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Dentists Who Invest

Podcast Episode

Dr James: 

Fans of the Dennis who Invest podcast. If you feel like there was one particular episode in the back catalog in the anthology of Dennis who Invest podcast episodes that really, really really was massively valuable to you, feel free to share that with a fellow dental colleague who’s in a similar position, so their understanding of finance can be elevated and they can hit the next level of financial success in their life. Also, as well as that, if you could take two seconds to rate and review this podcast, it would mean the world. To me, what that would mean is that it drives this podcast further in terms of reach so that more dentists across the world can be able to benefit from the knowledge contained therein. Welcome, welcome to the Dennis who Invest podcast. Good evening everybody. Welcome back to another episode of Dennis who Invest official podcast with your host, james Martin. We’ve got a very special guest with us tonight. You may have seen him on the group beforehand. He is someone who’s very well qualified to talk about something that affects each and every one of us. Some people say I’m sure he won’t be offended when I say this. It’s not exactly what a lot of people would call an exciting topic. No offence intended, hopefully none taken? Not at all. I don’t mean that in any way to be offensive whatsoever. I find it interesting personally, but I know that there’s the connotation out there that some people may not necessarily be that way in kind. Regardless of whether we find it interesting or not, it isn’t quite irrelevant to every single one of us. This is why I thought it might make such a good podcast. There is the old saying there’s only two certainties in life death and taxes. How many times do you hear that joke a day, mike?

Mike: 

Oh, that’s a thousand. To be honest, I do lots of presentations and I use it as the start of the presentation. Oh, I see that makes me feel absolutely.

Dr James: 

Well, you’re very polite and you’re hoovering me at least Do you know. My last name is Martin James Martin. Okay, so can you see where I’m going with this. The chef.

Mike: 

Yes, yeah, so Saturday morning.

Dr James: 

Yeah, saturday morning, that’s the one. So every single I swear every other patient makes that joke, and I have to pretend it’s the first time. I’ve heard it. Every single time it knows where I’m slightly thin with time, but I don’t mind it too much. I think that might be something similar for you. But anyway, regardless of all of that, his name is Mike Bryan and we’re very pleased to have him on the show. How are you tonight, mike?

Mike: 

Thanks, james. Yeah, very well. Thanks. You hit the nail on the head when you said the countancy can be dry. It’s quite a hard topic to speak to but, as you mentioned, tax unfortunately is probably the biggest expense everyone’s going to have in their lifetime. There’s not many dentists out there that even those practice owners taxes probably are higher expense than actually their practice costs. If you look at a professional career, they tax it when you earn it, tax it when you sell it, tax it when you die and ultimately it’s going to form a massive impact on everyone’s life.

Dr James: 

So, so, so important. And this page, this group, is primarily about investing, but you need to have the capital in the first place to be able to invest it. And we’re not talking about avoiding taxes, by no means whatsoever. We’re merely talking of tax efficiency, of course, back in stuff, mike. So yeah, as we’ve already established, it’s something that affects every single one of us. I thought it might be nice for you to have the opportunity just to introduce yourself to the listeners, because they may not necessarily, of course, know you. I just wanted to know a little bit about yourself, your journey into becoming an expert on taxes and why you decided to help us dentists.

Mike: 

Yeah, thanks, james. So a bit of background on me. I graduated from accountancy in the University of Canterbury, christchurch, in 2010. And then I’ve worked in accountancy practices for the last 10 years, trained in practice in ASUSIX Three years, got my chartered accountancy. Accountancy is a weird subject. Anyone can call themselves an accountant, james. If you wanted to, tomorrow you could call yourself an accountant. Is that right? It’s very true. Yeah, it’s unregulated to the point, unless you wanted to call yourself a chartered or a certified accountant. And if you want to call yourself one of them, you obviously need the qualification.

Dr James: 

That’s really interesting because I did always wonder why, on accountancy websites and professional buildings and whatever, and what have your businesses, it says, specifically chartered? So I wondered what that distinction meant. So there you go, yeah.

Mike: 

And so it’s unregulated to a point where you should just check that your accountant has the relevant qualifications. You walk into a dental practice. You expect that your dentist has the right qualifications. I suppose it’s akin to facial aesthetics in such a way that there’s a bit of uncertainty on who can actually practice facial aesthetics nowadays. Anyway, graduated in 2010, trained in contract chartered account in 2014 and then moved to Humphrey Co, which is the firm I’m a partner in, in 2014 and been there ever since, worked with GPs when I was training, which sparked my interest in superannuation, in the quirks that medical and dental accountancy has, because there is a genuine specialty there. It’s not like some specialties where it’s more of a marketing technique. Actually, dentistry, healthcare, medical there is a need for a specialist. Moot Humphrey Co. We act for now over 1300, 1400 dentists nationwide I think so with one of the largest dental accountants out there. And then I’ve just bought my portfolio up for the last six years to now acting for a few hundred dentists in my portfolio, supporting them, from newly qualified dentists going through their FD year, working out how to first set themselves up as sole traders all the way up to corporates only multiple practices, selling practices, inheritance tax planning, retirement planning and all of that stuff. So holistic approach all the way through.

Dr James: 

Interesting stuff. Was there a reason that you chose to pursue specifically dental accountancy as a specialty, or was it just something you kind of just fell into it somewhere along the line?

Mike: 

Yeah, I fell into it more than anything. I think the training firm having the GP kind of specialty started my interest in healthcare. Humphrey Co, being dental orientated, maintained that interest and now my partner is a doctor herself. So you know, as an accountant I act for probably 75% of my portfolio is healthcare and 75% of that portfolio is dentist. So I’m not dedicated to dentist full stop. I’ve got property investments, plumbers, electricians, weird and wonderful friends and family in there as well as you do. But yeah, dentistry is very much the main specialty for me.

