Our 5-minute read – Tax Tips – for UK doctors and dentists will help you save tax, get organised with your tax affairs and make sure you meet important deadlines with ease.
This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. The Financial Conduct Authority does not regulate tax advice.
We are now halfway through the tax year and if you haven’t already, then now is the best time to assess what else you can do to save tax for your practice in the 19/20 tax year.
As a Limited company, for the financial year 2019/20 (1 April 2019 to 31 March 2020), you’ll pay 19% corporation tax on your profits, regardless of how much they are.
Financial planning is key
We always advise thorough financial planning and fully thinking out all extraction methods before you make any changes to the way your limited company’s tax is handled. How you extract money from your practice can save quite a significant amount of tax, but it needs to be done correctly and legally.
When looking at your overall tax position you need to consider the tax payable by your practice on your profits, and any tax and National Insurance contributions (NICs) on money taken out of the company through salaries, bonuses or benefits in kind.
Adopting a tax and NIC-efficient strategy can save a substantial amount of money, so it pays to plan ahead.
Methods in extracting cash from your practice
The tax and NIC consequences of money taken out of your practice will vary depending on the way it is done – not all extraction methods are the same, so you don’t just need to decide how much to take out, but also the ways in which your profits are extracted. Here are just a few of the methods you could choose:
- Salaries
You are entitled to be paid a salary for the work you do, even if you take a small salary equal to the lower earnings limit for Class 1 NIC purposes. - Benefits in kind
Not strictly taking cash out of your practice, you can instead extract money by placing it into benefits such as mobile phones and laptops, even company parties. This won’t save you a huge amount, but together with a few other options, can all add up. - Pensions
You can claim tax reliefs when paying money towards a pension, so it becomes a useful way to take money out of your company to save for later in retirement. - Rent and sales of assets
Rent and sales of assets to your practice is simply another way of taking money out of your practice, while also providing a benefit to the business. - Loans
Tax liabilities may come into force when a company lends money to shareholders, employees, or directors, but there are some exceptions to this rule. Be aware that HMRC are on the watch for companies that use loans to avoid tax and NICs that would otherwise need to be paid.
Release your tax for cash – but make sure you get advice first
We’ve talked through just a few methods of extracting cash from your company.
If you would like a full view of the ways in which you can extract profits from your practice in the most tax-efficient manner, then your first port of call should be to speak with an accountant and independent financial adviser. Dental & Medical Financial Services can provide expert advice and solutions in conjunction with your accountant.