If you are currently working in private practice, or providing medical consultancy services outside of your main employment, have you considered whether a limited company might be an appropriate way of running your business?

We consider some of the main advantages of operating your private practice or consultancy business as a limited company as:

Limited liability

A limited company is a separate legal entity with its own assets, liabilities and responsibilities. As such, operating your business through a limited company provides you with the comfort of knowing that your personal assets are protected if the company should be faced with the prospect of an uninsured loss or claim.

Lower tax rates

The current corporation tax rates are 25%, or 19% for small companies. This is considerably less than the 40% or 45% rates of income tax which could potentially be due as a sole trader.

Shareholders rather than partners

Being a separate legal entity, a company limited by shares offers greater flexibility to be able to bring in new participators, or shareholders, and the ability to dispose of some, or all of the shares on an exit or retirement.

It is also possible to introduce spouses and other family members as shareholders in the company to allow them to share in the success and growth of the business. This may form a useful part of your plans for the future.

Flexible options for profit extraction

Unlike a sole trader, where tax is payable when profits arise irrespective of whether you have drawn them, a company offers greater flexibility on the timing and way in which you can withdraw profits. For example, this could be by way of salaries, dividends, pension contributions as well as other benefits in kind such as company cars. In certain circumstances it may also be possible for the company to employ spouses and adult children in the business to help with administrative or other duties.

Attractive reliefs on exit

In addition to the flexible profit extraction methods referred to above, Business Asset Disposal Relief (formerly known as Entrepreneur’s Relief) could potentially reduce the tax due on the proceeds on the eventual sale or solvent liquidation of the company to as little as 10%, subject to the qualifying conditions being met.

Incorporation may not be suitable in all circumstances and does add additional compliance requirements and costs. For example, the company must prepare and file accounts and tax returns in its own name and, while these costs will generally be deductible for corporation tax purposes, they are potentially an increase over the cost of operating as a sole trader.

If you think that this might be an efficient way of running your business and would like to find our more please contact me as the Head of the Healthcare sector at Shaw Gibbs.