Young doctor visits senior woman with surgical mask

Many doctors and veterinarians opt to become locums instead of remaining in full-time employment. This offers them several advantages, including flexibility, better pay and better work-life balance. However, becoming a locum also comes with several tax responsibilities, which you should be aware of before leaving your job or changing careers. It is also worth noting that many will pick up locum work alongside their employment.

We’ve been contractor accountants for a long time and have helped many locums to manage their accounts and tackle their taxes – and we can do the same for you. Find out more in this article or call us on 0330 107 9676 to ask us any questions you may have about dealing with taxes when you’re a locum doctor or veterinarian.

Figure Out How to Get Paid as a Locum

This is one of the first things you should decide when looking to become a locum. Do you want to be a sole trader or operate through a limited company?

As a sole trader, your business is not a separate legal entity, so you don’t receive a salary from the business the same way you would from a company. You pay yourself by taking money from the business, and all tax and National Insurance contributions you must pay are based on your profits.

Suppose you chose to operate through a limited company. In that case, you are considered employed by your company, which in most cases means you get paid through the PAYE system – income tax and National Insurance are also taken under PAYE. However, as a limited company owner, you will also have other tax obligations, such as submitting a corporation tax return to HMRC. As a shareholder of the limited company, you would also be entitled to dividends, payable from company profits.

So, think about which operating structure is more suitable for your business when you become self-employed, as this will impact how you get paid and how you pay your taxes.

Set Your Rates

It’s no secret that locums can make a lot more money as self-employed doctors and vets than when in full-time employment. You’re free to charge as much as you’d like, for a start, so make sure that the figure you choose reflects your experience, your skills and your industry.

You can also raise your rates as you see fit – or to cover increasingly higher living expenses – because this is entirely your decision. This is part of the appeal of locum work for many people, as they wish to work for themselves to have more control over their career and grow their earnings.

If you’re already a locum operating as a sole trader but wish to incorporate for tax reasons, we can set up a limited company for you. Depending on your particular situation (in particular, the amount of money you make every year), this may be the most tax-efficient way to run your business!

Close-up of female vet in protective gloves examining the pet with stethoscope in vet clinic

Submit Business Paperwork on Time

It goes without saying that all paperwork needs to meet deadlines. Key dates can creep up on you when you’re busy looking after patients, but tend to occur at the same time every year, which will help you to stay on top of them, avoid late fees and penalties.

Completing your self-assessment tax return late, for instance, gets you an immediate £100 fine, which will keep growing until the tax bill and the interest are paid off.

You must keep a record of your documents, accounts and expenses, and FreeAgent accounting software can help with that. Not only is this tool compliant with Making Tax Digital, but it also lets you manage your accounts on the go and provides real-time information you can use to make quick decisions.

Having everything in just one place also makes it easier to submit the necessary paperwork to HMRC, as you don’t have to scramble to find receipts and invoices from months and months ago.

Starting out as a locum is very different from having an employer. You suddenly gain a lot more responsibility when it comes to HMRC, but you don’t have to do it all alone. At Gorilla Accounting, we understand you’ve got a lot on your mind, so we can shoulder tasks such as submitting your financial statements and your tax returns, and liaising with Companies House if necessary.

Ensure All Information is Correct

While mistakes can happen, it’s essential that you comb through all the information you’re sending HMRC to prevent errors, since you can be fined if your figures don’t add up. You’ll need to cross-reference everything, compare your tax returns numbers with the ones on your bank account, re-check all expenses to ensure you’re only claiming for things you are permitted to claim for, and more.

Any mistakes on your returns mean that you’re under or over declaring your income or taxes, and HMRC will penalise you for it. This is why it’s so important to speak to a specialist accountant who understands your business and knows how to file and submit all paperwork correctly.

Remember the 10-Week Rule

This rule, which says locum doctors have a 10-week window to submit their GP locum forms A and B, has been postponed once more because of the coronavirus pandemic, and is now expected to be introduced in 2022.