Dr James: 

Excellent stuff On the topic of dental accountancy. Let’s get into the nitty gritty of what we came back to do today. I want to know. I’m one of those people. Not, I have to. I’ll give you a little bit of an anecdote about me just to kick off. I had an accountant, but let’s just say, for one reason or another I decided to go separate ways from them. I didn’t really believe he was confident. I originally had a accountant who was part of now I can’t remember the exact name of the association, but it was something along the lines of the guild. The guild, okay, specialized dental acquaintance, UK nationally. I can’t remember exactly what it was. Maybe somebody who’s listening was let me stop you there, james.

Mike: 

It’s probably, it’s probably Nazdow. The National Association of Specialist Dental Accountants and Lawyers.

Dr James: 

I knew it wasn’t guild, but I knew it was something like that. So he was part of this community or this organization and I went see him and I was thrilled with the guy. So you paid a little bit more but he knew all the ways that you could. You know all the exemptions, all the ins and outs of what I need to do, and I was just a foundation dentist at this point. So he said when you get to this stage, you can be prepared to expect this blah, blah, blah stuff like that. Talk me through it. And his business. It got sold to another guy and then he retired. So I went to see this new guy and we were talking about we had our little two and fro about we had a meeting to before I filled in my tax returns or before he did them for me, just to get my pay slips and things like that. And then he kind of rounded it off and he finished the meeting and I said aren’t we going to get on to my exemptions? And he said something along the lines off, oh, I suppose we should. Yes, what exemptions have you got? I was, I was telling him the exemptions. Okay, yeah, I was telling him and he was writing them down and I was saying you know what about laundry? What about my laptop? What about my GDC? And he obviously hadn’t heard of any of these. And he got to the point where he was saying, oh, that’s a good one, didn’t think of that. And I just thought why am I paying?

Mike: 

Yeah, and this chap.

Dr James: 

I noticed that the prices were exactly the same as well. So, rightly or wrongly, I went my own way this year and I did it myself. Okay, now it seemed to be fine. All right, I wouldn’t necessarily. It’s nice to have the reassurance of a count, an accountant 100%, yeah, why do you think? What do you see most often in terms of mistakes that dentists make when they fill in their own forms that you, as an accountant, have to rectify, and where are the pitfalls that we may go wrong?

Mike: 

I mean, ultimately doing your tax return is absolutely fine. Okay, I’m treating myself in the foot here. It’s a self assessment regime.

Dr James: 

Logging. No, I appreciate that. Thanks for your honesty. That’s good.

Mike: 

That’s all I’m about to be honest, james. It’s a self assessment regime. You assess yourself or you appoint someone to assess it for you. Okay. Before self assessment, hmrc used to assess every taxpayer. You can imagine how laborious that was. It was a rubbish system. And the self assessment regime came in, which means it’s up to you guys and go back to when you were a foundation dentist it’s up to you guys to ensure that you file an accurate tax return. Okay, and that means that it is correct, and I can pretty much guarantee that, as an FD doing your first tax return, you’re going to miss out things. That’s not the be all or end all.

Dr James: 

Look, if you miss out on some expenses and you overpay tax, hmrc don’t care trust me, because in FD of course your tax is already accounted for through your FD practices. A content, but yeah, purely on the exemptions. There you don’t have the first clue, or at least I didn’t when I was in FD. You’re quite right.

Mike: 

Exactly. But then you step out of the FD shoes into the associate position and very quickly you need to do all the dentistry. But you need to run your own business as well. Now don’t get me wrong, and we’re touching this in a minute. As an associate, being self employed, life’s actually pretty simple. You haven’t got to chase debts, really. I mean, okay, if you’ve got a principle that’s not paying you, okay, maybe you have to chase that, but you haven’t got to chase lots of debts from your patients. You haven’t got to worry about VAT returns. You haven’t got to worry about where the next money’s coming from. Generally, the life is quite easy. The bank balance generally goes up, unless there’s a pandemic and associates can tend to relax a little bit. But going back to the point, doing your own tax return, you probably will end up overpaying. That’s my assumption. Okay, because you’re probably not going to include all the expenses you’re entitled to. Now, the obvious things you want to include, you know GDC indemnity, courses, conferences. But there’s some things that you may not include laptops, ipads, cameras, macro lenses, flashes, but also, you know, mobile phones. But you can’t include all of that, especially we’re talking mainly about sole trade dental associates here. A mobile phone, for example, you may only use 50% of the time for business. 40% of the time for business. You may not be entirely sure. And that’s when your accountant comes in and says well, james, if you’re thinking 30 to 40% business use, let’s err on the side of tax relief and push it to the higher bit, because it’s a judgmental thing. But then you’ve also got to know that you can’t claim certain things your income protection insurance, your general clothes. You know the amount of times I see an associate or let’s go to a consultant in Harley Street of claiming his £2,000 Hugo Boss suit every single year against his tax return. He has to wear that yeah, of course he has to wear that to show his clients that he’s. You know what he’s all about. But that’s not tax deductible, that’s not protective, it’s not branded uniform and HMRC will not allow that. And that’s where your accountant steps in. Your accountant says, no, look, if HMRC look at this, they’re not. This against the rules. You cannot claim that. Now you as a dentist, you’re not going to know that. You may know it, but generally you won’t know it. So your accountant will then just dampen down your enthusiasm as to what you can claim. Make sure he’s acting the best interest for you. My number one job is to make sure my clients pay as low a tax as legally possible. Legally is a very important work. We’re not going to break any rules but we’ll make sure we’re claiming everything you’re entitled to claim. And then things like James you may have not if you’ve done your own tax return this year, things like use of home as office. So you know, the more work you do at home, the higher the amount you can claim. We claim an estimate for all of our associates because we understand that our associates will be doing CPD costs. So CPD courses, research, looking at the tricky patient, you know if you’re doing Invisalign there’s a lot of planning that comes hand in hand with Invisalign and therefore you may be doing your planning at home and therefore you can maybe increase that use of home as office.

Dr James: 

Oh interesting, I didn’t know that.

Mike: 

Yeah, it’s about being justifiable. Look, if you do you do maybe an hour, an hour a month at home, then you’ve got really small claim to make. If you’re doing, say, a day a week on planning and Invisalign treatments and other you know specialist areas at home, then actually we can look at increasing that claim to make sure your paying is low tax as possible.

