‘I’ is for income tax

The building blocks of accountancy

Accountant Susan Hutter continues with her A-Z of top tips. This month she turns to ‘I’ 

is for Income Tax

For independent practitioners trading as a sole trader or partnership, income tax will be charged on their total annual profit, whether they draw it from the practice bank account or not. 

If you trade as a limited company, it will pay corporation tax on its profits and you will only pay income tax on money drawn from the company, whether as a dividend or a salary. 

Many doctors draw both a dividend and a salary. 

To minimise your income tax liability, you should look at the following areas: 

Personal allowances 

In the current tax year 2020-21, depending on the level of overall income, everyone receives a personal allowance of £12,500. All income up to that level is tax-free. 

However, for those whose income exceeds £100,000, the personal allowance is reduced by £1 for every £2 of income over that figure. So, by the time £125,000 annual income is reached, the personal allowance has been dissipated.