Introduction: Why a Private Medical Practice Changes Your US Tax Return
A private medical practice alongside an NHS consultant post is one of the most rewarding career structures in British medicine, and it is also one of the most frequently misreported on American tax returns. If you are a US citizen or green card holder working as a consultant, surgeon, anaesthetist or GP partner in Britain, the United States taxes your worldwide income every year. Consequently, your private fees, your NHS salary and your NHS pension all reach the IRS, just in different ways and on a different calendar.
At TaxYork, we prepare US and UK returns for senior clinicians, investment bankers and company owners who live between two tax systems. In our experience, American doctors are rarely careless. Instead, they are busy, and they rely on UK medical accountants who are excellent on HMRC matters but have never been asked to think about the IRS. As a result, we regularly see physicians paying five-figure sums in US self-employment tax they do not owe, while missing the forms that really matter.
This guide explains how a private medical practice is taxed on your US return in 2026, how to choose between sole trader and company structures with the American layer in view, and how to repair missed US tax returns. Furthermore, it covers basis period reform, Making Tax Digital, the NHS Pension Scheme and a worked case study with real numbers.
What Counts as a Private Medical Practice for US Purposes
For US purposes, a private medical practice is any trade or profession you carry on outside your NHS employment contract. That includes outpatient consultations billed to insurers such as Bupa and AXA Health, procedures at private hospitals, medico-legal reporting, occupational health sessions and private GP work. It also includes income from a limited company or a partnership through which you bill those fees.
The IRS does not care how the NHS describes your work. What matters is whether you are an employee or self-employed, and whether you act personally or through an entity. Therefore, the first job in any US return for a doctor with a private medical practice is to map each income stream to the correct US category before a single figure is entered.
Why UK Medical Accountants Rarely Cover the US Side
British medical accountancy is a mature specialism, and the leading UK firms understand consultant tax extremely well. However, their work ends at the Self Assessment return. They do not prepare Schedule C, Form 1116, Form 5471 or FBAR filings, and they are not expected to. Consequently, the US side of a private medical practice is often left to the doctor, to a generalist, or to nobody at all.
How the IRS Taxes Your Private Medical Practice Income
The starting point is simple. As a US person, you report your worldwide income on Form 1040, and your NHS salary appears as foreign wages. Your private medical practice profit, if you work as a sole trader, appears on Schedule C as self-employment income. Additionally, the IRS expects this income in US dollars, for the calendar year, on US accounting principles.
Sole Trader Profits on Schedule C
Schedule C for a private medical practice starts from your gross private fees and deducts ordinary and necessary business expenses. Most of the costs HMRC allows for a consultant also work for the IRS. For example, medical defence subscriptions, consulting room hire, secretarial costs, billing agency fees, professional equipment and continuing professional development are generally deductible in both countries. In addition, subscriptions to professional bodies on HMRC's List 3 of approved professional organisations, such as the BMA and royal colleges, reduce your UK profit.
Nevertheless, the two systems diverge on capital items, home office costs and motoring. The UK capital allowances regime and US depreciation rules produce different figures in the same year. Therefore, your Schedule C profit and your UK taxable profit will rarely match, and a US return built by simply converting the SA103 figure is almost always wrong in detail.
The Calendar Year Problem
The IRS taxes individuals on the calendar year, while HMRC taxes on the tax year ending 5 April. Before basis period reform, many consultants also drew up private practice accounts to 30 April or 31 March. Consequently, a single US return can draw on parts of two UK tax years, and the UK tax attached to each slice arrives at a different time.
This timing gap matters most for the foreign tax credit. UK tax on a private medical practice is paid through Self Assessment, with payments on account each January and July. As a result, cash-basis credit claims can bunch in one US year and fall short in the next. We explain the fix, the section 905 accrual election, later in this guide.
Foreign Tax Credit Versus the Exclusion
The foreign earned income exclusion shelters up to $132,900 of earned income for 2026, as explained on the IRS foreign earned income exclusion page. For a senior doctor, however, it is usually the wrong tool. UK income tax at 45 per cent on income above £125,140 comfortably exceeds US rates, so the foreign tax credit normally eliminates US income tax on the whole of your earned income, not just the first $132,900.
Moreover, excess credits carry forward for ten years, which protects you if you later earn investment income or return to America. By contrast, the exclusion leaves the remaining income taxed at higher marginal rates under the stacking rule. Therefore, for almost every consultant with a private medical practice we advise, the credit is the better choice.