Dr James: 

Real quick, guys. I put together a special report for dentists entitled the seven costing, potentially disastrous mistakes that dentists make whenever it comes to their finances. Most of the time, dentists are going through these issues and they don’t even necessarily realize that they’re happening until they have their eyes opened, and that is the purpose of this report. You can go ahead and receive your free report by heading on over to wwwdentistinevestcom forward slash podcast report or, alternatively, you can download it using the link in the description. This report details the seven most common issues. However, most importantly, it also shows you how to fix them. Really, looking forwards to hearing your thoughts. That’s really interesting. That one or through on top of what you’ve just said, the original guy that I went to. Apparently your Christmas presents are tax deductible that you give to your staff members. Should you still wish as well One? Was he wrong? Was that right?

Mike: 

Well as an associate? No, because they’re not your staff members. Oh, that’s the problem You’ve got yourself employed and they are not your staff members as a principal, then maybe as a principal, absolutely. So you get these things called trivial benefits for principals, which is an excellent relief If any principals are watching or any associates that operate via a limited company. If you haven’t heard of trivial benefits, bring up your accountant and get them to explain them to you because, trust me, I can get you tax relief on wine or anything else that’s under 50 pounds in value. And I think if you take anything from today, take the fact that you can get tax relief on wine.

Dr James: 

There you go. There’s a myriad of things there. The Christmas dinner and Christmas present was a really interesting one that I learned about. I’m sure there’s like a hundred more, but that one seems to stick in my mind. I wanted to ask as well, when dentists come to see you obviously we’re not necessarily financially literate If you could duck a list on the door and you said on that list, please read this before you came in basic terminology that everyone could do with using, what would you put on?

Mike: 

that list? Well, that’s a great question. I mean, I’d probably start with companies. For an accountant, a company would indicate that it is registered with company’s house and it is a legal entity and therefore it’s a limited company. As a sole trader, I would say you are business, you are not a company. Again, it’s a small thing, but it’s a thing that tends to be mentioned incorrectly in the dental world. You also look at the taxes out there. The amount of times I speak to someone about the income tax that they can save when they claim this expense and then they somehow translate that into VAT, which are two very, very distinct and different taxes. Just a basic understanding of. I mean it’s complex, but the tax systems I mean for VAT purposes, dentists are exempt. The VAT doesn’t come into dental, unless you are a facial aesthetic practitioner, and then it may do, but for VAT it’s just a cost to you. Income tax is what you pay, that’s your, dare I say, painful expense every January and July. That’s the big E, isn’t it? Yeah, yeah, I mean they’re the main ones. To be honest, Terminology is if you have an accountant that understands dentistry, then actually the client doesn’t need to understand accountancy because you can tend to work on the same wavelength, and I think for me that’s the most important thing, because we get what you’re talking about already and we can correct you if necessary.

Dr James: 

Speaking of income tax, what are the balance these days? Because they seem to change a year. Changing every year is too frequent for me to keep up. Let me tell you.

Mike: 

But rest assured, 1920, the one that actually turned, everyone should have filed by now or is going to file in the next six weeks. And 2021, the current tax year we’re in now actually not a lot’s changed and it’s the first year that not a lot’s changed in a quite a while. Prior to that, the personal allowance keeps going up. Okay, so the personal allowance now is 12 and a half grand. Not anyone most people can earn 12 and a half grand paying 0% tax. And then let’s go a brief overview of sole trade attacks. You’ve got 0% tax for the first 12 and a half. The next 37 and a half, which takes you up to £50,000. Total 12.5 and 37.5 is 20%. That’s the basic rate band of tax. Then you’ve got in between total earnings of 50 and 100, you’re at the higher rate band of tax and that’s 40%. Now, if you look at the manuals, actually that will go up to 150 grand, but there’s a stealth tax in there. This is a very important thing for the listeners to realize. I’ll go on to the stealth tax in a second. Let me just explain the other things that go hand in hand with salt trade. You’ve got national insurance. Class 2 national insurance is pittance. It’s £150 a year, let’s not worry about it. It’s actually a good tax to pay because it gets you your credit for your state pension Very important that you all get 35 years in the state pension to get your full state pension. But class 4 is essentially tax. That is 0% for the first 9,500. Then it’s 9% up from 9,500 to 50,000. Then over 50, it’s 2%. That’s 2% in perpetuity all the way up to 2M pounds. If you look at effective tax rates in that bracket, if we just assume 9,500 and 12,500 for the same figure, you’ve got 0% up to 9,500, kind of 12,500. Then you’ve got 29%, 20% tax, 9% national insurance up to 50,000 pounds earnings. Then between 50 and 100, you’re at 40% tax, 2% national insurance, so 42%. That’s why when we’re looking at working out how much tax you should save, we’re looking at not 20% and 40% tax, we’re looking at 29% tax and 42% tax. You can’t forget national insurance, student loan at 9%. On all of that, unfortunately, deep breath, stealth tax. You can see I get excited about these things. This is literally my bread and butter.

Dr James: 

This is really interesting because I’ve never had anybody actually just spell it out and tell me exactly what these constitute Word for word. So I’m listening intently, I must say, Excellent.

Mike: 

So let’s go on to the Stealth tax Complex, a bit more complex than what I’m talking about. Everyone that earns under 100,000 pounds is entitled to that tax-free person allowance, that 12,500 pounds tax-free. However, if you start earning over 100,000 pounds and there’ll be listeners that, of course, are earning over 100,000 pounds that 12,500 starts getting abated. So for every £2 over 100,000 you earn, you lose £1 of personal allowance. Put that into context Earnings between 100 and 125,000 pounds are taxed at 60% effective rate. You’ve got your 40% tax and your 20% loss of personal allowance. Okay, 2% national insurance in that band as well, and 62%. If you’ve still got a student loan and those that started university after September 2012 probably do, because they’ve got the highest student loans that’s 9%. All of a sudden you’ve got 71% effective rate, 29p to the pound you’re keeping. Then you get the conversations of what’s the point? I might as well enjoy my life more. I might as well not work that extra Saturday and actually enjoy my life. Or I might look at limited companies because I can guarantee if that practitioner, if that dentist, is earning 100,000, he’s not earning it or she’s not earning it by doing NHS dentistry. Yes, there may be some NHS dentistry, but they guarantee there’s some private dentistry going on as well.

