By Simon Misiewicz
Are you looking to incorporate your GP or Dentist Practice?
Do you know why it’s useful to have a Limited Company from the start for your GP or Dentist Practice?
If your Practice earns say £100,000 and you do not need to use this money, then the corporation tax rate is just 19% compared to some of the income being taxed at 40% in your own name or indeed 45% if your earnings ever £150,000 – in addition to the National Insurance liabilities of having the income in your own name.
I wrote a related article here that talked about extracting money from a Limited Company.
In this article, I highlighted the benefits of taking wages and dividends from the company in a tax-efficient way. The focus was to only take money out of the company as you need it.
A Limited Company also has benefits for GPs and Dentists, as it can contribute towards your pensions.
These contributions act as a cost to the company, therefore reducing the profits and tax liability. The contributions to your pension grows outside of your estate for IHT purposes and grows with income tax on its earnings or capital gains tax on the growth of the fund.
I wrote another article here about how your Limited Company can invest in your personal pension.
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Sadly for GPs and dentists that do not start with a Limited Company, they will have NHS contracts in their own name.
It’s worth noting that GMS/PMS contracts for doctors and GDS/PDS contracts for dentists are not assignable.
Therefore, setting up a Limited Company after acquiring clients will not help you from a tax restructure to gain efficiencies, as the income from those contracts will need to remain in your personal name.
Limited companies are entitled to hold Personal Medical Services (PMS) and General Medical Services (GMS) contracts as long as those companies are owned by GPs (for more detail on this see Regulation 5 of the NHS (Personal Medical Services Agreements) Regulations 2004 and Regulation 5 of the NHS (General Medical Services Contracts) Regulations 2004.
Clause 2.1.7 of the GMS contract does say that the contract is assignable, but would need NHS Englands permission. This, however, is very unlikely.
Limited Companies are ideal for family-owned businesses, but when other GP/Dentist partners are involved, I would argue that the use of Limited Companies can be complex unless you use ABC shares.
The use of ABC shares as discussed in a previous article here allowed partners to have different sized capital ownership and flexibility of how much wages/dividends they take from the business – provided that the other shareholders agreed.
This is particular interesting when one GP wishes to reduce the number of sessions they run, from say eight to four.
All they would need to do is agree that the class of share receives less dividends than the rest.
I have seen comments from other accountants to say that the use of Limited Companies creates inflexibility because of shareholder agreements and share structures.
I would say that it takes a little administration and focus on the agreements held between the shareholders to make the GP practice tax-efficient and more manageable. Why not book in below to discuss this further.