register view guides

Incorporation

General

  • The Limited Company model could have advantages for your Practice, as compared with a traditional Partnership arrangement.
  • The partners in general partnership are personally liable for their negligence and debts and that of their fellow partners, meaning that their personal assets may be at risk, particularly if a claim is not covered by insurance. For example, if one partner incurs substantial debts in the name of the partnership, then the other partners will be jointly liable for those debts and can be sued together or one partner can be sued for the whole amount, even if they had no knowledge of the first partners’ activities.
  • In comparison, the shareholders in a limited company will in many cases have no personal liabilities, other than an obligation to pay up unpaid amounts due on their shares.

Regulations

  • The new NHS Regulations provide that both GMS and PMS contracts can be awarded to companies limited by shares where at least one share in the company is legally and beneficially owned by a medical practitioner and the other share are owned by other qualifying persons (including medical practitioners, healthcare professionals, GMS/PMS providers, NHS/PMS employees or NHS trusts).
  • It is possible for medical practices to be set up as limited liability companies. The ownership rules for GMS companies are that:

-All Shares in such a company must be legally and beneficially owned by a person who could lawfully enter into a GMS contract as an individual or as part of a partnership.

-At least one share must be legally and beneficially owned by a medical practitioner whose name is in the GP Register (or is suitably experienced).

-Any other shares owned by a medical practitioner must be so owned by a medical practitioner whose name is included in the GP Register or who is employed by a PCT, a local Health Board, an NHS Trust (including an NHS Trust in Scotland), an NHS Foundation Trust, a Health Board, or a Health and Social Services Trust.

Company Formalities

  • A Limited Company is a separate legal entity separate from its shareholders' and directors. The shareholders will own the Limited Company. The shareholders liability is limited to the amount of unpaid share capital. Shareholders are not liable for the liabilities of a limited company.
  • Directors have limited liability for the company's liabilities except where it could be proved that the Directors were acting fraudulently or had given personal guarantees
  • Directors run the business on behalf of the shareholders, they can be appointed by the shareholders and they can appoint themselves as directors as well. The shareholders define the directors’ duty and set out the framework for directors to work within.

Tax

  • It is possible to save tax if you set up your practice as a Limited Company as Companies are taxed differently from those who are self-employed.
  • The company pays a lower rate of Corporation Tax at 21% (from 2008/09) up to profits of £300,000 after expenses which include salaries and pension payments.
  • Profits after tax can be distributed to shareholders as dividends. Corporate shareholders do not pay tax on dividends received but individual shareholders are taxed on dividends received.
  • Whether you would pay les tax as a Company or as a Sole Trader will depend on your profit level and whether you take money out of a company as salary or dividend. Any tax saving would need to be balanced against the cost of incorporation and running a company.
  • For the self-employed, profits are taxed as income. You need to pay further fixed-rate Class 2 National Insurance contributions (NICs) and class 4 NICs on your profits. These are avoided if the practice is run as a limited company.

Pensions

  • The NHS Pensions Agency confirmed with the BMA Pensions Department that a limited company is liable to contract a PCT for the provision of GMS services/Personal Medical Services (PMS).
  • Doctors in such a practice will need to write to the NHSPA (or SPPA) to obtain employer status. Assuming they obtain employer status the salary that doctors draw from the company is able to be pensioned in the NHS pension scheme and this will be on a practitioner basis.
  • Any such doctors will need to consider how much they pay themselves as salary. The NHSPA suggests that prior to establishing the company, the doctors write to the agency to ensure that their status is acceptable. This will partly depend on the aims of the organisation as it must be on the 'not for profit' basis similar to out-of-hours providers.
  • A Limited Company can contribute a higher amount than 100% salary for the doctor as the pension contribution could be treated as part of the remuneration package. Therefore if a Company has been paying £5000 a year salary to the shareholder/director and the rest of the remuneration is paid as dividend, that director could receive a higher amount for the pension contribution in the Limited Company accounts.