In good company

Many doctors use limited companies through which to trade either as a private consultant, a locum GP or to provide a range of other medical services. There can be many benefits to this approach. But also some pitfalls.

A limited company is a separate legal entity set up under company law and registered with Companies House. It is independent of you as an individual, it pays tax separately and has to submit accounts in a pre-determined format which appear in the public domain.  

A company is set up by having shareholders invest in it. This can be as little as £1 but that is the extent of the risk to liability that the shareholders have in a simple company. The company is then run by appointed directors who have to comply with many aspects of Company Law when running the business. For small companies it is normal for the shareholders and directors to be the same person/people.

What areas are different for companies when compared to a self-employed business?

1. Taxation – companies pay Corporation Tax which is a tax charged on the company’s annual profits at a rate between 19% and 25%. That rate depends on the size of the profits of that company but also related companies. Related companies are those with a common owner, or owners, who are related not just through personal reasons but can also be related through business reasons (eg three companies, one owned by Dr A, one owned by Dr B and one owned by Dr A and Dr B jointly can be deemed as being related).

   In addition to the tax the company pays, when a shareholder withdraws the remaining profits through a dividend payment then that shareholder will have personal tax to pay as well.  The amount of personal tax will depend on that individual shareholder’s personal income. Using spouses or other family members to own shares can therefore be an opportunity to gain some tax benefits.

   Depending on the tax status of the shareholders, and the size of the company, companies can therefore end up paying more or less tax than a self-employed person. Taking advice from a tax professional is therefore essential. 

2. Limited liability – self-employed doctors have unlimited liability as a business. That means the business owner is potentially personally liable for any claims made on the business which can prove to be unattractive.

   With a company the business can be subject to claims in the same way. But any claims are limited to the assets that the company has – your personal assets as an owner are therefore not at risk.

   It is worth pointing out that as a director you do have liability for running the company within the law so directors retain some element of personal risk. By far the biggest risk though for doctors is medical negligence claims. With a company you must ensure that both you as an individual has cover but also the company is also covered for any claims made.

3. Accounts and publicly available information

   A company has to be run independently with its own bank account. It must invoice in the company name and hold contracts in the company name. It is therefore more complicated than the self-employed option with increased administration so you must be organised and must have clear paperwork setting out decisions made by the company.

   The need for more complicated accounts, a company tax return, a company bank account and other returns may also mean that professional costs in running a company are higher than sole traders.  

   Accounts must be submitted annually to Companies House. These are then available in the public domain. At the moment information is limited but there is a move to have greater transparency in accounts which will mean that a lot more detail on earnings is likely to be made public in future.

   Companies House also records the directors and who ultimately control the company. Not all doctors are comfortable with this level of information to be made public although steps can be taken to keep personal addresses private. 

4. Pensions

   For GPs any self-employed locum earnings can be pensionable income in the NHS pension scheme. However, if you trade through a limited company then all income becomes non-pensionable from an NHS perspective. The company can, though, pay pension contributions on behalf of its directors or employees which can be a way of helping spouses or other family members save for the future.

5. IR35 and off payroll working

   If you are working through a limited company then you need to consider your relationships with those with whom you have a contract. In simple terms, IR35 is legislation aimed at ensuring people who have the characteristics of employees but operate through a company pay tax in the same ways as employees would. There is an onus on both sides to be satisfied that the off payroll regulations are complied with depending on who the ultimate client is  https://www.gov.uk/guidance/understanding-off-payroll-working-ir35

   For those where the client is an NHS body the NHS body must satisfy itself that the rules are both complied with and documented for each engagement and a tool is available to check the employment status of the engagement via the HMRC website https://www.gov.uk/guidance/check-employment-status-for-tax

   If the contract is deemed to be one of an employment, then the employer (the client) must deduct income tax and national insurance before payment is made and pay this over with any additional employer national insurance or other employment liabilities.  

6. VAT

   Finally a warning about VAT. Healthcare services provided by a registered heath professional are normally exempt from VAT https://www.gov.uk/guidance/health-professionals-pharmaceutical-products-and-vat-notice-70157 .  If you use a company, then be sure to understand the rules and whether you continue to provide healthcare services or staff agency services. The latter would fall outside of the healthcare exemption.  Take care and if in doubt contact a VAT expert for further advice.

In summary 

Using a limited company for your medical work can be beneficial. However doctors need to be aware of the tax limitations as well as other important compliance aspects which must be adhered to.