Dr James: 

The limited company is a whole other cattle of fish and we’ve got it stored right here on the class before you come in. That is another one that we can flesh out. But income tax in itself, as I say, I knew the tax bans well, I roughly knew the tax bans, but I didn’t quite know the ins and outs of them to that level.

Mike: 

Yes, we’ve simplified it, James, we can. What we say to our new clients when they come? We always have an hour consultation, face to face if we’re lucky enough Location is always an issue for us because we operate nationwide but on the phone most definitely and we’ll ascertain earnings and then we’ll work backwards from earnings an average amount of expenses to work out exactly what percentage of their income they should save. Okay, I want to keep things simple. If I can tell you that, if you’re an associate earning between four and six grand a month pretty much hits the majority of associates that are coming out of their FD year and they’ve got a student loan that if they save a third of their income they’ll be all right for tax. They don’t need to worry about 40%, 42%, not percent, for a bit, etc, etc. And just dumb it down and keep it as simple as possible. Those that want to learn will ask the questions and we’ll have that more detailed conversation, but some just don’t want to.

Dr James: 

Broadly speaking, correctly or from wrong, 12, 1, 2, 5, 0, 1250, l is your standard tax code. That’s correct, isn’t it? Yeah, with these exemptions that you’re talking about, for your standard sort of associate, maybe on 60, 70k a year, where would you expect to be able to get that number up to? So, just for anybody who doesn’t know, 1250 L means that now, as I say again, mike, it’s your forte, so correct me if I’m wrong. 1250 L my understanding of it would be that that means that before you earn 1250, there is zero tax on that, and that L signifies that you’re on the standard rate. Yeah, now, with your deductions and your exceptions and things like that, that rate can be increased. So let’s say you decide that you’ve got 100 points of business expenses, then that will become 1260 L, something like that.

Mike: 

Yeah, yeah, but what you’re talking about, james, is very much an employed dentist, someone that’s working in hospital, which is the big difference. If you’re self-employed associate, you won’t have a tax code, because no one’s deducting tax at source. The tax code is for employed dentists that work in hospital, or my dentist and other regional kind of dental roles that are appearing at the moment, which will allow your employer to deduct tax at source, and because they need to deduct tax at source, that’s why you get a tax code, so they can more accurately deduct your tax.

Dr James: 

Oh, I thought that everybody had a tax code. So there you go. I’ve learned something as well again tonight. Interesting stuff. My question was going to be at what level do you think we should expect to be able to elevate that code after deductions? Typically, yeah, and for anybody who is employed, let’s get into that because they might find that interesting. There’ll be a subsection of dentists listening to this, maybe about 10%, 15% who are employed and perhaps will like to learn that.

Mike: 

Absolutely so. It’s very important to understand that employed roles is very different to self-employed roles. So employed you can only there’s limited amount of expenses you’re allowed to claim. Ok, it’s to go technical. It needs to be wholly exclusively unnecessary for your employment, ok, and that necessary word. It’s really sticky. It’s really difficult to overcome. Hmrc don’t like it. I’ve got a friend who’s a pediatrician, works in hospital. We wanted to claim her stethoscope against her tax. Yeah, she needs a stethoscope to do her job. She works in the Royal County in Brighton. It’s one I think is the oldest working hospital in the UK and they don’t physically supply adequate alternatives. But HMRC wrote back and say you’re not claiming it because the hospital should be providing you with a suitable alternative. And that’s the end of the topic. We’re not. There’s no point even fighting them about it. We could. But once you add in my time and the stress and everything else that goes into it, for a few quid tax relief on a stethoscope, it’s just not worth it. So with a DCT, a Max Fax, anyone that’s following a career in hospital, dentistry you can’t claim courses and this is a fundamental thing. That I think is unfair. Courses aren’t necessary for employment. Hmrc expect all employers to pay for their employees’ costs further qualifications. Of course we know the NHS aren’t going to fund that kind of stuff and there was actually talks of getting that changed but HMRC threw it out again. It was about a year ago, 18 months ago, they threw that out. So what I actually advised to a lot of dentists doing DCT, dct123, max Fax etc. Is maybe pick up an associate position, become employed and self-employed, especially if you’re doing further qualifications, cpd etc. Because then actually you can claim your CPD cost against your self-employment, which will make you more efficient over the next few years whilst you’re doing further qualifications.

Dr James: 

There is no end to the wizardry with taxes. There really isn’t.

Mike: 

Wow, I didn’t answer your question, though I think I sidestepped it. As a hospital dentist, gdc and Density Insurance, laundering and Cleaning only 80 quid. Trust me, as a self-employed associate, you claim more than 80 quid for your laundry and cleaning, but 80 quid is what HMRC allowed for an employed dentist and your BDA. I know BDA is not necessary, but if you are bored enough to look up HMRC’s list three, you will find BDA on HMRC’s list three. I have no idea what list one or two are, but list three is the one that you want and they’ll allow that. Other than that, you really really struggle. You’ll get your loops through, of course, but your loops you’ll have to do a tax return for it. It’s another bit of an administrative burden. Other than that, you can’t really get much more claimed and, as we mentioned earlier, james, as an associate, to reiterate, we can look at laptops, ipads, cameras, macro lenses, courses, conferences, cpd costs and there’s a lot more that we can actually do to bring that tax down Magic.

Dr James: 

Anything else we should know about in terms of things that we could be saving on and taxes. We’ve done, exemptions, Exemptions, we’ve done to death, and all of that was really interesting. I’m just thinking outside the box and I have anything else you would suggest or comfortably. You tell people or quite advise people on.

