Sunday, 6 September 2015

It's all about the money: Finances for Young Dentists

For those of you who are entering your first job as a dentist, finances can be a tricky thing to manage. Luckily last year I had a talk with Humphrey and Co. chartered accountants to help us manage our money! Here I shall summarise some of the key points you need to know.

This Article can also be found at the Dentspace.co.uk.



Foundation Dentists

For many of you, this may be your first ever job, so payslips and tax are probably a bit alien!

The key thing to remember as a DF1 is that you are salaried i.e. you have an employer who pays you every month. This means that tax will be deducted automatically from your payslip via Pay As You Earn (PAYE). 

On your payslip there will be a tax code which tells HMRC how much tax needs to be deducted. Usually during your DF1, your tax code will be 1000L, but this may vary depending if you've had previous jobs and how much tax you've paid in the past. 

You can also increase your code number i.e. allow you pay less taxes, by claiming back money on professional expenses. You claim these back either by filling in a tax return or writing to HMRC directly.

Professional expenses include:
  • Subscriptions e.g. to journals or magazines
  • GDC ARF 
  • Cleaning and laundry 
  • Indemnity fees
  • Trade union membership (BDA)
  • DBS checks
  • Health checks/Vaccinations
These are wholly allowable as long as they are completely necessary for your job. If you are self-employed, you can claim for that may not be completely necessary for your job i.e. things that are not in your work contract, but are still used for job e.g. Loupes, camera etc. I will talk about these later. 

Make sure your employer gives you a P60 at the end of the tax year on the 5th April each year (the latest they have to give it to you is the 31st May). This is a record of your pay and the tax you've paid that tax year. You will also receive a P45 at the end of your employment. Keep these safe as you may need to reproduce them in the future. 

You will also pay class I National Insurance contributions which will be linked to how much you earn - this will be automatically deducted under PAYE. 


Associates

If you decide to become an associate (which a lot of dentists do), your employment will change as you will be self-employed as you are effectively renting your chair from your principal. Therefore tax and national insurance will not automatically be deducted from your pay. 

You will need to notify HMRC that you are self-employed (unless you already have an accountant who will do this for you), you can do this by phone or by filling in a CWF1 form. 

As a result, you will need to keep some money aside every month in order to pay your tax and national insurance at the end of the year - you will need to pay income tax and class 2 and 4 National Insurance contributions. National Insurance gives you the benefits of state pensions, incapacity benefit and maternity allowance.

On top of the necessary expenses you can claim for when you are employed, you can also claim for other expenses, for example:
  • Dental materials 
  • Laboratory fees
  • Accountancy fees
  • Loupes, camera and other equipment
  • Use of home as office
  • Course fees (in some cases)
  • Telephone (for business purposes)
  • Motor running costs (for example if you locum)

You will receive a tax return form just after the 5th April each year, but the first payment can be paid up to 18 months after you declare yourself self-employed.

Superannuation


All dentists who carry out NHS treatments are eligible for superannuation i.e. contribution to NHS pension scheme. When you are a DF1 or work in a hospital, these deductions will come out automatically unless you actively opt out.

There has been recent changes to the NHS pension scheme so it is no longer final salary based but contribution based. The benefits of the scheme however still are really good and it is widely considered to be one of the best pensions you can have.

During your DF1 you will probably be a member of Dentist Provident or Wesleyan (or both), so if you have any questions please speak to your independent financial advisor.

Student Loans


This will depend on when you started university and how much tuition fees you paid. 

Plan 1

This will apply to you if you started university before 1st September 2012.

You student loan repayments will start the April following your graduation and will be automatically deducted from your salary each month. 

Currently, repayments are based on 9% of your earnings over £17,335, so on the current DF1 salary this will be around £100 a month taken off your pay cheque.

If you are an associate, repayments cannot be collected through PAYE system so you have to calculate the amount you pay each tax year to the Student Loans Company. So every January, you have to be able to pay off your tax, your National Insurance and your Student Loan repayments - this can be a bit of shock if you haven't planned financially for it throughout the year!

Plan 2

This will apply to you if you started university after 1st September 2012

This works similarly to above, but the earning threshold is higher for repayments at £21,000.


Should I get an accountant?


This depends on how much self-employed work you plan to do. As a DF1, there is no need to fork out for an accountant, but if you become an associate for more than a couple of days a week or for more than one practice I think investing in an accountant will save you the massive headache of sorting out your tax returns on top of all the other stuff you have to deal with!

What you need to do no matter if you get an accountant or not if to keep records of all business related receipts as well as important tax documents e.g. P45, P60. 

Accountants also have the experience of knowing what is an allowable expense and what is not. This is important as if your records are flagged up by HMRC and they find you have claimed fraudulently, there is a massive fine you will need to pay!

When looking for an accountant you can get recommendations from other dentists or look up the specialist dental accountants. Here are some things to look for if you want an accountant:
  • Do they act for other associates?
  • Are they on the BDA approved list of accountants?
  • Are they a member of the Nation Association of Specialist Dental Accountants and Lawyers (NASDAL)?
  • Are they aware of superannuation and VAT allowances for dentists?
  • Will they give you a realistic indication of their fee?
  • Are they easy to get a hold of and make appointments with?

A massive thank you to Greg and Karen from Humphrey and Co for helping explain the complexities of finance! To see more or if you want to register for their services see their website here


If you're still a bit confused about tax, superannuation or student loans please leave any questions in the comment section below and I'll do my best to help!


No comments:

Post a Comment

Related Posts Plugin for WordPress, Blogger...