Stagnating profits and hefty tax bills mean that our GP and locum doctor clients often ask us if they should consider incorporating their GP practice into a limited company.
Yvonne Jackson, head of Clayton & Brewill’s specialist GP team, weighs up the pros and cons of incorporation from a tax and compliance perspective.
Tax savings are most definitely on the agenda for many of Clayton & Brewill’s GP clients – whether you run a small or single-handed GP practice or are a locum doctor, you are no doubt feeling the pinch. Limited companies can offer significant tax savings but these savings come at the price of additional compliance and reporting burdens, and so any change in structure should be considered carefully.
What about personal liability?
Shareholders in a limited company have little or no personal liability other than an obligation to pay any unpaid amounts due on their shares. In comparison, as a sole trader or partnership you are personally liable for any negligence or debts, which can put personal assets at risk should you be sued – even if you had no knowledge of your other partner’s activities. In practice however, you would hope that any negligence is covered by your insurance.
And will I pay more or less tax?
GPs operating in a limited company structure are likely to pay less tax than that of a partnership or sole trader generating the same amount of profit, as companies are taxed differently to the self-employed. As a limited company you will pay corporation tax of 20% after expenses.
Profits after tax can then be distributed as dividends and the individual shareholders are taxed on the dividends received. The tax savings increase the more likely (or able) you are to leave some of the profits in the company.
Do compliance and reporting requirements change?
Accounts under partnership and sole trader structures are relatively simple. Limited company accounts must be prepared in accordance with the Companies Act and there are more disclosures required. You would also need to file an abbreviated version of your accounts annually at Companies House, available for all to see. So, generally, you will find the compliance requirements more onerous if you incorporate you GP practice.
Provider and CCG requirements
CCGs vary in their approach to contracting with limited company GPs. Some CCGs allow for contracts to be awarded to limited companies so long as they are owned by medical practitioners but many will only contract with sole traders and partnerships.
We recommend getting a clear understanding of your provider’s position on limited company structures.
With NHS reforms and ending of the old PCTs there is much uncertainty. Some fear that CCGs could insist on incorporation contracts being put out to competitive tender, thereby putting the current contract at risk.
Will superannuation contributions and benefits be affected?
NHS superannuation for incorporated practices is based upon the salaries and dividends for each GP partner. Any tax planning carried out will therefore have a knock on effect on a GP’s NHS pension position, which may be of benefit to those reaching their lifetime allowance limit. Essentially, a limited company structure potentially gives you more flexibility when it comes to pension planning.
Complexity of profit shares
As a partnership, profit shares are easy to deal with, to reflect the varying activities of each individual GP. For limited companies it is harder to do this through salaries and dividends and may require the need for ‘alphabet shares’, which can potentially be subject to HMRC scrutiny.
Is there anything else to consider?
Clayton & Brewill can help you set up a limited company within a couple of days. Remember however that you would need to consult with your employees before transferring them to a new company structure. Your employees will be protected by TUPE if you incorporate the practice. This means that they will have the same rights as before, ie: length of term for redundancy, holiday allowances, notice periods and so forth.
Specialist GP accountancy advice
The decision to switch to a limited company structure is a highly individual one and shouldn’t be taken lightly. Any tax savings need to be balanced against the extra compliance and reporting costs and it’s essential to understand your CCG’s view on limited company structures.
In practical terms, very few of Clayton & Brewill’s GP clients have taken the plunge of incorporation but it remains a valuable exercise to consider the benefits.
For help with understanding your position contact Yvonne Jackson on 0115 950 3044 or by email.