GPs face threat of big tax dodge bills
Medical accountants are advising GPs to end the increasingly popular practice of running a limited company to cut tax bills on their private income.
The move comes after the Inland Revenue launched a clampdown on 'husband and wife' firms in a decision that could lead to greater scrutiny of hundreds of GPs who already run limited companies.
GPs could now face tax bills running into thousands of pounds if they are found to have diverted income to their spouse as a tax dodge.
Accountants also say improved pension arrangements in the new contract mean GP principals could be better off putting certain private earnings, including pay from locum work, through their practice accounts.
Arthur Dixon, senior tax partner (private clients) for Deloitte & Touche, said the Inland Revenue clampdown and pension changes should make GPs far more wary. 'We have had the initial bubble and that bubble has burst,' he said. 'This will put GPs off. Some GPs will say ''I can do it'', but they won't be bothered.'
The growing trend for GPs to set up limited companies began in April 2002, when the Government changed corporation tax thresholds to make profits under £10,000 a year tax free.
The Inland Revenue crackdown came to light last week after an MP questioned why a couple running an IT business in his constituency had received a shock £42,000 tax bill.
Bob Senior, director of medical services at accountants Tenon in Southampton, said the new Inland Revenue policy meant only those GPs with sound commercial reasons for setting up a limited company should do so.
'Those that are not necessarily doing it for commercial reasons could be [put off],' he added. Such reasons would include the GP employing their spouse as a bookkeeper or
other staff member.
Dr Prit Buttar, a GP in Abingdon, Oxfordshire, who has set up a limited company, said the company had 'to serve another useful purpose' other than simply avoiding tax for the GP.
'I would not advise doing this as a tax dodge,' he said.