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When is the Right Time for your Practice to go Limited?

michael-monthly-tax-updateLatest tax planning news and tips

This month Michael Lansdell, from Lansdell & Rose Chartered Accountants, talks about the importance of trading from the right business structure, and when it may be the right time to go Limited.

 


The views expressed in this article are specifically those of Lansdell & Rose Accountants.


Opportunities Remain to Save Tax through Restructuring

The Treasury have been taking measures lately to dampen the prospects of tax-saving through trading as a limited company.

Whilst some benefits that were once available, clearly have been removed, there are still opportunities for dental and medical business owners to save tax through careful business structuring.

Taking professional advice on the trading structure of your business is even more important than before, to ensure all avenues have been explored.

Choosing the right structure for your business, and the right time to change too, can save thousands in tax payments.


The four main options for doctors and dentists

There are four main ways for doctors and dentists to trade.

  • sole trader
  • partnership
  • limited company
  • limited liability partnership

Sole Trader

Trading as a sole trader is often the starting point for doctors and dentists. If profits are below the limit for higher rate tax then usually trading as a sole trader means you can benefit in the short-term from a simpler accounting process, with less rules and regulations to abide by.

If you trade as a sole trader, the profits all belong to you. Tax will become due on the profits, for which there is a legal obligation for you to settle these before the deadline. Similarly, as a sole trader you will be responsible for all debts of the business.

Partnership

A partnership can be an appropriate trading vehicle, particularly for a husband and wife managed practice.

Alternatively, it can be appropriate if your partner or spouse doesn’t have another income source. Get them involved with some of the practice admin and a relative element of the business profits can then be allocated to them.

This saves tax for you jointly by utilising their personal tax-free allowance and their basic rate tax band.

Each partner is responsible for paying tax on their share of the profit and are also jointly liable to pay back debts on the same apportionment, unless otherwise agreed.

Limited company

A limited company is more complex in nature and requires the help of an accountant on an annual basis to file the necessary accounts with Companies House, and tax returns with HMRC.

However, the rate of corporation tax has been at 20% for a while now and is predicted to remain low, which means tax savings are entirely possible with the right set-up.

Individual shareholder’s liability is limited to the amount of capital they own, which is another benefit from using a limited company structure.

A limited liability partnership suits specific circumstances only and requires bespoke set-up.


Timing of transferring to a Limited Company

timing-for-your-practice-to-go-limitedIn making the decision to go Limited, it is vital to take into account all relevant factors, as well as your attitude to risk.

Inevitably, trading as a limited company requires more administration.

Which is why timing the decision is crucial and doesn’t just depend on income.

Transferring too early could mean unnecessary costs. Transferring too late could mean a loss of tax-saving opportunities.

Generally speaking, if your business profits are venturing towards the higher rate tax threshold, then getting a Tax Review comparing your position as a Sole Trader / Partnership versus Limited Company, is highly worthwhile.

This way your business can be monitored to maximise tax savings at the crucial tipping point.

Your decision affects the type of tax you pay, your responsibility for the debts of the business and the administrative requirements specific to that trading structure.


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Read more from Michael 


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