By Simon Misiewicz
Article relevant to the tax year 2017/18
Are doctors, locums and dentists using their accountants or business advisors to deliver them a better financial result?
Are medical professionals leaving money on the table?
Having spoken with a number of doctors and other medical professionals of late it’s been interesting to see how much more revenue (and more importantly net taxable income) may be made if only they discussed their business plans in more detail with their accountants and business advisors.
I saw a number of fundamental issues that arose from my recent conversations. Here are just a few, which I am sure you will be able to relate to:
- Focusing on lots of different treatments with different levels of income per hour. This means that they are not generating as much money as they could by niching into one type of treatment that yields the most returns.
- They are buying medical supplies from a variety of suppliers due to need and urgency. This means that their costs are significantly more than they need to be.
- Most medical professionals are sole traders, which means that they are paying far too much national insurance and tax than they need to.
- They are extracting money out of their Limited Companies inefficiently from a tax perspective.
Our team of medical professional accountants are focused on creating greater revenues for your medical professional business such as GPs, locums and dentists, whilst being tax-efficient.
I think it is fair to say that doctors, GPs, dentists and other medical professionals focus on their work. This is the right thing to do, care for their patients in a professional manner.
However, I also believe that like many other types of professionals we don’t allow ourselves time to think about our business. So, we carry on being busy fools, because that is all we know. We don’t always take professional advice, even though we also know that this would benefit us in the long-run.
Let’s take Dr Wasniak, a GP practitioner: he always submits his spreadsheet income and costs to his accountant a few days before the submission date. He doesn’t discuss the numbers at hand, or how the business could be run more financially-effectively to generate more profit or how to be more tax-efficient.
As such, he’s been working 60-70 hours per week but could have worked just 40 hours and been generating the same amount of net tax profit, by taking some basic business and tax advice.
Do you like working more hours than you need? What would you do with those additional 30 hours?
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By now, you would have noticed that the number of tax changes means that you need to plan for the future to ensure that you keep more of what you earn.
Property investors: How does Section 24 (mortgage interest relief) affect you? How are your properties going to perform once Section 24 (mortgage interest relief) comes into full effect?
Doctors/Dentists: Have you incorporated your private practice work into a limited company? Have you structured it to ensure that you and your family takes advantage of the tax breaks?
Stephen Covey said that “people climb to the top of the ladder, only to find out that it is set against the wrong wall”.
Many people go about their business, and at the end of the year they feel that they have not moved forwards.
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There are a number of ways that GPs, doctors, locums and other medical professionals can use accountants and other business advisors to help them generate more net tax income for them and their families:
- Review the different types of treatments, identify the most profitable, and focus more time and energy to advertise those services.
- Utilise a buying group to buy medical supplies and materials at a greater discount. This requires some simple planning on the behalf of medical professionals to ensure that they order replacements in good time.
- Work monthly or worst-case quarterly with an accountant or business advisor to review the financials comparing previous month and previous quarter, and then set up budgets to ensure that revenue achieves the desired results, whilst costs are focused and controlled.
- Work with a tax specialist to set up a Limited Company to ensure that money is extracted in the most tax-efficient ways. Please see a related article here for more details. In addition, a company may be set up using alphabet shares or ABC share structures, to ensure that family members can take money from the Limited Company, utilising their personal allowances. See another relevant article here on this point, which also helps to minimise IHT issues when trying to pass assets and wealth to siblings.