Self-Employment Tax and Your Private Medical Practice
This is where most American doctors overpay. On the face of the Internal Revenue Code, Schedule C profit attracts self-employment tax at 15.3 per cent, made up of 12.4 per cent Social Security on earnings up to $184,500 for 2026 and 2.9 per cent Medicare with no ceiling. The IRS guidance on self-employment tax for businesses abroad confirms that living abroad does not remove the charge by itself. Crucially, the foreign earned income exclusion does not reduce it either.
How the US-UK Totalisation Agreement Removes the Charge
However, the United States and Britain have a social security agreement, and the IRS page on totalization agreements lists the UK among the countries covered. Under the agreement, a self-employed person resident in Britain is generally covered only by the UK system. Consequently, you pay Class 2 and Class 4 National Insurance on your private medical practice profit in Britain and no US self-employment tax at all.
In money terms, the saving is substantial. On a Schedule C profit of $150,000, self-employment tax comes to roughly $21,200 a year. For a doctor with a busy private medical practice, that is often the single largest avoidable US cost on the return, and it recurs every year until someone fixes it.
The Certificate of Coverage Is Not Automatic
The exemption is not automatic. You need a certificate of coverage from HMRC confirming that you pay UK National Insurance, and you attach a copy with a statement to your Form 1040 each year. For a US citizen living and trading in Britain, the request goes in writing to HMRC's National Insurance contributions office. Where HMRC cannot issue a certificate, the IRS recognises an alternative procedure under Revenue Ruling 92-9, which almost no guide mentions.
Remember too that UK National Insurance is a social security contribution, not an income tax. Therefore, Class 2 and Class 4 contributions earn no foreign tax credit. The totalisation agreement handles them instead, and treating them as creditable tax overstates your credits.
Refunds for Years Already Overpaid
If you have already paid self-employment tax on a private medical practice, you can usually recover it by amending the returns. However, the refund window is the ordinary three-year period under section 6511, not the ten-year window that applies to foreign tax credit claims. As a result, every month of delay can cost you a full year's refund. Our guide to self-employment tax for Americans in the UK explains the mechanics in more depth.
Sole Trader or Limited Company: The US View
UK medical accountants often recommend incorporating a private medical practice once private profits pass about £50,000, because corporation tax and dividend extraction can beat income tax plus Class 4 contributions. For a British doctor, that analysis is sound. For an American doctor, however, a UK company brings a second layer of US rules that can erase much of the advantage.
The Company Becomes a Controlled Foreign Corporation
A UK limited company wholly owned by a US citizen is a controlled foreign corporation. Consequently, a company running your private medical practice means you must file Form 5471 every year, with a $10,000 penalty per form per year for failure to file. In addition, the company's profit may be taxed to you currently as net CFC tested income, formerly called GILTI, even if you leave it in the company.
A high-tax exclusion election can remove that current inclusion where the UK effective rate exceeds 18.9 per cent. UK corporation tax runs from 19 per cent on profits up to £50,000 to 25 per cent above £250,000, with marginal relief in between. Therefore, a medical company usually clears the test, but only narrowly at the small profits rate, and only when the income is recomputed under US principles. We model this before the UK accounts are finalised, not afterwards.
Dividends, the Additional Rate and the NIIT
When you extract profit as dividends, UK dividend tax applies at 10.75, 35.75 or 39.35 per cent for 2026/27, according to HMRC's dividend tax guidance. A consultant whose NHS salary already exceeds £125,140 pays 39.35 per cent on almost every pound. On the US side, a UK company dividend is usually a qualified dividend taxed at 20 per cent, which the UK tax credits away.
However, the 3.8 per cent net investment income tax also applies to those dividends once your income exceeds $200,000, and UK tax cannot be credited against it. Consequently, a doctor extracting £90,000 of dividends can face roughly $4,500 of US tax each year that a sole trader would never pay. Our analysis of UK personal service companies for US consultants explores the same trade-off for other professionals.
When Incorporation Still Makes Sense
Incorporation can still work for an American doctor, particularly where profits are retained for reinvestment in equipment or premises, or where a group practice needs a corporate vehicle. However, the decision must be made jointly on both returns. In our experience, the best outcome for many consultants is a sole trader private medical practice backed by a totalisation certificate, because it removes US self-employment tax without adding Form 5471, NIIT on dividends or high-tax exclusion risk.
UK Rules That Now Collide With Your US Return
Three recent UK changes affect how a private medical practice interacts with the US return. Each one looks purely domestic, but each changes the timing or evidence behind your foreign tax credit.
Basis Period Reform and Transition Profits
From 2024/25, HMRC taxes self-employed profits on a tax-year basis, with 2023/24 as the transition year. Doctors whose accounts ended on 30 April were taxed on extra transition profit, which is spread by default over five tax years ending in 2027/28, as HMRC explains in its guidance on working out your transition profit. For a British doctor, this is simply extra tax paid in instalments.
