Letters, calls and emails: Tax avoidance scheme ‘fraught with difficulty’

Dear Editor,

The idea that GPs could form limited companies to run their practices, and by so doing avoid paying so much income tax, is fraught with difficulties (GP, 2 March). 

Not least is the fact that the GMS contract is with individual GPs, and the PCT may not allow this to be changed without a tendering process.

There is also a test case rumbling through the courts, currently awaiting a decision from the House of Lords, on the legality of paying a spouse a substantial dividend on the basis of profits not directly generated by that spouse.

The tax-saving benefit of such a scheme has been widely advocated, and indeed is utilised by many GPs already in respect of their non-NHS income, but the scale of benefit will also depend on how much of the spouse’s lower-rate band is not already being utilised. The Inland Revenue would also presumably expect the company to pay each GP a realistic salary, which would have significant class-one National Insurance implications. So although there have been changes in NHS pension rules, the level of tax savings quoted may not be achievable in reality.

Dr Simon J Shaw
Preston, Lancashire

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