A private medical consultant wants to bring his wife into the new business. She is not a medic but has other skills to contribute so will be actively involved. Husband will obviously be generating most of the income. So my first thought was limited company structure. But with the changes to dividend taxation there appears to be little financial benefit to setting up a limited company with high earnings if the owners want to withdraw all the funds immediately. With class 4 NI at 2% above the upper limit it appears that a 50:50 partnership would save more tax than a Ltd Co. Does that sound right?
So would a straight forward partnership be a better alternative in this case? I feel reluctant to promote this but can't put my finger on why.
Does anyone have any suggestions on why a partnership might not work - assuming they have a formal partnership agreement drawn up?
Many thanks.
Replies (15)
Please login or register to join the discussion.
You'll just have to do the sums to see which works out better given their likely future circumstances.
They are husband and wife, so why do they need a formal partnership agreement?
HI, I looked into this a while ago and there is guidance about partnerships on HMRC website. In short, I do not believe HMRC guidance has changed, and my conclusion was HMRC cannot challenge a partnership set-up with H&W as long as substance over form, ie get a p/ship agreement. If anyone has views to the contrary would be pleased to her them as something always slips by!
Cheers
Bilbo
You might want to review the FTT decision in G Christodoulou (TC2819), which supports the view that H&W working together can be treated as a partnership with hardly any supporting evidence (in fact, with much evidence to the contrary!)
Litigation
One further point to observe here and one that for most private medical consultants will tip the balance is Litigation!
As an IFA with a large practice of Doctors and Dentists, more than ever, the concern of litigation is ever present, whichever speciality is being practised, hence why incorporation is the framework of choice for many.
Please explain
One further point to observe here and one that for most private medical consultants will tip the balance is Litigation!
As an IFA with a large practice of Doctors and Dentists, more than ever, the concern of litigation is ever present, whichever speciality is being practised, hence why incorporation is the framework of choice for many.
How does a limited company differ from an LLP in this respect?
Would the doctor/dentist get the protection of the company?
As an IFA with a large practice of Doctors and Dentists, more than ever, the concern of litigation is ever present, whichever speciality is being practised, hence why incorporation is the framework of choice for many.
Would the doctor/dentist get the protection of the company in a medical malpractice case?
See also
http://webarchive.nationalarchives.gov.uk/+/http://www.hmrc.gov.uk/manua...
for some of HMRC's thinking on the subject. I have no idea where the same guidance can be found in the current manuals
only in so much as their personal assets are protected outside of the corporate framework.
I don't think it protects from medical negligence claims
Limited liability does not allow directors to do absolutely anything with impunity, and I think medical malpractice would be one of those things where the courts would lift the corporate veil.
Partnership
Most tax jurisdictions do not allow a partnership split of income which is highly artificial e.g. a high-earning consultant splitting his practice income 50/50 with his receptionist wife.
Marginal Rates
Watch out for the marginal rates.
Once you are over BR Band if you withdraw profits the marginal rate is higher in a company with the new dividend tax.
Rate Effective rate in Coy Effective Rate in LLP
BR 26% 29%
HR 46% 42%
AR 50.48% 47%
For high earner who wish to draw their profits an LLP may be better.
Look at all the big accountants PWC etc. All LLP's.
Reply to Paddy 55
I understand that what you have said makes sense but when I looked into this I could not see that HMRC could challenge such a partnership arrangement split say 50:50 with the spouse who does very little ( but something)as long as it was set up as a p/ship etc If you have come across something to the contrary I would appreciate any pointers
Thanks