For an American doctor, it creates a mismatch. The IRS already taxed that same income on your calendar-year returns in earlier years. Therefore, the UK tax on transition profit arrives with no matching US income, and it generally produces excess foreign tax credits rather than a real offset. Those credits carry forward for ten years, so they are valuable, but only if your preparer tracks them properly in each basket.
Making Tax Digital for Income Tax
Making Tax Digital for Income Tax began on 6 April 2026 for sole traders and landlords with qualifying income above £50,000, falling to £30,000 from April 2027 and £20,000 from April 2028, according to HMRC's Making Tax Digital eligibility guidance. Most consultants with a private medical practice are already inside the regime. Consequently, you now keep digital records and send quarterly updates to HMRC.
That is useful for the US side. Quarterly digital records make it much easier to split profits between calendar years for Schedule C. In addition, they give your US preparer a clean audit trail if the IRS ever questions a figure.
VAT on Medico-Legal Work
Medical care by a registered practitioner is exempt from VAT. However, HMRC's VAT Notice 701/57 makes clear that medico-legal reports and expert witness work are standard-rated, because their primary purpose is a third party's decision rather than the patient's health. Once that taxable work exceeds £90,000 in a rolling twelve months, you must register for VAT.
VAT on a private medical practice is not an income tax, so it earns no US foreign tax credit. Nevertheless, it matters for your Schedule C, because VAT you collect is not income and VAT you cannot recover becomes part of the cost of your expenses. Therefore, get this split right on both returns.
The NHS Pension and Your Private Medical Practice
Your NHS Pension Scheme membership interacts with your private medical practice in two ways. First, private fees are generally not pensionable in the NHS scheme. Second, high combined earnings can trigger the tapered annual allowance, and that charge has its own US consequences.
Treaty Relief for NHS Contributions
Under Article 18 of the US-UK tax treaty, contributions to and accrual within a UK pension scheme can be kept out of your US income, and paragraph 5(c) extends this to US citizens resident in Britain. However, the relief cannot exceed what the US would allow for a generally corresponding American plan, which for 2026 means the $72,000 annual additions limit. Consequently, a consultant with a high NHS salary and generous employer contributions needs to test the figures each year. You claim the position on Form 8833 where required.
Separately, when you eventually draw the pension, the rules change again. Our guide to NHS, teachers' and local government pensions explains why a US citizen who stays in Britain gets a foreign tax credit rather than an exemption under Article 19.
The Tapered Annual Allowance Trap
The UK standard annual allowance is £60,000, but it tapers for anyone with threshold income above £200,000 and adjusted income above £260,000, down to £10,000. A consultant earning £140,000 from the NHS and £120,000 from a private medical practice can easily cross both lines, because private profit counts towards the tests even though it is not pensionable.
If you pay the resulting charge personally, it is a creditable UK income tax on your US return. However, the pension growth it relates to was already kept out of US income by the treaty, so the credit usually becomes an excess credit rather than a real saving. Therefore, managing private practice profit around the taper thresholds can matter more than the US credit ever will.
Reporting the Pension on FBAR and Form 8938
The NHS Pension Scheme is unfunded, with no segregated pot, and many practitioners therefore treat it as outside FBAR and Form 8938 reporting. By contrast, your practice bank account, any personal pension or SIPP and any investment accounts are reportable. Moreover, a business account in your own name counts towards the $10,000 FBAR aggregate. Our FBAR and FATCA compliance service reviews every account with that distinction in mind.
Case Study: A London Consultant's Private Medical Practice
The following illustrative case is based on the type of situation we see regularly, with names and details changed. Dr Ellen Hart is a US citizen and consultant cardiologist in London. She earns an NHS salary of about £140,000 and runs a sole trader private medical practice producing profit of around £115,000 a year, with accounts historically drawn up to 30 April.
What Her Earlier Returns Showed
Dr Hart prepared her own US returns using consumer software. She reported her NHS salary correctly with foreign tax credits, but the software treated her Schedule C profit as ordinary self-employment income. As a result, she paid self-employment tax of $21,194 for 2023, on profit of $150,000, and $21,901 for 2024, on profit of $155,000. She had also paid a similar amount for 2022.
In addition, she had never filed an FBAR for her practice bank account or her SIPP, and she had never tracked the extra UK tax arising on her basis period transition profit.