This is a relief for many locums who have struggled to meet deadlines due to the extra pressures caused by Covid-19. The delay has afforded them more time to submit their paperwork – meaning that GP locums won’t miss out on significant pension contributions.

doctor helping child

Keep Your Pension Tax Relief in Mind

Paying into a pension is an excellent way to be tax-efficient since you get relief on contributions. For example, as a basic rate taxpayer, you get 20% tax relief, which jumps to 40% if you’re a higher rate taxpayer. You’re entitled to claiming 45% relief if you’re an additional ratepayer.

At the moment, you can even pay up to 100% of your earnings (up to £40,000) into your self-invested personal pension.

Claim Expenses

You’ll incur several expenses while running your business, but you’ll be happy to know that you may be entitled to claim them back. While not all expenses are eligible for this, make sure to record every transaction and expense you have in order to add them to your returns when tax season starts.

FreeAgent makes this a lot easier. You don’t have to shuffle through receipts or struggle to find proof of something you bought ages ago – all purchases and expenses are recorded and easy to find, so you won’t be wasting time when trying to fill out your tax returns.

As a GP locum or as a vet, you may be entitled to claim expenses on everyday business costs, such as parking tickets, as well as larger expenses like medical equipment. You can also claim books, courses, computer expenses, mobile phone use, internet, and more.

If you’re unsure which expenses you can actually add to your returns, we can help. As accountants for locum doctors, and vet accountants, we understand your business and can easily provide you with the specialist advice you need to succeed.

Make Sure You Have the Right Tax Code

Tax codes don’t apply if you’re a sole trader since you pay your taxes through your self-assessment return, not through PAYE. However, limited company owners employed by their own business must have this code to receive payment.

You’ll want to check your tax code to ensure that HMRC hasn’t made a mistake and hasn’t been charging you more tax than you owe. If you have several gigs and contracts, your tax code will differ from someone who only has one job, so it’s crucial to provide HMRC with all the necessary, up-to-date information about your business.

If HMRC doesn’t know enough about your situation, they’ll issue you with an emergency tax code. These codes are not supposed to be permanent but, if you don’t realise you’ve been issued one, you could be overpaying until the problem is solved.

Take National Insurance into Account

Another thing to consider is National Insurance. If you’ve opted to become a sole trader, you may have to pay Class 2 and Class 4 contributions and, if you get paid via the PAYE system, you must pay Class 1 National Insurance.

This means that if you’re in full-time employment but do some locum work simultaneously, you may have to pay Class 1, 2 and 4 contributions. Speak to us if you’re not quite sure which Class applies to you, and we’ll be happy to help.

Confirm Your IR35 Status

IR35 continues to be a popular topic of discussion, including for locums. If you operate through a limited company and are inside IR35, you’re considered an employee for tax purposes and must pay the correct amount of income tax and National Insurance contributions.

The 2021 reform applies to the private sectors and states that the employers or agencies are responsible for determining a contractors’ IR35 status. If deemed to be inside it, they are required to make the relevant deductions.

To know whether you are affected by this legislation or not, HMRC has come up with a test that helps you determine your status. This test considers several factors, such as whether you’re under the direct supervision of your client; if so, then you’re likely considered to be an employee since contractors are not supervised in the same way.

Another factor is substitution. If you can provide a substitute to do your work for you in case anything happens, then you’re likely to be outside IR35. There are many different things to consider when determining people’s employment status, so it’s better to seek professional advice to be sure of your status and, of course, of the obligations that come with it.

If you’re thought to be a ‘disguised employee’, as HMRC calls people who act as contractors to avoid their tax responsibilities but who are actually employees, then you may have to pay all the taxes you owe. You can contest HMRC’s decision if you believe they’ve made a mistake

Young female veterinarian checking up the dog at the veterinarian clinic

Get an Accountant

As locums, you’re often running around looking after people or animals so, any free time you have should be spent with family and friends or enjoying your hobbies.

This is where we come in. Gorilla Accounting knows all the ins and outs of UK tax law, which means we can take care of everything for you while you use this time to focus on your business and on your work-life balance instead.

We can help vets, locum pharmacists, medical practices and GPs to continue growing their business by handling your finances and accounts for you, including providing expert advice and dealing with taxes, so you don’t have to.

Ready to talk? Get in touch today to discuss the particulars of your business or if you’re interested in learning more about what we can do for you.