Going out on a limb: starting your own practice

Many examples exist of vets who’ve set up on their own and become successful.

Consider William Garton. After graduating from the University of Nottingham, he established his own poultry-specific veterinary practice, called Avivets, which has successfully traded for more than three years as an independent practice. He has just won Young Farm Vet of the Year at the National Egg and Poultry Awards 2023.

First steps

The process should begin with a business plan. Budding entrepreneurs need to think about their aspirations in terms of where they’ll start and potentially end up. The plan needs to give serious thought to the market the practice will serve, such as type of animal to be cared for and catchment area for clients, along with their relative wealth (to determine the level of prices that can be charged).

This then leads to the next step – creating a financial plan to fund the proposition that features a cashflow forecast, profit/loss forecasts for the following year and bank statements for the past six months, as well as background on the business owners.

Finding finance

And as for finance, countless sources are available, as a search of the web for “finance for veterinary practices” demonstrates; Shire Insurance, Rangewell and Lloyd and White are just some of the options.

Next comes the entity – sole trader, partnership or limited company. Here, Helen Thornley, a technical officer at the Association of Taxation Technicians, says that each approach has pros and cons and that “a good accountant should be able to help with this decision”. They can be found by visiting the website of any of one the professional bodies – Google “how to find a qualified accountant”.

Even so, she thinks it helpful to understand some of the basics. She points to various distinctions, noting that at one end of the spectrum comes simplicity and personal liability through sole tradership and partnerships, while at the other, is a company that is owned by its shareholders and run by its directors.

And while most will likely set up as a company, Ms Thornley notes that even seasoned directors can come off the rails as they do not fully understand the implications of their business structure. In particular, she said: “A company is a separate legal entity, which gives owners more protection if something goes wrong. And in the event that the company can’t pay its debts, the shareholders’ liability is normally limited to the amount they paid for their shares, unless they’ve given personal guarantees.”

However, she details that “running a company brings more responsibilities and directors must accept certain legal duties, including that of acting in the best interests of the company”.

Furthermore, while a shareholder-director might own and run the company, Ms Thornley said: “That doesn’t mean that they can dip into company bank account when they feel like it. Instead, monies must be extracted – either by paying salary or by voting dividends out of company profits.”

Solicitors can be found via the Law Society’s website.

Tax

Misunderstanding – deliberately or otherwise – can be a recipe for disaster. For this reason, practices and their owners need to tell HMRC at the earliest opportunity about the new enterprise. Individuals need to fill out self-assessment returns and will be responsible for paying their own national insurance, while incorporated entities need to register to pay corporation tax.

In all probability, most will incorporate for the aforementioned reasons. And as with the legal duties that are attached to a corporate structure, so Ms Thornley details that operating this way brings as much complexity for tax purposes. She said: “The company itself will pay Corporation Tax on its taxable profits. For small companies, this is due as a single payment nine months after the company’s year-end. In addition, individuals involved will pay income tax and national insurance on any money that they have taken out of the company in the form of salary or dividends.”

It follows that profits depend not just on sales, but also on expenses that can be offset for tax purposes. Many in business are surprised to find out, as Ms Thornley highlights, that “profits are calculated differently for tax compared with how they may be shown in business accounts”.

In general, she says that provided expenses are incurred wholly and exclusively for the business, they should be allowable as a deduction against business income. This includes many of the everyday running costs, such as rent, rates, insurance, wages, stationery, heat and light.

Some complications

Ms Thornley says that capital items which a practice may use over a number of years such as fixtures and fittings, computers, consulting equipment and vehicles are treated differently for tax purposes where relief is given in the form of capital allowances. She says: “In most cases, full relief will be available, but care should be taken – especially with cars as practices may not get the tax relief in full in the year of purchase and users could have to pay a benefit in kind if it’s used privately.”

To get the best out of the tax system, Ms Thornley advises that the simplest approach is to keep a record of all potential business costs, together with supporting evidence such as invoices, before discussing the position with the accountant at the end of the year.

Finally, on VAT, Ms Thornley says schemes are available to help both small and young businesses ease their way through the regime, such as Annual Accounting (just one VAT return a year), Cash Accounting (VAT based on monies paid and received, with automatic debt relief) and the Flat Rate Scheme (a fixed percentage of turnover with less administration). Again, an accountant can advise further on each.

Staff

Staff and related issues can prove extremely hazardous if good advice isn’t sought. Employees and job applicants have rights and will try to enforce them. Further, the law places obligations on employers to, for example, ensure the legal right of someone to work in the country, handle dismissals in a given way, and follow health and safety legislation.

Practices are best advised to consult a solicitor on employee contracts, recruitment and employment processes, and holiday and sick pay to name but a few key areas of employment law. Advice can also be obtained from Acas, a Government-funded but independent organisation.

Beyond that, Ms Thornley says employers must supply a written statement of the main conditions of employment within two months of the employee starting work, regardless of whether an employment contract is put in writing.

Also, she points out “the need to pay staff the national minimum wage appropriate for their age, and also potentially enrol them into a workplace pension”.

And from a tax perspective, employers must register with HMRC to obtain a PAYE reference for the business and tell HMRC every time a new member of staff is hired. But Ms Thornley says there’s more. She said: “Each time you pay your staff, you need to deduct income tax and employee’s national insurance, calculate your employer’s national insurance liability and report these figures to HMRC on or before the date of payment.”

Complications also exist in relation to the use of locums and IR35 rules, which seek to prevent an individual working effectively as an employee – but through a company – avoid tax.

Premises

Lastly, there’s the matter of choosing premises, which is littered with booby traps. Purchasing aside and assuming that the site is to be rented, it needs to be remembered that landlords invariably write contracts in their favour. For example, it’s common to see contracts with “dilapidations” (where tenants may have to pay to repair premises both before and after rental), high insurance or common usage charges, infrequent “break clauses” that make it hard to end a lease part of the way through, or upwards-only rent reviews.

Using a good surveyor or lawyer is essential to get through this maze. A member of the Royal Institution of Chartered Surveyors is an expense worth incurring.

Summary

This is but a light touch on a very complex subject. But while no-one ever said running a practice was easy, it does offer plenty of freedoms and rewards. The key, though, is good.