Tax saving scheme for chiropractors

finance 4 chiropractors have worked in the health sector now for some 15 years and have a great understanding of chiropractic businesses. If I had to pick one of the most commonly occurring weaknesses it would be failing to adequately save for the tax bill.

It doesn't really help that the UK has a hideously complicated system for the self-employed that requires 50% payments on account in January and July. Having an idea of how much to save on a monthly basis assumes you have an idea of what your profits might be in the first place! I am sure many of you have had similar experiences where a genuine business expense was unfortunately not "allowable" to the tax-man.

So being an employee may seem appealing, with the right amount of tax paid at source, and best of all, no bookkeeping! However I'm sure we all know that it costs more to the clinic to be an employee because of Employer's National Insurance. This means that an employee costs, not their salary, but their salary + 12.8%. So there is less money to distribute and the associate will usually get a worse deal because of this financial burden.

But it gets even worse as income tax rates AND national insurance (NI) rates will be increasing for all over the coming years. I have mentioned this in passing to probably a dozen chiropractors and healthcare professionals over the last month and not one knew that there will be an unpublished tax rate of 60% on a section of their earnings. Sixty per cent!

Tax planning

This is entirely legal and usual in normal business. Identifying every possible tax-deductible expense is probably an annual event for most and the use of Limited Companies has been around for several years now. Whilst these seem to be quite popular we have also seen a regrettable number of companies coming to us that have not been set-up correctly and, on more than one occasion, the owner has been left with more tax to pay because of an incorrectly valued business which could have been otherwise avoided.

Interestingly, if a clinic operates as a Limited Company it opens up more opportunistic transactions which are not available as a sole trader and you should be very alert if your annual profits are in excess of £100,000 as there are a wide range of tactics available. In any case, with the above-mentioned rises in tax rates, we would wholly recommend a review as there are a surprising numbers of ways for you to achieve the lowest possible tax burden. Whilst tax deductions for childcare in particular have proven quite popular, the sheer volume of tax law means that that others are simply too numerous for this article and an individual should seek specific consultation with an adviser.

If an associate operates from within a Limited Company matters get a little trickier as savings are certainly smaller (but likely to still be worthwhile) but the risk of IR35 transfers to the associate. This risk is effectively the responsibility for settling any due taxes when things go wrong. It may not seem like a big deal but, given the Inland Revenue's love for employment status (and the extra tax they get out of it!), they are certainly enthusiastic to attack other arrangements where possible.

For the full-time associate there currently exists an even more sophisticated solution. At the moment you probably end up with around 65% - 73% of your slice after saving and paying for tax.

Using the latest solutions this can actually become 80% - 83%. So if you are grossing £120k p.a. on a 50/50 deal then this results in an extra £7,000 of cash that you retain - which works out to be a 17% pay rise! Perhaps even better still, the burden of bookkeeping can also be removed AND your tax is paid at source for you in this solution.

So, in summary, if you are either an associate or a practice-owner there really are still ways for you to get more from your money without you having to work any more hours.

Ross Martin
finance 4 chiropractors