Professionals in business
A consulting surgeon working in the NHS also had a considerable private practice that he ran on a self-employed basis. Lacking proper advice, he allowed his profit to be taxed at 40%. With his NHS salary absorbing his basic rate band, the introduction of a 50% income tax change levied on income over £150,000 left him wondering how he could try reducing his tax.
A new strategy
As newly appointed accountants, Finton Doyle took a more strategic approach and his position was changed completely. We undertook a review of his past, present and future tax liabilities, which lead to four options.
Tax reducing options
Firstly, the surgeon could employ his wife to use up her basic rate band. This would create an expense in his accounts that reduced his overall exposure to higher and top rate taxes.
Secondly, creating a partnership with his spouse would split profits to again make good use of her basic rate band.
Thirdly, forming a limited company would enable him to take advantage of tax savings available with lower corporation tax and dividend tax rates.
Lastly, using tax planning measures such as employee pension schemes and converting school fees into employee benefits, further substantial savings could be achieved.
Going a step further
Given these choices, the surgeon opted to form a limited company which reduced his overall tax burden by some £8,000. However, we went a step further. Using the rules of incorporation, we converted a substantial portion of his income into capital gains. With Entrepreneur’s Relief, tax on this income was charged at 10% instead of 40%.
Key actions
- Analysis of past, present and future tax liabilities
- Detailed explanation of all options available and the consequences of each
- Consideration was given to the likely impact on the business itself and the owners
Key results
- Significant present and future tax savings
- Client fully involved in decision-making process
- Client totally comfortable that decision is right for him, the business and his family
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