The Medics’ Money podcast recently tackled some intricate financial questions relevant to many General Practitioners (GPs) and their partnerships. In this blog post, we’ll delve deep into the complexities of utilising limited companies for GP work and address a pertinent issue about adjusted net income for tax efficiency. These insights stem from an engaging podcast episode, which featured expert discussions and valuable advice from Dr. Tommy Perkins and Andy Pow, a specialist medical accountant.
Understanding the Intricacies of Using Limited Companies
In today’s financial query episode, the hosts answered a question from within the MedicsMoney partnership community. The query revolved around whether it is feasible to transition certain private services provided by GP partners, like private work reports, cremation forms, and medical services, into a limited company. This decision requires a detailed exploration of several aspects, including tax, commercial, pension, and legal considerations.
Exploring the Tax Implications
Many GPs consider limited companies attractive due to the perceived tax benefits. A company may pay corporation tax at rates between 19% and 25%, seemingly lower than the income tax rates of 40% to 45% faced by individuals. However, withdrawing money from the company introduces a secondary tax point, whether as salary or dividends, which can potentially result in paying more tax overall than expected. One potential advantage of a limited company involves distributing income to family members taxed at lower rates. However, this requires careful organization, such as incorporating spouses as shareholders, which can complicate the partnership arrangement. Complexity arises when GP partnerships, which often involve multiple partners, attempt to align with these new structures.
Commercial and Regulatory Considerations
The decision to incorporate also extends beyond tax implications. Commercial and legal factors such as the CQC (Care Quality Commission) registration requirements for providing medical services need to be evaluated. Furthermore, the GMS (General Medical Services) contract clauses might restrict subcontracting to companies owned by GP partners. Each factor, including partnership agreement adjustments, must be meticulously assessed before proceeding.
Pension Impact
When considering moving income to a limited company, the impact on NHS pensionable income is another crucial factor. Relocating income out of a company can make it non-pensionable, potentially affecting long-term pension benefits. For many, particularly high earners mindful of annual allowance tax charges, this might be beneficial. However, the broader implications on future pension and associated growth must be considered thoroughly.
Adjusted Net Income and Planning Tax Efficiency
The second question explored during the podcast was from a YouTube subscriber about adjusted net income. Many GPs and consultants aim to keep their adjusted net income under £100,000 to maximise tax efficiency and maintain child benefits. This section discusses strategies such as timing pension contributions, gift aid donations, and forward-looking planning for optimised tax benefits. One of our YouTube subscribers questioned whether it’s possible to make retrospective contributions to a private pension to manage adjusted net income. The immediate answer: no, it’s not possible post the tax year. The discussion highlighted the significance of proactive year-round financial management and planning.
Conclusion: Leveraging Expert Advice for Financial Decisions
Navigating the financial landscape as a GP involves understanding complex issues. The decisions surrounding limited companies and managing adjusted net incomes can significantly impact your fiscal strategy. Therefore, leveraging the expertise of specialist medical accountants and financial advisors ensures that the broader implications for taxes, pensions, and partnerships are thoroughly evaluated. Taking charge of your GP practice finances, as emphasized in the podcast, not only prepares you better for year-end results but also empowers you to make informed decisions along the way. It’s ultimately about combining awareness with expert guidance to optimize both personal and practice-related finances. For tailored financial advice and courses about managing your finances as a doctor, visit www.medicsmoney.co.uk/courses.
Engage Further
For more financial insights or to explore these complex discussions, tune into our podcast, subscribe on YouTube, and engage in our community. The complexities are vast, but together, with expert advice, they can be navigated successfully.
