Tax Tip of the Month
March 2010
Calling all lawyers and dentists
The 50% rate of tax is causing a lot of professionals to consider the merits of incorporating as a limited company. We’ve had our say on the availability of cleverer structures than the simple limited company structure elsewhere, but our point made in this tax tip is simple: bear in mind that almost all professions, now, with the possible exception of the Bar, can set up in the form of limited companies.
Solicitors have in fact been able to incorporate since the 1980s, although very few seem to have availed themselves of this ability. Dentists are a much more recent addition to the club, with the necessary legal changes having taken place in 2005 to enable their surgeries to incorporate.
If you do want to go down the simpler, company, route, do bear in mind the ability to capitalise on the value of the goodwill of your practice. If you sell this to the limited company, you will have capital gains tax to pay (probably at 10%) but this will then enable you to draw down profits out of the company, which have only borne 21% corporation tax, with no further layer of income tax. If you compare this with the effectively over 36% rate you would pay if you took the same profits out of the company as dividends, you will see that 10% is beginning to look very attractive indeed!
