| Private practice income is generally received gross (without deduction of tax) and is chargeable to income tax under Schedule D Case II on a self-employed basis. In addition a liability to self-employed National Insurance contributions may arise depending on the level of profits. You must inform the Inland Revenue that self-employment/private practice has commenced and declare profits on your annual self-assessment tax return. Failure to notify the Inland Revenue will result in a £100 fine.
Earnings Basis
- Private practice income is taxable on an ‘earnings’ basis not a ‘cash received’ basis. A doctor’s accounts must adopt a basis which gives a ‘true and fair view’ of profits. This means that income earned during an accounting year must be included in the accounts of that year, not in the accounts when payment is received. The Inland Revenue state that once a job ‘reaches a billable stage’ the billable amount should normally be recognised as a debtor and included in the accounts. Correspondingly, expenditure incurred but not paid at the accounting year-end is deductible in the earlier accounting year. In essence the doctor may find that tax is paid on income before it is received especially in the area of medico-legal work.
Expenses
- For an expense to be deductible it must be ‘wholly and exclusively’ laid out or expended for the purpose of the private practice.
- Tax deductible expenses include:
- Secretarial costs and spouse’s wages
(there are special rules for the latter - seek professional advice).
- Certain medical equipment
- Medical indemnity insurance
- Subscriptions & Journals
- Courses & conferences (updating existing knowledge)
- Professional library
- Room hire
- Postage and stationery
- Computer software & sundries
- Motor expenses (per business mileage log)
- Travelling expenses
- Telephone costs (per business telephone log)
- Accountancy and other professional costs
Capital Allowances
A form of depreciation known as capital allowances may be claimed on items of capital expenditure purchased for private practice purposes (e.g. computer, cars, medical equipment etc.). The allowance available depends on the type of asset purchased and the date of purchase. The allowance is reduced to reflect any non-business use of the asset concerned.
When Private Practice Income Is Taxed
- The doctor is liable to tax on private practice profits shown in the accounts which end in the same tax year, i.e. profits reflected in the accounts for the year ended 31 March 2005 will be taxed in the 2004/05 tax year. Tax will be charged at the doctor’s marginal rate of income tax i.e. 40%.
This information sheet is designed to be a general guide only and Taxation Solutions Limited accepts no liability for any loss occasioned in reliance on the information given therein.
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