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CAMHS won't see you now

Tax on some GP profits 'set to triple'

Hundreds of GPs face a major hike in the tax rate they pay on profits from next year, after the Government launched a consultation on closing a loophole in the current rules surrounding ‘corporate’ partners.

Accountants say the change in the tax rules would mean that PMS practices who have set up a company would have to pay the full 60% tax rate on any profits paid to a coporate partner, rather than the current 20%.

HM Revenue and Customs issued a consultation document setting out the proposed changes to partnership tax rules this month, and they are expected to be implemented from April next year.

Corporate partners are essentially a limited company set up for partners to pay a proportion of their profit to in order to reduce their tax bill. Accountancy firms have advised GPs to bring in the structure, particularly if the partners fell into the 60% income tax bracket or where a practice wanted to build up working capital in the practice.

Accountants say that the new rule change will close this tax loophole, meaning that all profits from NHS work would be taxed as income first even if the partners wanted to divert money to a corporate partner. For the share diverted this would mean a tax hike from 20% to 60%.

Luke Bennett, accountant at Francis Clark LLP and a specialist adviser to GP partnerships, said he estimated the proposals would affect around 5% of PMS GPs.

He said: ‘If you chose not to change the structure, you would end up paying some tax twice, because the proposal is that the corporate partner would be ignored, so you would pay the normal level of income tax.

‘But then you’ve got the problem in that the money is in the corporate partner and not in your own personal name. So when you come to withdraw it from the corporate partner, usually by way of dividends, there would be another levy of tax to pay. So you would end up with a higher tax charge than if you were just operating a normal arrangement. You end up in a worse position than you were.’

‘What you don’t want is to have this change and then to still have those costs on top of it, so you really want to try to bring the arrangment to a tidy end before next April so you don’t end up worse off than you were before.’

Mr Bennet said those practices would do best to seek advice from their accountant now as he said he would be ‘very surprised’ if the proposed changed did not go through.


Readers' comments (8)

  • In the present climate should the profession be sympathetic to to the loss of tax-avoidance schemes such as these?. We should all be treated equally and pay the same proportion of superannuation.

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  • Would go further and say that I am apauled that members of our profession do this. It does nothing to help the decent, hard working GPs who are at the end of their tether for some to be seen as money-grabbing and greedy.

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  • Why is the government allowing google, apple, Starbucks etc to effectively avoid tax but is tackling the much smaller fish in the form of partners? Whilst tax avoidance is morally wrong, so is bullying.

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  • @Anonymous | 01 June 2013 10:05pm

    Because its tax-payer's money

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  • why be apauled? there is no moral obligation to pay more tax than you have to. in fact it could be argued that given how much tax monies are wasted by our beloved superiors on their own wining and dinning never mind useless schemes they come up with 111? - there is a moral case for paying as little tax as possible. sounds more like jealously.

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  • hmmm - presumably being 'apauled' is something that happens to accountants on the road to Damascus?

    Interesting variant on the traditional Italian moral argument on taxation - 'we all know governments are venal and corrupt, the more money they have the more bad things they can do, so ones moral duty is to limit their potential for evildoing by paying as little tax as possible'

    Personally looks like a 'live by the sword, die by the sword' scenario to me - the main winners being accountants! [ plus ca change! pip pip Luke, see you in September! ]

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  • I thought GP's were supposed to be poor and hard up these days. If they are getting worried about 60% taxation rates then they cant be in that bad a position

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  • Ha ha, I love Robert Harvey's comments. It's appalling how peoples' spelling and grammar has degenerated in recent times. May be too much dining and whining is what was meant?

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