Before you start
Prior to the commencement of trading it is important to carry out some groundwork. Speaking to colleagues, obtaining professional advice and ensuring you know what you are getting yourself into are all essential.
Once you are up and running you will be even more time poor so spending time getting everything lined up will really pay off as you can concentrate on building your private practice.
NHS vs Private
Reaching a successful work-life balance can be difficult as there are often many opportunities to earn more money as a consultant whether from additional NHS work or private practice.
Additional NHS work such as waiting list initiatives can often be a fast way of earning some extra money as the patient is provided to you and very little admin or costs are suffered.
The flip side is usually a lower fee and less tax planning opportunities because, more often than not, waiting list incentives are paid under PAYE when performed for the NHS directly.
Care must be taken when increasing income streams which are superannuable, particularly if they are short term roles, as they can spike pension growth in the 1995 pension scheme and generate a tax charge.
Unfortunately, the tax system has created a situation taxing excess pension saving where you can be heavily penalised for working harder.
At a time when services are so stretched this can only add further problems until the disincentive to take on additional superannuable income is addressed. I recommend that you speak with your accountant if your role is going to materially change.
Consider trading structure
From a taxation perspective this will be one of the more important decisions you make. It can often be difficult to predict the size of your private practice early on and therefore whatever trading structure you adopt initially may change, so keep your accountant informed regularly.
The main structures for trading are self-employment, limited company or partnership. Historically, self-employment was the popular choice but with more and more adverse taxation issues affecting higher earners, a limited company is in many cases the most flexible and tax efficient structure but this depends on your individual circumstances.
Consider pension position
Pensions are a complex area with possible tax charges for rapidly growing pensions and on the overall size of the pension itself. Even consultants with no private earnings can be significantly affected when they often assume they are ‘safe’.
The pension savings annual allowance is the key problem area to suffer an unexpected tax charge, particularly for those with taxable earnings of more than £110,000 from all sources. Your accountant should be able to discuss this with you but if they can’t, or defer the tax discussion to an independent financial adviser,you should consider your choice of accountant as this is a big risk area for consultants.
As you can imagine, running any business carries responsibilities to the tax authorities and penalties can arise if you don’t keep adequate records.
To cope with changes to the tax system, adopting some form of electronic record keeping is a good idea to avoid being on the back foot later.
There are many software packages to help run your practice and most will link into an accounting package.
Depending on the type of work you perform and whether you employ anyone, you may have higher obligations to HMRC.
In relation to VAT, the main work affected is medico-legal work as this is not regarding as ‘medical’. Clinical work that is for the health of a patient is exempt from VAT and therefore the majority of private practices are not VAT registered.
For those carrying out non-medical work you need to be doing more than £85,000 on a 12 -month rolling basis to be forced to register for VAT. If you think you might be affected speak to your accountant as the penalties of not registering can be severe. Grey areas exist for certain cosmetic work but your accountant should be able to advise you further if they are medical specialists.
If you employ a secretary or spouse you are likely to need a PAYE scheme and therefore getting this up and running is important and is usually done through your accountant. You will need to collect tax and National Insurance from your employees to pass on to HMRC and you will also pay National Insurance as the employer.
Depending on the levels of salary paid and status of the employee you may have pension obligations under the auto enrolment scheme which is there to force employers to provide a pension scheme.
Defence cover can be a problem area as you often don’t know how much you will be earning and different income streams carry different risk premiums.
It is important that if you are aware that you under declared the size or composition of your income to your defence body or insurer that you contact them to pay the additional premium. It is a false economy to underpay your premiums as you could find yourself under insured if there were a claim.
Having a quality secretary can often be the difference between a smooth-running practice and one with problems. Often consultants share the services of a secretary so take advice from colleagues as often secretaries are looking for additional work and a personal recommendation goes a long way. Ideally your secretary will actively chase outstanding fees and ensure you minimise bad debts as this equates to working for free!
All consultants carrying out private work should have a high-quality website. Depending on your specialty you may need to spend a significant amount of time and money on marketing, advertising and social media.
Getting an expert to do this can be expensive but in my experience is more effective than trying to do this yourself.
Planning your private practice business and keeping it under review is important to ensure that you have a successful private practice and help avoid any nasty tax surprises later. As always, keep in contact with your accountant who should be able to advise you at the various life cycles of your private practice.
Ian Tongue is a partner with Sandison Easson accountants