This will increase the amount of paperwork you will need to track to prepare your accounts. If you are self-employed you will need to apportion your motoring expenses between business and non-business use. If you are driving 10,000 miles a year and 1,000 of those miles are for business, then 10% of your motoring costs are allowed as a tax deduction.
If you are a company director, you will not need to apportion between business and non-business mileage. You will need to pay what is known as a benefit in kind. Benefits in kind often result in more personal tax to pay and are generally not recommended. However, electric cars can often be very tax-efficient if owned by a company.
An area that often causes confusion is the costs associated with training. Once qualified as a dentist, the expenditure on your continued professional development (CPD) is deductible for tax. The costs of dentistry CPD courses, travel and subsistence (the costs of keeping you there) and learning materials can all be part of a valid claim. We see a number of international dentists undertaking CPD overseas as the costs are often cheaper. Like the UK courses, these overseas courses, travel and subsistence (food & accommodation) are tax-deductible. If the purpose of the travel for the course has a dual purpose to visit friends and family, the subsistence costs wouldn’t qualify for tax relief.
There is a grey area around training for new qualifications, particularly once a dentist has qualified. The initial cost of training a dentist to become qualified is not deductible against income, as the tax office considers this to be capital expenditure. When a qualified dentist attains new qualifications, such as a master’s degree in cosmetic dentistry, HMRC may well challenge the costs of obtaining that master’s qualification as ‘capital’. They could disallow the expenditure on the basis that the training is for acquiring new skills and knowledge rather than updating existing skills and knowledge.
My advice is to keep detailed records of all expenses and discuss with your accountant at the first opportunity what can be included in your accounts. It’s worth remembering that the tax laws constantly change. What may be disqualified one year could be allowed another year and vice versa. We have produced a detailed checklist for dentists to download and check you’re not missing out on valuable expenses that you’re incurring but not yet claiming.
PS: it was a working dog used in the hunting of rodents on a farm.
Updated 26 Aug 2021