While the last Budget saw the retention of the 50 percent top rate of income tax for those earning over £150,000, it also brought further reductions in corporation tax.
As a result, many high earners in the medical industry are already considering their options and may have chosen to defer income and make the most of tax-efficient investments.
Indeed, the corporation tax rate for small companies with profits below £300,000 now stands at 20 percent, while larger companies recently benefited from a further rate drop to 26 percent. For the latter, the rate of corporation tax will be 23 percent from 1st April 2014.
Consequently, doctors and dentists should consider the structure of their business to see whether it would be beneficial to incorporate as a Limited Company. Individuals who are self-employed are liable for income tax on profits as they arise, but companies are a separate legal entity and it is the company which pays the tax on its profits.
Incorporation of a sole trader or trading partnership can generally be achieved without immediate tax charges. However, it is important to consider how profits will be extracted from the company – whether that will be by salary or dividend or a mixture of both – to see if a company structure is the best option.
As well as the tax savings, incorporation also provides Limited Liability, which ensures that individuals are not personally liable for all debts should the business hit trouble in the future.
Professional advice should always be sought before taking any steps to incorporate. If you are interested in discussing this further, please contact us.