Goodwill goes bad

This is a potentially worrying issue for some dentists because if HMRC is successful in its challenge, any reduction in the valuation could be taxed by up to 59 per cent.

Alan Suggett, a partner in accountants UNW LLP and a member of NASDAL’s technical committee, explained: “The goodwill transferred to the limited company can be treated as taxable remuneration. This creates a liability for income tax at 45 per cent and National Insurance of 13.8 per cent.

Alan commented: “In the case of an NHS incorporation, where the contract remains in the name of the dentist, this could apply to the whole goodwill value. How many practice owners could afford to write out a cheque to HMRC for 59 per cent of their goodwill?”

“Suppose the goodwill valuation was £1m and this is successfully challenged by HMRC, the dentist’s company will have to find £588k to hand over as tax.”

The issue was discussed at the biannual meeting of NASDAL at which members share their technical knowledge of dental practice matters for the benefit of their dentist clients.