A number of GPs and hospital consultants with earnings from sources other than their NHS salary have recently chosen to channel that additional income through a limited company. This allows them to reduce considerably the level and amount of taxation previously charged on that income.
Normally a general practitioner with additional income would have included that income within the partnership accounts which resulted in it being taxed at the higher rate of 40%. When a limited company vehicle is used the initial rate of company tax starts at 0% on the first £10000 of profits and rises thereafter to a maximum of 19%. From the after tax profits of the company the general practitioner can then pay dividends to all shareholders. The resultant dividend in the general practitionerÕs hands then attracts personal tax at 22.5%, but for any other shareholders whose total income does not exceed £33,000 there would be no additional personal tax due. Other shareholders can include a spouse or offspring older than sixteen.
The following table highlights the tax savings that can be achieved on various levels of additional income.
Assume: income from partnership takes the individual into the highest rate of personal tax 40%.
Estimated expenses are the same in either scenario 2500.00 per annum Treating additional income within the partnership.
Additional Income 10000.00 20000.00 30000.00 40000.00
Less: Est exps 2500.00 2500.00 2500.00 2500.00
Taxable 7500.00 7500.00 27500.00 37500.00
Tax at 00 2500.00
Taxable 7500.00 7500.00 27500.00 37500.00
Tax at 40% 3000.00 7000.00 11000.00 15000.00
Retained income 4500.00 10500.00 16500.00 22500.00
Ltd Company set up Income 10000.00 200 16500.00 22500.00
Ltd Company set up Income 10000.00 20000.00 30000.00 40000.00
Expenses 2500.00 2500.00 2500.00 2500.00
Net Profit 7500.00 17500.00 27500.00 37500.00
Corporation tax 0.00 1425.00 3325.00 5225.00
Dividend distributed 7500.00 16075.00 24175.00 32275.00
Increase in retained income 300000.00 5575.00 7675.00 9775.00
Saving as a % of income 30.00% 27.88% 25.58% 24.44%
Dividends distributed to Spouse or older offspring who are the shareholders of the company.
If dividend distribution is to the individualAdditional taxDividend distribute costs and professional fees. If these costs are not currently reclaimed through the partnership then the savings from a limited company are increased accordingly.
SJD Accountancy is a national accountancy firm specialising in the formation of limited companies for this purpose. A simple monthly spreadsheet recording all the movements on the company bank account is all that you require to do, leave the rest to them and you will have guaranteed an increase in the amount of retained earnings you receive.
Grossed up 7500.00 16075.00 24175.00 32275.00
8333.33 17861.11 26861.11 35861.11
Taxation at 32.5% 2708.33 5804.86 8729.86 11654.86
Less Dividend tax credit 833.33 1786.11 2686.11 3586.11
Additional tax 1875.00 4018.75 6043.75 8068.75
Reduced saving 1125.00 1556.25 1631.25 1706.25
Saving as a % of income 11.25% 7.78% 5.44% 4.27%
Expenses that can be claimed against the conclude mileage charges, use of a room in your home as an office, computer and furniture costs, stationery, telepmpany income include mileage charges, use of a room in your home as an office, computer and furniture costs, stationery, telephonnclude mileage charges, use of a room in your home as an office, computer and furniture costs, stationery, telephonry, telephonom your additional income.
This service and more is available for £125.
Once upon a time there was an enthusiastic and caring GP. One day there occurred a consultation which changed him forever.
The patient was a 66 year old woman who had attended six days previously with a very severe headache. The GP was so concerned about this he had sent her to the receiving physician in his local A and E department at the Acute NHS trust (what used to be called a hospital). Before him in her case notes was the letter from that visit.
He looked at in disbelief, for it contained The patient now had double vision, loss of balance and a marked squint in one eye. The headache was unchanged.
Whatever you do doctor, I don’t want you to send me back to that place’, she pleaded
The Consultant’s Response
The GP being enthusiastic and caring thought of another way. He decided to phone the radiology department and speak with a very clever doctor called a consultant The GP gave him the details of the case and asked the consultant what he would recommend as the appropriate investigation.
‘An urgent CT scan’ came the reply
‘When can you do it?’ asked the GP.
There was a pause. ‘Are you a GP?’
‘Yes’, the GP replied.
‘Sorry’, said the consultant, ‘Then we can’t do it’
‘Oh why is that?’ asked the GP.
‘Because you are a GP’. came the reply,
‘But you have just said that this patient needs a CT scan ‘
‘Yes but we don’t allow GPs to order CT scans if we allowed you to get one all GPs would be wanting them. Send her to casualty’
‘But I did that six davs ago and they sent her home with a diagnosis of migraine and some paracetamol’ the GP said somewhat irritated
‘Well you’ll just have to send her back!’ Was the consultant’s response’.
The GP reflects on what has happened- the misdiagnosis, the inadequate communication, the inflexibility of the system, and above all the patient who turned out to have a subarachnoid haemorrage as a result of an anereuysm. He reflected on his other patients who had to wait months for scans and those who had lost their jobs as a result of the delays, And why could he not, as GP, access CT and MRI scans for his patients?
Being an enthusiastic and caring GP he decides he must try and change things. Action
He brings the issue before the executive committee of his Local Healthcare Co-operative (LHCC) where all agree things need to change. At a meeting of the full LHCC it is agreed that things need to change.
The enthusiastic and caring GP volunteers to participate in the Imagine Review Group set up by the Health Board to look at just these problems. Here is the forum he has been looking for to examine things in detail and bring about change. After months of meetings at not insignificant expense a report is completed…… and is completely ignored.
The GP, still caring but a little less enthusiastic, hears of a new committee called the North Glasgow Clinical Forum which has been set up specially to deal with problems such as these- He brings the issues to their attention and they set up a sub-group to look the problems.
Another year passes and nothing has changed. The GP Sees The Light
Summoning up what remains of his enthusiasm, the GP attends another new committee.
He is assured that this is a very important committee with vital role in the new NHS Glasgow. It is called the LHCC Professional Committee. At it he finally discovers how to affect change.
An enthusiastic and caring GP should take his issue to his LHCC who will then send a report to the North Glasgow Clinical Forum, who will set up a subgroup and eventually produce a report, which will then be sent to the LHCC Professional committee who will endorse it and send it to the Area Clinical Committee who will then make a recommendation to the Board of NHS Glasgow. The Board of NHS Glasgow will then report back to the LHCC Professional Committee who will then report back to the North Glasgow Clinical Fomm who will try and implement change and report back to the LHCC who will report back to the GP. The GP reflects on this.
The GP is no longer enthusiastic or caring. He phones The BMA.
‘Hello, I would like to enquire about early retirement,’
In retirement the GP is again enthusiastic and caring. He lives happily ever after nursing a single figure golf handicap.