To start with, let us first understand who Locum Doctors are!
A locum is a person who substitutes someone else’s duty temporarily. The term “Locum Doctor” refers to a situation where the regular physician is on leave. In this case, the Locum Doctor temporarily fulfills their duty, or when they provide their services when a hospital is short-staffed.
Nowadays, in the United Kingdom, several Locum Doctors provide their services via NHS (National Health Service) and other agencies managing Locum Doctors. These agencies manage the pay of Locum Doctors. Also, there are other methods by which they can provide their services, such as working via a Limited Company, under the direct employment of the hospital, or via an umbrella company, etc.
Locum Doctors are always looking for answers for whether to form a limited company and help in saving taxes and increasing their earnings. Mentioned below are certain areas an individual should consider before making their decision:
What Is A Limited Company?
A Limited Company separates the individual from a company. Limited companies have their own legal identity, and therefore, any work that an individual does will belong to the company. The word “Limited” in the Limited Company infers that the liability of the owner shall be limited. Debts shall belong to the company, and the director’s liability shall be extended up to their share in the company unless there has been any misconduct or gross negligence on the part of the director.
Limited Company & Locum Doctors
Forming a Limited Company gives doctors an opportunity to be the director of their own company and avail the tax benefits associated with running a Limited Company. Running a Limited Company and availing tax benefits depend on the combination of the salary the director draws and the dividends that are paid. This type of company is at liberty to show expenses and get deductions in their income to save tax. If the company accountant is effective and efficient enough, running a Limited Company is the simplest task. Having an accountant who takes care of all the records in an orderly manner shall help the Locum Doctors have a platform that is beneficial to the business and in return, receive increased profits.
But, before deciding to set up a Limited Company, one needs to know what the employment status granted by the HMRC (Her Majesty’s Revenue and Customs Department would be). The payment of employment tax shall depend on your contracts under the IR35 rules. Put into simpler words, IR35 rules will see if the company receives income from a client working in a public sector, in which case, the employment income shall be treated as National Insurance and will be subject to Tax Deductions.
What Are The IR35 Rules?
IR35 is the combination of two sets of taxation laws that aim at combating tax avoidance methods used by workers and firms hiring these workers. These workers supply their services to the person hiring them via intermediaries such as a Limited Company. These rules are crucial to the sector working as General Physicians and running hospitals. There have been certain changes to this legislation starting 6th April 2017, which should be looked into and discussed with your accountant for the smooth formation and running of your Limited Company for Locum Doctors.
Other options for Locum Doctors include:
Sole Trader: It is the simplest form of doing business. In this type of business, one is entitled to claim certain expenses like any limited company and does not have to consider the IR35 rules before making decisions. But, it shall not be as beneficial as a Limited Company.
Umbrella Companies: Under this system, one is supposed to work as a freelancer and is paid according to the timesheets submitted to the company. The employment tax shall be the umbrella company’s concern. However, one needs to be very cautious while working under an umbrella company as recently; the Government has shut many such companies for their offshore payment methods and other legal factors.
Pension Scheme: NHS (National Health Service) provides a Pension Scheme and is one of the most important considerations for a Locum Doctor as there have been many beneficial amendments to this scheme. That said, you must talk to an expert before availing this scheme as you cannot avail of the benefits of this scheme if they incorporate a Limited Company.
It is evident that there are several incorporation options available to Locum Doctors in the United Kingdom. Incorporating a Limited Company seems to be the right choice for Locum Doctors because, if carried out correctly with the guidance of an effective and efficient accountant, it will make a business run smoothly and help you increase your earnings. In any case, before making a decision, you should understand the legalities and benefits relating to each option and then choose wisely.