Optimising tax efficiency for GPs and consultants

Matthew Watson Medical Partner, Ballards

As a medical Accountant and tax advisor at Ballards, I am very much involved in advising both GPs and Consultants. One of the most frequent questions I am asked is “How can we reduce our tax liabilities! How can we be more efficient?”

Are you paying more tax than necessary?

Timely

The first significant piece of advice is to consider tax liabilities as early as possible. This is because it gives you an opportunity to potentially mitigate the liability, but also because it allows you time to plan for payment of the liability.

Many GPs and consultants find themselves with unexpectedly high tax bills each year, this can be due to lack of of strategic tax planning. It is more palatable to be aware of a 31 January tax liability a year in advance, rather than the 30 January!

Optimisation

As with everything in life, adequate planning and foresight can potentially help to mitigate your ultimate tax liabilities. This is true for all different types of medics including, self-employed GPs, NHS hospital consultants, or running a private practice.

Some methods of mitigating the tax liabilities are as follows:

Maximising allowable expenses

One of the first questions which we are asked is “what expenses can we claim against our income? The maximising of claims for allowable expenses against your taxable income is a prime method of reducing your tax liabilities. These may include:

• Professional Fees & Subscriptions – For example GMC, BMA, indemnity insurance, and medical journals are all deductible.
• Work-Related Travel – You can claim for mileage for home visits, travel between hospitals or practices (excluding your regular commute). These journeys need to be considered “ad hoc” rather than “regular”.
• Equipment & Technology – You can also claim for expenditure on laptops and medical instruments, As well as a portion of your mobile phone and internet costs if used for work.
• Training & CPD Costs – Courses and conferences can also be claimed, provided relevant to your profession.

Understanding the NHS pension tax trap

Over recent years the potential breaching of the Annual Allowance cap (currently £60,000 unless tapered) has become an intrinsic part of the necessary annual tax planning process. It is possible to unknowingly breach the Annual Allowance and potentially face significant tax charges on their pension growth. Planning points to consider are:

• Checking Your Pension Growth Each Year – This can be done by requesting a Pension Savings Statement to assess your position. However this may not always possible, especially at the moment with the McCloud review.
• Using ‘Scheme Pays’ – It is possible to defer any tax charges by having them deducted from your pension benefits. This requires careful consideration and advice.
• It may be worth considering alternative Savings Strategies – For example, private pensions (either paid personally or through your company), or the use of ISAs. Again this is an area which you should take advice from an expert advisor.

Should You incorporate?

It is a very wide question to consider, and the answer depends on personal circumstances and plans.

For consultants with substantial private income, operating through a limited company can potentially offer tax savings. This is because the corporation tax rate is 19% or 25% (or marginal rate) whereas the personal income tax rate can be either 40% or 45% or even potentially 60%. However the ultimate “tax” depends on how you plan to extract funds from the company and your own personal circumstances.

We would be happy to run through a bespoke example with you.

Smart tax planning for locums & private doctors

There are several other tax planning tools which Consultants and locums should utilise. These include, for example;  consideration of sharing income with a spouse, claiming a home office allowance for a portion of household expenses and planning if it is possible to potentially delay income, or use pension planning strategically to help manage the various tax bands. For example keeping below £100,000 to maintain free child hours or to keep personal allowances, or keep taxable income to less than £200,000 to avoid tapering your annual allowance.

Conclusion: Take control of your tax position

The conclusion is that you need to be proactive in your tax planning, and to undertake it at the earliest opportunity. Ballards are specialist experienced medical accountants and would be happy to help you achieve this. If you’re interested in discussing your financial position, feel free to get in touch.

Disclaimer
This insight does not constitute financial or legal advice. All businesses have different considerations, and you should contact a professional before acting upon any of the information contained in this insight.