How We Repaired the Position
First, we requested a certificate of coverage from HMRC confirming her UK National Insurance position. We then amended her 2023 and 2024 returns, attaching the certificate and a totalisation statement, and removed self-employment tax of $43,095 in total, plus overpayment interest. Unfortunately, the 2022 year could not be recovered. Her 2022 return had been filed in June 2023, so the three-year refund window closed in June 2026, a few months before she came to us.
Next, we addressed the basis period reform issue. Her transition profit after overlap relief was about £65,000, spread at £13,000 a year. At her 45 per cent marginal rate, that produces roughly £5,850 of UK tax each year with no matching US income. We recorded these amounts as foreign tax credit carryforwards in the general category basket, where they now shelter future income. Finally, we filed her missing FBARs with a reasonable cause explanation.
The Lesson for American Doctors
Dr Hart's total recovery exceeded $43,000, and her future returns will save over $21,000 a year on the same private medical practice. However, her story also shows the cost of delay, because one full year of overpaid tax was lost to the statute of limitations. If you run a private medical practice and your US return shows self-employment tax, have it reviewed now rather than next filing season.
Missed US Tax Returns and Private Medical Practice Income
Many American doctors arrive in Britain for training, stay for a consultant post and simply stop filing US returns. Others file for their NHS salary but never report a private medical practice at all. In either case, the IRS may already hold information about you through FATCA reports from British banks. Therefore, repairing the position voluntarily is almost always better than waiting for a letter.
Choosing the Right Route Back
Where your failure was non-wilful, the IRS Streamlined Filing Compliance Procedures allow you to file three years of returns and six years of FBARs with no penalty for most overseas filers. For doctors whose UK tax exceeds US tax, the balance due is often nil, although that does not remove the filing duty. Our IRS Streamlined filing service handles the full submission.
In particular, include your totalisation certificate on every Streamlined year that contains Schedule C income. Otherwise, the reconstructed returns will show self-employment tax that you do not owe, and you will pay it with the submission.
What Your Preparer Needs
To prepare accurate returns for a private medical practice, your US preparer needs your UK accounts, your Self Assessment returns and calculations, your HMRC payment history, your NHS payslips and P60s, and statements for every UK account. Additionally, they need your pension savings statements from the NHS Business Services Authority, which you can access through the NHSBSA member hub. With those documents, most reconstructions can be completed within weeks.
The Section 905 Accrual Election
Finally, consider how your UK tax payments line up with each US year. Payments on account can put up to 200 per cent of a year's UK tax into one US calendar year on the default cash basis. Section 905(a) allows you to claim credits when the tax accrues instead, which matches the UK tax to the income. However, the election is irrevocable, so it suits steady practice income better than volatile one-off gains. IRS Publication 54 summarises the wider rules for citizens abroad.
How TaxYork Can Help
TaxYork provides comprehensive US and UK tax preparation for American doctors in Britain, from newly appointed consultants to senior partners in group practices. We prepare your Form 1040, Schedule C, Form 1116 and FBAR filings, secure your totalisation certificate so that your private medical practice carries no US self-employment tax, and track basis period and annual allowance credits across both systems.
Furthermore, we model sole trader and company structures on both returns before you incorporate, and we prepare Form 5471 where a company already exists. Where treaty positions arise on NHS pension contributions, our US-UK tax treaty optimisation service ensures that every claim is properly disclosed.
Conclusion
A private medical practice gives American doctors in Britain professional freedom and significant extra income, but it also adds US complexity that UK medical accountants are not asked to handle. The largest single error we see is paying US self-employment tax despite the totalisation agreement, and it is fully preventable with an HMRC certificate of coverage.
Beyond that, incorporation adds Form 5471 and net investment income tax, basis period reform creates excess credits that must be tracked, and the tapered annual allowance can produce UK charges that earn little US relief. Therefore, treat your US and UK returns for a private medical practice as one exercise. If you have overpaid, the three-year refund window means the time to act is now.
Contact Us
If you run a private practice alongside NHS work, or you have missed US tax returns and want them repaired properly, our specialists can help. Please contact us to arrange a confidential review, email hello@taxyork.com or call 020 3488 8606. We work exclusively with high-net-worth individuals, senior professionals, investors and business owners who need precise, fully compliant US and UK tax preparation.
Disclaimer
This article provides general information about US and UK tax rules as they stood in September 2026 and does not constitute tax, legal, medical or financial advice. The case study is illustrative, with names and figures changed, and outcomes depend on your individual circumstances. Rates, thresholds and exchange rates can change. You should take professional advice on your own position before acting. For professional standards and consumer guidance, see the Chartered Institute of Taxation, the ICAEW, the British Medical Association and MoneyHelper. TaxYork accepts no liability for actions taken on the basis of this article without a formal engagement.