MEDICAL SERVICES

Our new medical division specialises in helping medical professionals with their tax options.

THE UK TAX SYSTEM

In the UK you can be an employee of an organisation; and be self-employed or trade via a private limited company. 

Employment 

If you are an employee your employer will deduct tax according to your tax code which is issued by HM Revenue and Customs. Your tax code is determined by the level of your income. The tax rates are either 20%, 40% and from April 2010 50% for income in excess of £150,000. You also pay 11% National Insurance between £5,720 and £43,750. Your employer also pays 12.8% on all your income above £5,720.


Self-employed

If you are self-employed, you need to register with HM Revenue & Customs and you will be required to complete a tax return which needs to be filed by the 31^st January following the tax year end which is 5^th April. The tax rates are either 20%, 40% and from April 2010 50% for income in excess of £150,000. You also pay 8% National Insurance between £5,715 and £43,875.


Private limited company

You can trade through a limited company. A limited company in law is a person in its own right and it has an Incorporation Certificate. It has a Memorandum and Articles of Association, which specifies its power and what the company can and cannot do. The company needs to have a director but the banks require a second person, who can be a shareholder or a second director or a secretary. You can become an employee of your company. The company issues shares to the owners who could also be the directors. Small companies currently pay corporation tax at 21%      

WHY IS HAVING A PRIVATE LIMITED COMPANY BENEFICIAL?

 

There are many advantages in having a limited company, many more than being an employee or being self - employed. 

If you run your business through a limited company instead of being an employee there are many ways to mitigate your taxation. This is because you can put through expenses and reduce your taxable income, which you will not normally be able to do, if you are an employee. To name a couple, travelling (train and bus fares or mileage by car and parking) from home to your place of work (hospital) is business expense and is allowable. Your mobile phone bills are fully deductible. Wages paid to your self or partner are also deductible and many more. As long as an expense is wholly, exclusively and necessarily incurred for the purpose of the trade it is a deductible expense.   

If an individual is married and his/her partner is not working, it is possible to arrange for the partner to carry out administration work and be paid a wage. More important it is possible to structure the company so the partner or even the children own shares in the company. This will allow the payment of a dividend to them which in turn allows the extraction of profits from the company and utilise the lower tax bands thereby not incurring higher tax rates, or at least reduce the overall tax liability in comparison to being an employee. 

If you have employment income as a doctor from the NHS in excess of the lower tax band (2009/2010 £43,875) you will pay tax at 41%. If you are self - employed you can deduct expenses similar to the company except a salary and you will pay 41% over £43,875. 

Typical example for 1 employee – for locum work above NHS Salary of say £60,000 

                                            Employee        Self Employed            Limited Company
                                            (agency)

Taxable Income                        £50,000              £50,000                     £50,000 

TAX                                        £20,500              £20,500                     £10,500

 

Limited company saves you £10,000 before administration costs. 

If you receive your private or locum income through a limited company the taxable profit is currently taxed at 21% rising to 22% from next year. But more importantly you can reduce your tax significantly by using your spouse or partner or children. 

Other reasons for having a limited company are: 

1. The company has a limited liability to a maximum value of the share capital issued. What this means is that if the company is unable to pay its bills then your personal property is safe. This is usually £100 but it can be as little as £1.
2. Many organisations find doing business with limited companies easier and are more likely to give business to limited companies than to sole traders.
3. You can set up a company pension and make contributions to reduce your tax even further.