How Dr. Emily Saved £4,000 on Her Tax Bill: A Medical Professional's Success Story 💰
By Majed Ali, Director of MA&CO Accountants
As an accountant who's worked with medical professionals for over a decade, I've seen firsthand how the right financial structure can make a significant difference to a doctor's bottom line. Today, I want to share a success story that might resonate with many of you juggling NHS work alongside private practice or locum shifts.
Meeting Dr. Emily 👩⚕️
Last year, a GP named Dr. Emily walked into our London office looking rather frustrated. Like many medical professionals, she was balancing multiple income streams – working part-time (3 days a week) at an NHS practice while spending her remaining time on various freelance medical work, including locum shifts, private consultations, and occasional medical writing.
"I just received my tax bill," she told me, placing a letter on my desk with a figure that made even me wince. "I'm working harder than ever, but it feels like I'm giving most of it away. There must be a better way to structure my finances."
I could relate to her frustration. My own father was a doctor who faced similar challenges years ago, which is partly what inspired me to specialise in medical accounting. I've seen countless hardworking medical professionals who feel they're being penalised for their success.
Dr. Emily's situation is one I see frequently. She was earning around £45,000 from her NHS position and approximately £80,000 from her freelance work, pushing her total income to about £125,000. As a sole trader, she was paying a higher rate of tax (40%) on most of her freelance income, with limited options for claiming business expenses.
What made matters worse was that her personal allowance was being tapered away due to her income exceeding £100,000, creating an effective tax rate that felt punishing rather than fair.
The Initial Assessment 🔍
During our first proper consultation, I asked Dr. Emily about her work patterns, income sources, and future plans. She explained that she valued her NHS work but also enjoyed the flexibility and additional income from her freelance activities. With two young children at home, she was trying to create financial security while maintaining a reasonable work-life balance.
"I'm not trying to avoid paying my fair share," she emphasised – something I hear from almost every medical professional I work with. "I just want to make sure I'm not paying more than I need to."
I remember nodding in agreement. In my experience, doctors are among the most conscientious taxpayers. They want to contribute fairly to the system they often work within, but they also deserve to keep a reasonable portion of what they earn through their additional efforts.
This is exactly the kind of situation where restructuring can make a significant difference. After reviewing her financial details, I could see several opportunities to improve her tax efficiency while ensuring complete compliance with HMRC regulations.
The Limited Company Solution 💼
I recommended that Dr. Emily consider setting up a limited company for her freelance work. This would create a clear separation between her NHS employment and her private practice, with several potential benefits:
1. Lower tax rates on company profits: Instead of paying income tax at 40% or more on her freelance earnings, her company would pay corporation tax at 19% (for profits under £50,000).
2. More flexible income extraction: She could take a small salary and receive the rest as dividends, which are taxed differently than regular income.
3. Enhanced expense options: As a limited company, she could claim a wider range of legitimate business expenses.
4. Better pension planning: The company could make employer pension contributions, offering additional tax efficiency.
5. Future planning: She could retain profits within the company for future use or expansion.
Dr. Emily was interested but cautious. "It sounds complicated," she said. "And I've heard about IR35 and other regulations that can cause problems for doctors."
This was a valid concern. The intermediaries legislation (IR35) can indeed affect how medical professionals structure their work, particularly when contracting with NHS organisations. I explained that we would need to carefully review each of her contracts and working arrangements to ensure compliance.
"I don't want a solution that creates more stress than it solves," she said, which I thought was a brilliant way of putting it. Many of my medical clients are already dealing with enough pressure in their professional lives – the last thing they need is tax anxiety on top of everything else.
Making the Transition 🔄
After discussing the pros and cons, Dr. Emily decided to proceed with setting up a limited company for her non-NHS work. We handled the company formation, helped her set up a business bank account, and established proper accounting systems.
I still remember her suggested company name – "Emily Healthcare Ltd" – which we quickly registered with Companies House. There's always something exciting about helping a client take this step; it's like watching them transform their professional identity.
We also reviewed each of her freelance arrangements to ensure they would stand up to IR35 scrutiny. For her locum work, we made sure her contracts reflected genuine self-employment characteristics – she controlled her own hours, could send a substitute if needed, and wasn't under the direct supervision of the clinics where she worked.
For her private consultations, we helped her establish clear terms of business that reinforced her status as an independent practitioner rather than an employee.