Mike: 

Yeah, there’s two or three. Again, we’re going to stick with expenses. Just for these two or three comments, because I speak to a lot of young dentists that are finishing their FD year, going into their first positions, maybe picking up first associate positions. It’s about being clever with a tax system if you can, if you’re looking at going to save, like the BDIA, if those things ever get up and running again, the dental showcase in the NEC or the XL, or even if you’re not. But even if you wanted to catch up with your dental school buddies or dentists that you know from across the country, if you went to London just for a night out catch up, that’s not tax deductible. If you went to the NEC or BDIA Friday, saw what you wanted to see in the BDIA, stayed overnight, then all of a sudden your hotel costs your reasonable amount of food and drink whilst you’re there become tax deductible. Your Friday night bar bill until when you’re out at two in the morning still isn’t an allowable expense. But you’re just manipulating that ability to claim tax on something that would would ordinarily be a personal expense. So making sure you’re doing that is quite essential really to minimising that tax. But also you know you can look at motoring costs. For most dentists motoring costs are tiny. But if you’re doing the odd locom, if you have to go to the practice on an emergency, if you know you pick up a trip to the lab or whatever, make sure you keep a note of that kind of stuff because, again, you can claim some tax relief against your motor running costs, not loads. Dentists that claim loads of motor probably are not being overly truthful, because dentists just don’t do a lot of motor costs, unfortunately. If you’re principal, yeah, there’s a bit more room for play, but as an associate, not so much, because home-to-work commuting isn’t allowable Making sure you’re looking at claiming any tax credits that you’re entitled to Again, as dentist you’re not going to be entitled to many, or not? You’re not in that bracket of lower earners that can claim things. But child benefit, for example, if you’ve got children, you can claim that child benefit. If you earn over £50,000, you may need to pay some of it back. If you earn over £60,000, you need to pay it all back. But again, if we look at limited companies, as I think we’ll go on to there’s a way to flexibly decide what your personal income is and therefore you may just be able to drop back into the ability to claim those child benefits. Again, you look at the £100,000 mark. There’s a horrible limit of if you go over £100,000, and we’re talking the higher earner and the household, and again we’re talking with those with children you can no longer claim a 30-hour free childcare and you can no longer claim tax-free childcare as well, which is quite expensive. You just creep over that and all of a sudden you lose all these benefits. So, again, limited companies may be allowed to manipulate that slightly. Other than that, no, there’s not a lot that you’re missing out on. Unfortunately, the pandemic tended to miss a lot of dentists, the £50,000 limit on profits and obviously those that are new dentists couldn’t claim either. So, and limited companies, again, the support there. But of course, if you were entitled to the self-employment income support scheme, make sure that you’ve been claiming that through the pandemic times, the lockdown times.

Dr James: 

I mean, from what I’m hearing from you, it sounds like the expenses in themselves are probably about a bit worth in there. On top of that, there’s almost a relief to hear there’s not too much more to worry about. But I must say this is so much more nuanced than I previously thought it was. Let’s settle the old debate. Or even if it is I don’t even know if it is a debate these days I think one’s unequivocally better than the other, or so lots of accountants would say so. All treatment versus limited company pros and cons. What are your thoughts?

Mike: 

Yeah, okay, first thing to say is not black and white and it needs to be on an individual basis. Yeah, if you didn’t have the quirks of dentistry, it is a lot more black and white, but with dentistry it’s not black and white. So, generally, you need decent earnings in order for limited companies to become beneficial, and when I’m talking decent earnings, I’m talking at minimum over six grand a month. Okay, under that, because you’re not going to be earning 50 grand a year. And if you’re not earning over 50 grand a year, you don’t go into the higher rate band of tax and therefore you’re not going to be saving a lot. If you’re a basic rate tax payer, you may as well be a sole trade dentist. We need to look at the quirks before we can then decide whether limited companies are better or not. And one of the big quirks, and something I think that one of the future podcasts is going to focus on I think you’ve got an IFA speaking, james, soon. Have you got Luke Hurley coming on?

Dr James: 

That’s correct yeah.

Mike: 

Next guest, excellent. So he’ll speak to you about your pension. But superannuation is an issue, okay, and superannuation and limited companies don’t go hand in hand. So you’ve got a choice. You’ve got three choices. You can opt out of superannuation. I can’t advise on that. If I could be in the pension, I would be. It’s a bloody good pension, okay. You pay a lot into it, but you’ll get a good pension in retirement, yeah. So don’t take that lightly. But you could opt out. And if you opt out, you can put all of your income through that limited company, no problem, probably advisable. If you’re a fully private dentist, you’ve got no NHS issues and therefore, yes, fully limited company, no problem. Second option don’t be a limited company, and that’s always a consideration. Okay. So you’ve got sole trader, you’ve got limited company, with annoyance of superann. Or you’ve got a third option, and this unfortunately does depend on your principal, and if it’s Booper or Roderick’s, they’re not going to let you do it For this reason. That is a bit backwards. It’s to do with IR35. It’s to do with the employment status of a dental associate and they won’t allow dentists to split their business into NHS and private. Okay, but a lot of my clients, if it’s worthwhile. Don’t get me wrong. You pay more in compliance costs. It’s more complex when accountancy viewpoints. So you know that cost needs to be taken into consideration and when we do an incorporation appraisal we’ll look at cash in pocket for you, the client, not saving tax. There’s no point me saving you a grand in tax if you pay me 1500 quid more. You’re 500 quid out of pocket. So we’ll look at cash in pocket and we’ll make sure that by doing this you’re going to be better off. And the things that, for me, trigger incorporation and splitting your business. And splitting your business, as I said, you need your principal’s approval. Your principal needs to give you two pay schedules One with your NHS earnings, your UDAs at 10 pound, 11 pound, whatever you get in page. Your NHS lab fees at 50%. Your superannuation amount payable to soul trade dentist paid into your soul trade, your normal bank account. Second payslip, private income, 40%, 45%, 50%, whatever your agreed terms are Private lab fees at 50%. Any other private deductions associated with that, that amount paid into your limited company bank account, ideally limited company on that pay schedule, ideally two associate contracts. It’s well worth getting the paperwork up and ready and involved and proper. You can then have the best of both worlds you keep your superannuation and you get some tax savings from a limited company. And why you get tax savings from a limited company is because limited companies pay tax flat rate. Doesn’t matter if it’s a pound or 2 million pounds at 19%. Okay, 1, 9%. Remember earlier, we’re speaking 42%, 62% as a soul trader and you can see the differential in 19 compared to 60, potentially 60, 40%. And for you guys, especially those that are looking at investing, this is where I get quite excited, because if you can survive, if you can earn 65 grand the average associate’s income, 65, 65 grand If you can live on 50, then you’ve got surplus cash. And if you leave that in a limited company and it just gets taxed at 19% instead of 40%, then you’re going to be saving a lot of cash. But what’s the point in having a cash-rich company? Because that company gets more and more cash-rich. But then you look at what you can do with it. Okay, private pension contributions, yeah, possible Electric cars really tax efficient at the moment. Why do you think you’re seeing a lot of consultants and principals driving the Teslas and the Polestar and the I8? Because they’re getting good tax relief on them. You can look at dental practice investments, but not only that and more interesting from sure loads of your listeners, james cryptocurrency, stocks and shares, other investments. Companies can hold all of that stuff. You can start actually investing in them. Yes, there’s more red tape. It’s a lot more difficult to go and get. I don’t even know if the crypto guys will allow you to get crypto assets in a company’s name. Sorry, don’t know the answer to that.

