Incorporation ‘might not be a good idea’ for GP practices

During Mercia’s recent Healthcare Conference, GP practices were advised not to incorporate as this could lead to them paying more tax and National Insurance contributions (NICs), even when using an aggressive dividend bias.

Incorporation ‘not a good idea’

James Gransby, Partner at Azets Accountants, told the conference that he has ‘always been against incorporation generally for GP practices in the past’. Gransby said that the final NHS pension will be lower when using a company as when certificates are prepared based on a partnership, all of the profits accounted for the pension.

If a certificate for a company is created, the Corporation Tax is a leakage. Gransby stressed that even if everything is taken out as salary and dividends, the Corporation Tax will be a leakage, so a pension will be lower.

Less favourable tax environment

Incorporating as a GP practice also puts any owned property into a less favourable tax environment, Gransby said, and may trigger Stamp Duty and/or Capital Gains Tax (CGT). Additionally, Gransby highlighted that you may have trouble transferring your list, and the fact that there’s no automatic right of novation of lists over to limited companies.

Gransby suggested that, whilst there are possibilities to save tax via incorporation for GP practices, the tax saving often comes when the practice can stockpile profits, arrange a liquidation at the end of the company’s life and take funds out at Business Asset Disposal Relief (BADR) rates.

Experts and insights

Mercia’s Healthcare Conference brings together experts to provide essential updates and insights on the challenges facing GP practices and healthcare providers.

Paul Gordon, Head of Medical Specialist Wealth Planning at Atomos, supplied an overview of changes to NHS pensions. He covered changes to the Annual Allowance, the Lifetime Allowance and 1995, 2008 and 2015 pension schemes.

Rachel Crean, Partner at VWV, provided an in-depth legal update. Crean covered dispute trends, procurement trends, Stamp Duty Land Tax (SDLT), passing on staff pay rises. Dispute trends discussed included service charge disputes, ICB clawbacks and partnership disputes.

During the afternoon session of the conference, Adam Thompson, Specialist Surveyor in Medical Centres at Primary Care Surveyors, outlined premises issues, including exploring why property is often seen as risky; why having a lease is a liability; and why ownership is an asset.

Jimmy Davies, VAT and Indirect Tax Director at MHA Accountants, provided a general update on VAT and what’s happened across the past 12 months, including HMRC updates and Cost Sharing Groups (CSG) and Primary Care Networks (PCNs). Davies also outlined a caselaw update, which centred around cosmetic treatment and whether it can be considered a supply of medical care for VAT purposes.

In regard to PCNs, Davies considered the increasing popularity for them to form incorporated entities to employ staff, contract for services and to formalise unincorporated PCN arrangements. The effective use of a CSG was analysed, and the potential VAT savings offered by the effective use of a CSG taken into account.

Mike Blenkharn, Partner and Head of Dental at UNW LLP, outlined some ‘interesting points’ in relation to buying and selling dental practices. These included independents being more acquisitive in the last 12-18 months; poor performing practices being on the market for longer; and buyers being more aware of the importance of financial due diligence.