As commissioning begins to take shape ahead of the handover to CCGs in April, there are increasing opportunities for GPs to tender for services across a locality and to bid to run other practices. It is important to consider the type of organisation you want to constitute for the business from the outset.
Tax considerations
Where a business is run through a limited company or community-interest company (CIC), the company’s profits are subject to corporation tax at 20% on profits below £300,000 and currently 24% at the full rate (although this will be reduced to 21% from April 2014). This is favourable compared to a partnership or limited liability partnership (LLP), where the income coming in as the top slice of a GP’s personal income is subject to income tax at 45% above £150,000 and 60% on taxable income between £100,000 and £118,410 in 2013/14.
However, if the profits from a limited company are going to be drawn out as dividends, then higher-income tax rates will apply to shareholders who are higher-rate taxpayers. Income tax and employer’s and employee’s National Insurance contributions will apply to directors’ salaries, making the total tax charge much higher than would be paid by a partner or self-employed individual.
Where any spouses or partners who are basic-rate or non-taxpayers are to be brought in as shareholders, they should subscribe for shares from the outset. Dividends covered by the personal allowance or basic rate tax are then not subject to any additional income tax.
Commercial considerations
A limited company, CIC or LLP can be seen to be more independent than putting the new business through the main medical partnership and can provide a joint venture vehicle if two partnerships are launching a combined bid. However, with any new entity, the pre-qualification questionnaire will require evidence of financial support and it may be necessary to introduce capital, whereas an existing partnership would already have a financial track record and capital base.
An LLP is effectively a hybrid being, treated for accounting purposes as an independent entity, in the same way as a company with accounts that have to be on public record at Companies House. For tax purposes, its members are taxed as individuals on the profits earned, regardless of whether they are distributed or not, in the same way as partners in a partnership. An LLP does give limited liability, which can be attractive in a riskier business.
A CIC is a limited company but it is also a social enterprise with restrictions on the profits that can be withdrawn by the shareholders. This does not prevent directors’ remuneration being fully paid for the services provided by the directors. Given the reinvestment in the business of the surpluses for the benefit of patients, this can give an advantage over a profit-making company in a tender.
If any shareholders are not doctors, nurses, practice managers or other members of the NHS family, then the company will not qualify as an employing authority, in which case employees’ income would not be superannuable. This may be advantageous for GPs who are concerned about the pension cap, but could be a disincentive for staff. Similarly an LLP cannot have NHS employing-authority status.
Valerie Martin-Long is a partner at the specialist medical accountants PKF, and can be contacted on 01483 564646 or valerie.martin-long@uk.pkf.com. This article was developed in association with PKF. Pulse retains editorial control of this content.
