Opportunities to work in groups are now on the increase for more consultants. Richard Norbury gives tips on the various structures you need to consider
With the NHS’s current challenges, the focus is on cutting waiting list times – but many consultants are understandably anxious about performing additional work and being paid extra salary under PAYE.
They are obviously concerned for a variety of reasons, including:
* High tax rates;
* Loss of certain childcare benefits;
* The potential tapering of the annual allowance causing additional pension tax charges.
Now NHS trusts are becoming more innovative to try and reduce their waiting list times and are under significant pressure to do so.
And that means consultants may have opportunities to group together.
This could be in a variety of formats with different levels of commitment, starting from a loose/cost-sharing arrangement to a more formal legal structure such as a company or limited liability partnership (LLP).
It is important to establish the common goals and objectives of the group as early as possible, because this will, no doubt, have an impact on the decisions made, including which tax structure you choose.
Consultants who are new to their posts may find they are offered the opportunity to join existing arrangements. They will have varying commitment levels to such groups, from being very involved in the management to effectively subcontracting.
The following sections will explain some of the more common arrangements that may be available.
Often referred to as ‘chambers’, due the connection with many barristers who operate like this, expense sharing is perhaps the simplest of the structures. Here you are simply trying to achieve either economies of scale or a practical solution to a problem.
The most common example of this would be two or three consultants who may share secretarial costs for an employee.
This offers job security for the person working for you and solves the practical issue of the workload for one consultant not being enough to justify a full time employee.
Various differing arrangements can be agreed as to how the cost is apportioned, but it usually depends on the level of work done for each consultant.
There are also more complex arrangements that may include rooms or premises sharing arrangements.
Some consultants decide to operate as a limited company and this is a common structure for groups.
Many specialists will already have experience of this trading structure and have their own companies. This familiarity may be attractive, but you should take care to consider whether this is the best trading structure before making the decision.
Companies appoint directors to ensure they meet all their responsibilities. Introducing working capital may take the form of a loan to be repaid once the company has funds and paying a nominal sum for the shares.
Alternatively, a more formal purchase of shares for an agreed value over and above the share value – usually £1 per share – will introduce cash to the business.
Companies are subject to corporation tax instead of income tax. Profits will likely be higher in a group structure due to the increasing number of people available to generate income compared to a company owned individually. So corporation tax rates may be payable at the new rates from April 2023 onwards.
As a company is a separate legal entity, the money can be shielded from your own personal tax returns until paid or distributed from the firm.
Sometimes this process can be more rigid than other structures and you should always take specialist advice before setting up any arrangements in order to ensure that you satisfy the conditions set by HM Revenue and Customs (HMRC).
Some individuals may take a more active role in the management of the company, so an agreement can be made to remunerate them, usually by paying a salary.
If you already have an involvement in a company, then you should check to ensure that entering into any new arrangement does not impact on your current one.
For example, if you control two companies, then they may be considered as associated companies. This means certain corporation tax limits can be reduced and ultimately you could end up paying more corporation tax.
Limited companies have a set of rules dictating how the stakeholders should trade, commonly known as memorandum and articles. Often, when a group of consultants trade together, they may feel that a shareholders’ agreement drawn up by a corporate solicitor is more appropriate and bespoke conditions can be considered.
In most cases, the liability of the directors and shareholders is limited to the initial share capital which offers some protection.
Limited liability partnership (LLP)
This is another example of a legal entity and requires filing accounts and other details annually at Companies House, which is similar to a limited company. This type of structure is often seen as a hybrid between a limited company and a partnership.
Instead of directors, LLPs appoint designated members who take responsibility to ensure all requirements are met, such as filing accounts at Companies House.
LLPs are not subject to corporation tax, but instead prepare a partnership tax return to apportion the profits between the members in much the same way as a traditional partnership.
They can allow corporate members and individual members –ultimately the tax will be either paid under corporation tax or income tax.
This structure is popular for groups of consultants, as it allows flexible profit-sharing arrangements. It is important to discuss this with a specialist medical accountant who will be able to explain the options in detail.
As with companies, you can reward more active members. The most common way would be to allocate a proportion of the surplus to these members.
Legal advice should be taken and a members’ agreement drawn up for all parties to sign. This protects the existing members and formally sets out the trading agreement between them. It would also deal with other matters such as sickness, admitting new members, and profit-sharing arrangements.
Consultants will typically introduce cash on acceptance as a member and this will be their capital account. The members have limited liability and, assuming excess profits are paid out, the amounts left behind in the LLP can be kept to a minimum, as the exposure is usually limited to the capital.
Traditional partnerships are treated differently for accounting purposes because there is no requirement to publish accounts at Companies House. Consultants here may find tendering for contracts becomes harder than trading via a limited company or an LLP.
A partnership tax return still needs to be filed with HMRC to apportion the profits between the partners. As with an LLP, corporate members are allowed to be partners.
This structure is less common among consultant groups following the introduction of LLPs because each partner shares the risk due to being joint and severally liable for the actions of the others.
Successful groups often start by entering an arrangement with one organisation. Once the blueprint for success has been outlined, this may give rise to opportunities to offer vital clinical services elsewhere, allowing opportunity for future growth.
You may be covered to trade in the structures explained in this article by your existing defence provider, but it is very important you check this with them first. Additional policies sometimes need considering.
Many consultants will be familiar with the term ‘IR35’ or ‘off payroll working’. You should take expert advice to protect against any challenge of status by HMRC, especially if the group members are also employees of the same organisation.
Be sure to involve a specialist medical accountant as soon as possible in your discussions to ensure a viable and tax efficient structure is set up from the start.
Written for the Independent Practitioner Today, March Issue.