Many locum doctors in the UK work via NHS and locum agencies which handle their pay, much like a direct employer would. However, there are other ways that locums or freelance GPs can go about finding work and getting paid for their services.
The locum doctor can provide their services in different ways, including direct employment, working via a limited company, as a sole trader or even via an umbrella company. And of course, the aforementioned agency route.
NHS and locum agencies
By providing services through an NHS or locum agency, health workers pay employment tax at source under normal PAYE rules. This is fine for many as they won't have to do any accounting or tax preparation. On the downside, it's not the most tax-efficient way of working as a freelancer, and you're restricted in the type of expenses you can claim.
For healthcare professionals moving to the UK from overseas, it may initially be the preferred option as some agencies offer specific help and guidance about residency and the right to work in the UK.
Limited company option for locum doctors
Running a limited company usually provides the most tax-efficient option and gives you the opportunity to be the director of your own company. For most people, a limited set-up requires the services of an accountant - unless you're particularly sharp on tax filing procedures and day-to-day administration.
Tax efficiencies are secured when you pay yourself the right combination of dividends and salary as explained in our article. You also get to claim legitimate business expenses which can reduce your tax bill. One important thing to note is that you cannot contribute to the NHS pension scheme if you work through a limited company, which can be an important factor in your decision. You are able to contribute to a private pension scheme through your limited company and this can be very tax-efficient.
In the right hands, a limited company can be a simple way of doing business. Unfortunately, some accountants will leave you adrift in a sea of receipts, invoices, and documentation which you then have to gather up in an orderly fashion before sending it all over for them to process. However, if you have an accountancy service which keeps all your records safe and secure online, whilst offering expert help and guidance, limited company life becomes incredibly simple.
Before deciding to set up your own limited company, you need to understand how HMRC will view your employment status. If your contracts are caught under IR35 rules (depending on whether you are in the private or public sector), you’ll pay more employment tax.
In simple terms, if your contract is ‘inside IR35’, it means you are treated as an employee of your client. Your company’s income from a public sector client will be treated as employment income for you as an individual and will be subject to National Insurance and Income Tax deductions. Your end client will pay Employer National Insurance as well.
If you’re supplying your services to NHS practices then each practice that you work for as a locum will need to check whether your contract falls within the IR35 legislation using an online HMRC tool and let you know the outcome.
HMRC has said: “The rules apply if a worker provides their services to a client through an intermediary, but would be classed as an employee if they were contracted directly.” If you work regularly for just one practice and do the same sessions every week, you may really be an employee and will be caught by IR35.
If your contract is deemed to be ‘inside IR35’, the practice will have to pay your invoice after deducting all the necessary employment taxes. You’ll then need to make sure that you account for the net payment correctly and avoid being double-taxed.
How can GP locums ensure they do not fall within IR35?
The best way to evidence your assignment is outside IR35 is to ensure your contract, and the working practices you follow with your clients, show you are an independent contractor and not a ‘disguised employee’. HMRC will ‘look beyond’ your contract towards your working practices if they query the IR35 status of an assignment.
- Do not work for one practice ‘regularly’
- If you need to use a substitute because you can't make a session, you should be responsible for supplying the substitute. A substitute GP should be able to provide the same services originally offered by you. This substitute cannot be someone who regularly works for the same practice you work at. The practice will then pay your company and you will, in turn, pay the substitute for doing the session.
- You should not receive any type of employment benefits from practices you work for, such as sick pay, holiday pay, or staff away days.
Sole trader option for locum doctors
The major advantage of being a sole trader is that it’s the simplest way of running your own business and you can still contribute to the NHS pension scheme. You also get to claim expenses (similar to working as a limited company with a few differences) and means you don’t have any IR35 concerns.
The major disadvantage is that it’s not as tax efficient as a limited company. Depending on how much you earn, you could keep a lot more of your income with a limited company. As a sole trader, you’re liable for employment taxes (Income Tax and National Insurance) whereas a limited company director can take income by way of a dividend which attracts a lower rate of Income Tax and has no National Insurance to pay. It’s also possible to pay yourself a tax-efficient salary which does not attract any National Insurance up to the government’s threshold.
As a sole trader, you’ll still probably find life is much easier with a handy online sole trader accounting system and expert advice. Our sole trader software even prepares your Self Assessment for you to make your life easier.
Umbrella companies for locum doctors
Working freelance via an umbrella company is much like an agency set-up where the umbrella company sorts out your employment tax, leaving you to simply hand in timesheets. Naturally, they’ll charge for the payroll service they provide, and it’s administered on a PAYE basis. So, it’s not as tax efficient as a limited company or sole trader route (and you’ll have to pay to use the timesheet and payroll services).
If you see an umbrella company promising high amounts of take-home pay, through an offshore company for instance, please be very wary. HMRC keeps such arrangements under constant review and has closed many such schemes in recent years. You may find yourself liable to pay outstanding tax going back a number of years if HMRC concludes you should have been paying employment taxes.
Our Umbrella service can take care of everything for you, leaving you to simply hand in your timesheet and let us deal with making sure you get paid and taking care of the tax and National Insurance for you.
There’s a range of options for locum doctors in the UK. At Crunch, whatever route you choose, we provide expert accountancy advice alongside our online software which enables you to automatically draw up invoices, easily record expenses and have a real-time snapshot of your income and expenses. By keeping all your accounting needs in one place, life as a limited company director is surprisingly easy.
Need more IR35 advice?
Check out our IR35 hub for all the information you need. From here, you can discover more information on IR35, all of our articles, our business guide, and our contact information if you would like more support.