Dr James: 

HMRC. Don’t care, I believe you can.

Mike: 

You can.

Dr James: 

It’s a lot more, just like you say it’s more red tape to set up a limited company account on an exchange from my knowledge of it, that’s what I thought.

Mike: 

But it’s like gold. A company can invest in gold any commodity it wants to invest in and then, instead of you guys paying CGT on your crypto, let’s look at that, where you’re going to pay 20% if you start making some good gains. Your company’s going to pay 19% on any gains. So your 20% and 19% isn’t a big differential. But if you’re talking big amounts, then actually it’s quite. Remember, you’ve got flexibility in a company. The beauty of a company is it pays 19% and you build wealth in this company and it still pays 19%. You only pay any more when you take that cash out. You’ve got to remember a company is its own entity. That cash isn’t yours. You control that cash, but it’s not yours until you take it out. When you take it out, you pay an additional tax, a dividend tax, be taxed at 7.5% or 32.5% depending on your other income. But the beauty of it is you decide when you take it out. There was a question on the Facebook group which surrounded I don’t want to take my cash out because I don’t want to pay the tax. Well, there’s not a lot actually you can do about that. But if you’re looking at your tax differential between you being a sole trader and you being a limited company, because you’re not taking all that cash out, you’re automatically saving tax. You take some of it out at the higher rate, you’re still saving tax. Yeah, your tax goes up, but you’re still saving tax. And the beauty, really, for me, is when this wealth grows and it gets bigger and bigger and bigger. Trust me, at some point the tax actually becomes not as important as what it is now, because you’ve got the wealth and you’ve got that’s there, sitting there safe. So if you take an extra 50K out and it costs you an extra 20K in tax, okay, you’ve got the wealth. Yeah, and that’s the beauty of it, especially for anyone looking at building up decent investment in a company. It’s definitely the way to go now because it’s just a lot more rigid. It’s a lot more safe.

Dr James: 

Really interesting stuff and this might be a silly question, but I’m going to ask it anyway. Obviously, we all know about cash sizes, things of that nature, where we put the money in it’s tax-free obviously the gains on it are tax-free, but you get tax coming out the other end. Is there a similar account along those lines for businesses, limited companies? I don’t think so. I thought I’d ask anyway.

Mike: 

No, but this is a very good question. So a company can’t have an ICER. An ICER is for individuals only and really good saving techniques, and you guys out there should be looking at putting something away in an ICER. Without a doubt, I’m not an IFA, but that’s just a sensible thing to do because, like you say, tax-free growth, which is really beneficial With a company if it invests in stocks and shares. You’ve got your stocks and shares ICER. But if a company invests in stocks and shares, which it can do it can buy shares in any company. It’s completely fine. Again, a bit more red tape. Dividends that are paid from shares that your company owns are paid tax-free. There’s no tax between a company and between companies on dividends. So if you start actually having a decent shareholding of random shares in your limited company, your associate company, then you’re starting to get a passive income into your limited company and then you again decide whether to take that passive income out to spend on your personal living.

Dr James: 

I’ll tell you what. I’m glad I asked that then, because that is really useful, particularly if you’re getting lots of dividends. It’s compelling, isn’t it almost? And then you can sorry this may again, this might be a silly question you can use those dividends to reinvest tax-free, you can’t brilliant, wow, I didn’t know that. Interesting stuff.

Mike: 

What’s actually interesting with this so I think it was a bit later on in my idea of when we were going to bring this up, but it seems to link quite it nicely in is these family investment companies. So you’ve got two terms and actually, going back to your terminology thing, the SPV and family investment companies are two things that I’m going to band out there. So a special purchase vehicle is just a limited company that does nothing else other than buy a rental property, and if you wanted to invest in rental properties, you would need an SPV probably. Let’s park that one and think of rental properties again in a minute. A family investment company FIC Short and it’s only been around for a few years is when I first heard a bit, I think, and again, it’s nothing special. It’s just the company that holds investments and it can be property, it could be stocks and shares, it could be some crypto assets. Entirely what you want it to be Wouldn’t generally have your associate income coming in, because it’s a family investment company. If you have your associate company for your private income, it may be connected via a group of companies. Again, this gets very, very much more complex and you need to take individual advice. But what a family investment company does is it looks, inheritance tax and capital gains tax planning and again, for those that are looking at passing wealth down generations, instead of having a property that you pass to children, which can be very expensive from capital gains tax and inheritance tax If you have it in a limited company, when they become of age okay, that tends to mean 18, but trust me, you may not want an 18 year old boy having some control of your family investment company, so you may decide to wait a little bit longer.

