Doctors have a harder tax position than their income alone suggests. A consultant can hold an NHS post, a private practice, occasional medico-legal work and a share of a limited company at the same time — four income streams under three tax regimes — while the NHS pension quietly generates an annual allowance charge that has nothing to do with money anyone actually received.
The pension charge that is not about contributions
The single largest tax issue for senior doctors is the annual allowance, and its unfairness in a defined benefit scheme is structural rather than accidental. In a defined contribution pension, the amount tested is what was paid in. In the NHS scheme it is the growth in the value of the promised pension over the year, multiplied up and compared against the allowance. A pay rise, a promotion or a period of high inflation can therefore create a charge far larger than the contributions deducted from the payslip.
The allowance tapers for higher earners: where threshold income exceeds £200,000 and adjusted income exceeds £260,000, the allowance falls by £1 for every £2 of adjusted income above £260,000, to a floor of £10,000. Both tests must be failed for the taper to bite, which is why threshold income is the number worth managing — and why individual pension contributions, which reduce threshold income, can be the lever that avoids the taper altogether.
Two mechanisms make the charge manageable. Carry forward allows unused allowance from the previous three tax years to be set against an excess. Scheme pays allows the NHS scheme to settle the charge from the pension itself rather than the doctor writing a cheque, at the cost of a permanent reduction in benefits. Both require the pension savings statement, and both have deadlines — which is why the work has to start when the statement arrives rather than in the week before the filing deadline.
Four income streams, three regimes
The compliance burden comes from the mix:
- NHS employment — PAYE, straightforward, but the source of the pension input that drives the charge above;
- Private practice as a sole trader — self assessment and Class 4 National Insurance, with Class 2 no longer charged: it is treated as paid where profits exceed the small profits threshold, and remains available voluntarily below it to protect the contribution record; allowable expenses on the "wholly and exclusively" test, and now within Making Tax Digital for anyone over the income thresholds as they phase in;
- A private practice company — corporation tax, salary and dividend extraction, and the personal tax on both. Attractive where profits are retained, considerably less so where everything is drawn;
- Locum and agency work — where the off-payroll rules decide whether the engager operates PAYE, and where the answer differs between NHS bodies and private clients.
GPs add a fifth layer: partnership profits, superannuable pay certificates, and a pension position that depends on the practice's own year end and profit allocation.
Expenses: the small things that are consistently missed
Professional expenses are individually modest and collectively significant across a career. Deductible against the relevant income: GMC registration, medical defence organisation subscriptions, royal college and professional body fees, examination costs where they maintain rather than acquire a qualification, journals, medical equipment, and indemnity for private work.
The distinction that catches people is training, and HMRC's position is more generous than the old shorthand suggests. Expenditure maintaining existing professional skills is allowable — and so, usually, is training that acquires new skills or knowledge where it relates to the practice already being carried on, including keeping pace with changes in technique and practice. What remains capital, or simply not an expense of the existing business, is training that equips the doctor to enter a genuinely different field, or that precedes a business rather than serving one. Doctors moving between specialties are the group most affected, and the treatment deserves deciding at the point of the spend rather than at the year end.
Travel is the other recurring question. Home-to-base travel is ordinary commuting and not deductible. Travel between two workplaces on the same day — the NHS hospital and the private clinic — generally is, and the same applies to genuinely temporary workplaces. Mileage records are the evidence, and a doctor who reconstructs them annually from memory has a weaker claim than one who logs them.
Structure: company or not
The incorporation question for private practice has no universal answer, and the arithmetic has moved. Against incorporation: corporation tax at 25% above £250,000 of profits with marginal relief from £50,000, dividends taxed at 10.75%, 35.75% or 39.35%, the administrative cost of a second set of accounts and returns, and the fact that NHS income cannot be routed through a company at all.
In favour: control over the timing of extraction, the ability to retain profits taxed only at corporate rates, scope to involve a spouse genuinely working in the business, and a vehicle for expenses that would not be efficient personally. The honest test is whether profits will be retained. A doctor drawing everything each year usually gains little; one building reserves, funding equipment, or smoothing income across a variable career often gains a great deal.
Acumon works with consultants, GPs and practices as accountants for doctors, covering private practice accounts, self assessment, the annual allowance and scheme pays analysis, and private client tax more broadly. If a pension savings statement has arrived and is still unopened, that is the item with a deadline attached.