Trading Style – Getting the Legal Structure Right

Tax rates have risen to 50% and certain levels of income now suffer marginal tax rates of 60%. Every pound extra that you earn could suffer income tax at 50%, superannuation contributions at 8.5% and national insurance on income above the higher earning threshold at 2% (total 60.5%).

No-one expects tax bills to fall for several years so any opportunity to reduce tax rates or utilise additional tax allowances and reliefs must be explored.

One way of doing this is to consider which legal structure is the most ‘tax’ appropriate for your business. You could choose from four main legal structures:-

Sole trader

Partnership

Limited liability partnership

Limited company

Choosing the most appropriate legal structure for your private practice income could allow you to achieve the following:-

Split income with a spouse or civil partner

Cause income to be taxed at 40% or 20% rather than 50%

Reduce national insurance contributions from 9% to 0%

Reduce national insurance on income above higher earnings threshold from 2% to 0%

Shelter income in a corporate structure where it will suffer tax at 20% rather than 50%

However, tax is not the only consideration and, not all NHS contracts give you the freedom to choose your legal structure. Each medical practitioner’s circumstances are different and this type of tax planning is not appropriate for everyone.

We can put you in touch with experienced accountants who can assist you in considering all these relevant issues. Please call us if you would like to discuss all your individual circumstances.

Article written by Debra Williams
for Professional and Medical
May 2011

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