The Tax Savings Breakdown 📊
Now for the part everyone's interested in – the actual savings. Here's how the restructuring benefited Dr. Emily:
Before: As a Sole Trader
Dr. Emily's NHS income of £45,000 was already taxed through PAYE. Her freelance income of £80,000 was subject to income tax and National Insurance as follows:
•Personal Allowance: £0 (tapered away due to total income over £100,000)
•Income Tax on NHS Income: £6,486
•Income Tax on Freelance Income: £30,946
•National Insurance: £4,437
•Total Tax and NI: £41,869
•Net Income: £83,131
After: With a Limited Company
With the new structure:
•NHS Income remained unchanged at £45,000 (PAYE)
•Her company received the £80,000 freelance income
•She took a small salary of £9,100 (below NI thresholds)
•She received £56,900 in dividends
•£8,000 was retained in the company for future use
The tax calculation changed significantly:
•Corporation Tax on company profits: £13,471
•Income Tax on NHS Income: £6,486
•Income Tax on Salary: £0 (covered by personal allowance)
•Income Tax on Dividends: £19,035
•National Insurance: £0
•Total Tax: £38,992
•Net Income: £86,008
This created an immediate tax saving of £2,877. Additionally, the £8,000 retained in the company and the ability to claim approximately £1,200 in additional business expenses brought the total effective savings to just over £4,000.
I'll never forget Dr. Emily's reaction when I showed her these figures. "That's almost a month of locum work I don't have to do," she said. "Or a family holiday we can actually take without guilt." It's moments like these that remind me why I love what I do.
Beyond the Numbers 📈
While the tax savings were significant, Dr. Emily found other benefits equally valuable:
Clear separation of finances: Having a distinct business entity helped her keep personal and professional finances separate, making it easier to track income and expenses. "My kitchen table is no longer buried under receipts," she joked during one of our review meetings.
Professional image: Operating through a limited company gave her practice a more established feel when dealing with private clients and healthcare organisations. She even mentioned that some private hospitals preferred working with incorporated practitioners.
Future planning: The ability to retain profits in the company provided flexibility for future investments in her practice or additional pension contributions. Dr. Emily was particularly interested in eventually expanding her private work, and the company structure gave her a vehicle to build toward that goal.
Peace of mind: With proper structures in place and professional guidance, she felt confident that she was both tax-efficient and fully compliant with all regulations. As she put it, "I sleep better knowing everything is above board but optimised."
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Is This Right for Every Doctor? 🤔
I always emphasise to clients that what worked for Dr. Emily might not be right for everyone. The decision to operate through a limited company depends on various factors:
•Income level: Generally, the benefits become more significant at higher income levels.
•Work arrangements: The nature of your contracts matters, especially regarding IR35.
•Future plans: Are you looking to grow a practice or simply maximise current income?
•Administrative comfort: Limited companies require more paperwork and compliance.
•NHS pension considerations: Company structures can affect NHS pension planning.
For Dr. Emily, the combination of her income level, work mix, and future aspirations made a limited company the right choice. For others, remaining as a sole trader or using an umbrella company might be more appropriate.
I've had clients with similar incomes to Dr. Emily for whom I've recommended staying as sole traders because their particular circumstances made it the better option. There's no one-size-fits-all solution in medical finance – it's as personalised as patient care.
The Ongoing Relationship 🤝
Financial restructuring isn't a one-time event but an ongoing process. We continue to work with Dr. Emily, reviewing her situation quarterly to ensure her company structure remains optimal as tax laws and her practice evolve.
Last month, she came in for her regular review with a smile rather than the stress I'd seen in our first meeting. "The best part," she told me, "isn't just the tax savings, though those are certainly welcome. It's the feeling that I'm in control of my financial future."
She's now using some of the savings to invest in additional medical equipment and has increased her pension contributions, building long-term security alongside current tax efficiency.
What I find most rewarding is seeing how the right financial structure gives medical professionals like Dr. Emily the freedom to focus on what they do best – providing excellent patient care – without worrying that their hard work is being unnecessarily taxed.
Could This Work for You? 🧐
If you're a medical professional juggling multiple income streams, it's worth considering whether your current financial structure is optimal. Here are some signs that you might benefit from a review:
•You're paying a higher or additional tax rate on significant portions of your income
•You work across multiple settings (NHS, private practice, locum)
•You have limited options for claiming legitimate business expenses
•You're concerned about retirement planning beyond the NHS pension
•You're looking to grow or develop your private practice
At MA&co Accountants, we specialise in helping medical professionals navigate these complex decisions. We understand the unique challenges doctors face, from IR35 considerations to NHS pension interactions.
Taking the First Step 👣
Financial restructuring might seem daunting, but with the right guidance, it can be straightforward and rewarding. Dr. Emily's £4,000 savings didn't require complex tax schemes or aggressive planning – just the appropriate application of existing tax rules to her specific situation.
If you'd like to explore whether a similar approach could benefit you, we offer a free initial consultation to medical professionals. We'll review your current situation, discuss your goals, and outline potential options – all with no obligation.
Remember, it's not about avoiding tax – it's about not paying more than your fair share. As I always tell clients like Dr. Emily, good tax planning is like preventative medicine: it's better to get the structure right from the start than try to fix problems later.
Majed Ali is the Director of MA&co Accountants, a London-based firm specialising in financial services for medical and healthcare professionals. With over 15 years of experience in medical accounting, Majed helps doctors optimise their financial structures while ensuring full compliance with HMRC regulations.
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