Chapter Two – How to set up your new medical practice as a company
An important decision you will need to make is the legal structure of your new practice. Will you operate alone as a sole trader, or with one or more others and create a partnership or limited liability partnership (LLP), or register as a limited company?
Many doctors start their private practice working as sole traders. It is the simplest structure, you are self-employed, you and the business are viewed as one legal entity, and you pay tax on your profits. Be warned though that as a sole trader, you are responsible for both personal and business debts so personal assets could be at risk if something goes wrong. Starting as a sole trader has very little paperwork and few formalities hence its popularity. There may become a time when it would be more sensible for you to move from being a sole trader to a limited company and the transition can be made when appropriate.
If you are starting your practice with one or more colleagues, then you will most likely opt for a partnership or limited liability partnership. A partnership is like a sole trader but differs in that it has more than one owner. Each partner owns a specific percentage of the profits and the liabilities, and they must pay tax on that percentage.
With a limited company, you will become a shareholder and director, potentially among others, and the business is seen as a separate legal entity from its shareholders and directors. This means that a limited company’s finances are separate from the shareholders’ or directors’ finances, so you are only responsible for the money that you put into the business. Limited companies have more responsibilities than a sole trader, requiring you to follow strict record keeping and prepare and submit annual accounts.
If you decide to create a limited company, you must register with companies’ house which can usually be completed online via their website. You will need to provide some personal information and there is a small fee. You will also be required to create a government gateway user ID. If you plan to employ people, you can also register for PAYE.
Your decision about which type of legal entity to choose will depend on your personal circumstances and it would be wise to discuss this with an accountant with a good understanding of the private healthcare industry.
To run your business, you will also need a bank account. As a sole trader, you do not need a business bank account and you can use a personal bank account. Most business bank accounts charge a monthly fee and fees for certain transactions, so they can be more expensive, but they also offer more services that may benefit you in running an efficient practice, so the cost may be justified. If you decide to use a personal account it would be sensible to set up a new account, to separate transactions from your personal transactions for ease of bookkeeping and accounting. Whomever you choose to manage your patient invoicing will need to reconcile your bank account, as will your accountant, and running separate accounts will allow you to keep your private life private.
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