Dr James: 

I certainly wouldn’t have trusted myself. I’ll say that much yes, snap Absolutely.

Mike: 

You can pass maybe 5% of the shares to the children, and you can pass 5% a year later and you can manipulate the tax system to smooth out capital gains tax and smooth out inheritance tax with this thing called a family investment company. So certainly worthwhile thinking about for anyone out there that’s keen to pass cash down generations 100%.

Dr James: 

When you spoke of the red tape earlier the red tape with regards to storing the money in the company obviously this company is a completely separate legal identity to you yourself as an individual. And then, as well as that, from what I know about my loose, my sort of vague knowledge of limited companies is you’re bound by law to always do what’s in the best vision at that point for the survival of the company. So where does siphoning off this money fit in? Okay to you acquiring your money in your hands as an individual, versus also doing the best for the company, because when you start taking loads of money out, that’s clearly not in the best that company’s best interests. How do those two marry up, or how does that work? Or is that fine? You can take out as much as you want at any time.

Mike: 

It’s a great question. Absolutely fine, unless the company is going insolvent and therefore looks like it’s going bust. It’s going bankrupt. It can’t pay its other debts. What wouldn’t be happy is if it’s got a bank loan, if it owes some money to someone and the director’s shareholders the owners start taking all the money out and then it can’t pay its debt and then it goes bankrupt. Then not fine, okay, quite serious, of course. But so long there’s enough cash for the company to survive, you take that cash out. It’s absolutely fine. If that cash is surplus to requirements, then you take it out. It’s not a problem at all. That company makes decisions. You make the decisions for that company, and paying shareholders a dividend and you are the shareholders is the company’s choice and that is what’s right for the company at that time, because you decide that’s what it should be doing. So you’ve got no concerns.

Dr James: 

That was always something that confused me a little bit. But, yeah, providing you’re not in total arrears and this company has got massive bills to pay any of those other people money, then that’s completely fine, fair enough. So that’s, yeah, good news. I’m glad to hear that. That certainly makes me think a lot more about whether or not I should decide to get a limited company or not, because that was one of the things that held me back, and it sounds like I’m sure there’s I’m sure there’ll be other people in the audience who perhaps thought that as well.

Mike: 

Yeah, well, it’s a good question because you’re right in saying directors need to act in the best interests for the company. Okay, and as a small company, as we’re talking about, you would be shareholder and director and therefore you do have statutory duties and one of them is to always act in the best interest of the company. But, yeah, not a serious issue, as you thought it was Sounds like it.

Dr James: 

Mike, thank you so much for all of that. That’s been really, really interesting. How do you help you get I think you’ve already told us there’s already indirectly but how do you help dentists at Humphrey and Co achieve more tax savings?

Mike: 

Okay. So let me dispel something in that it’s not always all about tax savings. Okay, I want to save my clients tax yes, absolutely. But I also want to make sure that it’s correct. So we’re talking about tax legally, tax saving tax. Okay, tax evasion isn’t legal. Tax avoidance is legal. You’re allowed to avoid tax and you’re allowed to structure your fares to pay as low a tax as possible. And that’s what we’re going to be doing and that’s where we really get you know, feel like we’re winning and adding service. But also it’s saving saving clients tax. It’s also saving top clients time, stress, money and letting them enjoy life more, because there’s nothing worse than always chasing your tail in that vicious circle of tax savings and not having enough to pay and not budgeting adequately. So we’re doing the holistic service of making sure our clients are comfortable. Of course, we can’t help everyone. Some clients will just go and blow all the money they’ve got on whatever they want to spend it on, but we’ll make sure you’re saving as much as you should, we’ll make sure you’re structuring your fares in the best possible ability and we’ll do it, all you know, at what I would argue is a reasonable price for the service that we’re performing. I think you’d be probably surprised as to the fees. I think, once you take into account tax savings on the accountancy fee, of course, it’s an allowable expense like all your other expenses. You know you go do a day for, dare I say, a day, low, come at my dentist or one of the other corporates and get yourself 400 quid in your back pocket for a day’s work. You’re probably there or there about, and would you not rather do a day extra dentistry rather than stressing about your personal tax return, overpaying tax on illegally underpaying tax, and get a professional to actually give you the reassurance that it’s correct?

Dr James: 

Interesting stuff. So if anybody would like to get in touch with Mike, feel free to head them up. He’s on the group. Mike Ryan, of course, Mike, it’s been an absolute pleasure tonight. I’ve learned absolutely loads. Thank you so so much.

Mike: 

Thank you, james. It’s been, it’s been really good to speak to you.

Dr James: 

Smash and stuff. We’re going to delve into some questions from the group now, if that’s okay with you.

Mike: 

Absolutely.

Dr James: 

So first up on the post, we’ve got Cameron Curry. He’s asked a question that we’ve already touched upon already. He would like to know if a limited company can buy and hold crypto. I believe they can, cameron. I don’t know the exact details you may, unless Mike can offer any more insight on that.

Mike: 

HMSE will absolutely accept it. It’s not an HMSE issue. It may be a cryptocurrency issue, and that’s something that I don’t have the knowledge and, unfortunately, I’ve never done it myself, Cameron, but I believe he can.

Dr James: 

I’m not asked. I’m not entirely exactly sure as to how you might go about that. The second question providing they can own cryptocurrency, does that change the SIC code of the limited company?

Mike: 

Yeah, that’s a good question. So your SIC code is an indicator as to what your company does. So if you’re talking about an associate company that’s bringing in 80 grand a year and you’ve got, say, a thousand pounds worth of crypto assets in there, I would argue that’s not material, it’s not substantial enough to change the SIC code. If you’re doing the same thing and actually the cryptocurrency is 20 grand the asset, then yes, you probably should consider changing the SIC code. Who cares about the SIC code? Not many people, except the banks, to be perfectly honest. That’s where they will measure their risk if they’re going to lend to you. So technically, yeah, if it’s a reasonably sized investment, you should be changing your SIC code.

Dr James: 

There’s a third part to this question hiding in here as well. If a limited company buys the crypto, does that have to be done with profits after tax, or is the purchase classed as an asset and therefore deductible from profits before tax?

Mike: 

Yeah, that’s a great question. So imagine and if you go back to simplicity, we ignore crypto Imagine we’re talking about US dollars. It’s a bit easier for illustrative purposes If you go and buy a thousand pounds in US dollars, do you think you’re going to get tax relief on that purchase of a thousand US dollars?

Dr James: 

Me. No, it’s the short answer. No, because I was going to say that it depends if it’s in a spread bet, in a coin or something like that.

Mike: 

Well, the short answer is no. All you’ve done is you’ve transferred a thousand pounds into I don’t know $1,100. That’s not an expense. That’s not an deduction. You don’t get tax relief on that, because all you’ve done is moved something from one cash to another cash. That’s all you’re doing with crypto. It’s not a deductible expense. You don’t get tax relief on it. It’s held as an asset and if you start making gains, which is obviously the aim of the game, then you would pay tax on that gain. And again, sole trade 10 or 20 percent. Limited company would be 19 percent.

Dr James: 

Britain is one of the few countries in the world that actually has really clear, quite clear rules on crypto assets. So your capital gains. Now again, mike, it’s your forte. Your capital gains kicks in. The figure is $12,600 per minute, correct $12,300,.

Mike: 

I think $12,300, big part of it.

Dr James: 

I don’t quote me Over and above that. It only happens if you crystallize, so you realize your profits. So you can have Bitcoin. You can have one Bitcoin. It’s worth $10,000. It goes to $20,000. You don’t owe any tax unless you sell it. Yeah, exactly, if it goes back down below $10,000, well then, at that point you still don’t owe any tax, even if you do sell it at that stage, because you haven’t sold over that threshold, providing you have no other assets. America is an interesting one. You’ll know more on this than me, but I believe you have to pay taxes on your unrealized profit in America.

Mike: 

America is a yeah, america has the worst tax system in the world. So we’re actually, as a firm, one of the few that can advise on US taxes. If you look at the top 10, you’ll get US tax in there. But our tax partner can do US tax returns and I speak to him about it quite regularly. I’ve got a few American clients and it’s just a nightmare. It is horrible and I’m not even going to pretend to understand it. But you’re right in that you can pay a lot of tax on things actually cash you don’t have In the UK, as you mentioned, you only pay that gain. If you crystallize it Now, actually, what used to happen is a lot of people used to say investment in Bitcoin was gambling and therefore tax-free. Gambling in the UK is tax-free. You go to the casino, win rare, rare I get, but you won’t pay any tax on that. And what they used to say? Oh, bitcoin’s never going to go anywhere and therefore it’s a gamble, and if it pays off, then I’m not paying any tax on it. Hmrc chucked it out the window not so long ago and no longer will accept that as a reasoning. Unfortunately and there you go into, what you’ve got is either CGT or income tax. And don’t get me wrong, some of you out there may be trading to an extent which is such a time-consuming that you should be thinking perhaps I don’t want anyone to but thinking that that’s income and not a capital gains, and therefore 20 or 40% tax and not 10 or 20% tax.

Dr James: 

Interesting stuff, and that’s the whole reason why spread betting works as well, isn’t it? Because it’s packaged in the form of gambling. Effectively, you’ll know more than me.

Mike: 

I’m quite interested in that, aren’t I? Yeah, yeah.

Dr James: 

But yeah, can you? Imagine.

Mike: 

I think so again not.

Dr James: 

Yeah, I mean again, it’s not my forte, but so my understanding of it would be that I feel sorry for the poor chaps who trade stocks over in America. I’ll tell you what because you can have a real rough one there, couldn’t you?

Mike: 

You could have One thing Go on. Yeah, you can, absolutely. One thing I was going to say is you’ve got to be careful with those that do multiple trades. So if you go from a Bitcoin to a different cryptocurrency, that is a crystallization, and you need to keep a spreadsheet or a detailed something I think you can get bots to do it now and things like that of tracking your every time you move from one to another. That is crystallization. So it’s a lot more complex for those that are pulling in and out of different crypto all the time.

Dr James: 

Yeah, I do it using a spreadsheet. But there are people I recently became aware. Someone told me, from the group actually, that the exchanges will print out a full history of your transactions which you can use. But yeah, that’s Amazing. Isn’t it? It’s a taxable event, isn’t it? And it doesn’t just supply. You turn it back to ponds. It can be a cryptocurrency, it can be anything, because otherwise that would be a massive loophole in the system. You could just turn all your profits into Bitcoin and then never pay tax.

Mike: 

Yeah, exactly.

Dr James: 

Well, I’ll tell you what I didn’t know tax could be interesting. That’s what you want from me, and I say that with zero sarcasm, irony, anything like that. Honestly, I did actually learn a ton tonight, and it’s maybe about 10 times more nuanced than I thought it was, and I for one probably won’t attempt filling in my own tax gains again and my tax returns again, because I think I’m missing out on an absolute ton there.

Mike: 

James, the day that I suggest the dentist does their own tax returns. The day I do my own tooth extraction or tooth filling.

Dr James: 

Oh, I see. Ok, that’s great. Put it in terms we can understand. Thank you very much, Mike it’s been absolutely tremendous tonight. Thank you so much for coming on the show Giving out so much value. Has been a pleasure to have you.

Mike: 

Thank you so much, james. Great speaking to you, and like I say, if anyone wants to get in touch, just drop me a message on Facebook. You’ll find my contact details.

Dr James: 

Absolutely. Mike’s in the group if you’d like to speak to him. Mike, I’m going to let you get off now and enjoy the rest of your evening. It’s been an absolute pleasure.

Mike: 

Good man, Cheers James.

Dr James: 

Top stuff. Hope we speak very soon. See you later, take care.