What They Don't Teach You In Med School – How To Be Tax Efficient
After years of hard graft and education attaining your GP qualifications, you might feel fully prepared to begin your career in primary care. However, starting out as a GP requires even more than your already extensive medical experience. What they don’t teach you in med school is that you will have to make some very important decisions about tax before you start out. Tax, although designed to be simple, never seems to appear that way in practice, particularly if you’re becoming self-employed – which is where most GP locums find themselves.
If you have recently qualified or are starting out as a locum GP, you will need to consider how to manage your tax efficiently, ensuring that you are compliant, but pay no more tax than you need to.
You will essentially come across 3 scenarios, depending on your personal circumstances and aptitude for financial management. These are:
- As a salaried employee on PAYE
- As a self-employed locum, registered as a sole trader
- As a self-employed locum, trading through a limited company
There are advantages and disadvantages to each scenario, so there is no straightforward recommendation for one solution over another. What may suit one individual may not suit another and since tax regulations rarely stand still for long, it’s always worth taking advice to ensure that you have the most up-to-date information before you commit to one or other of the choices before you. So, we’ve written a short guide to these scenarios to help get you informed on your finances and we will be on hand to answer any of your questions. (If you’re signed up with Network Locum, you can contact us for free by emailing firstname.lastname@example.org )
Briefly, the pros and cons of each option can be summarised as follows:
As a salaried employee on PAYE:
- Income tax and National Insurance are deducted at source by your employer.
- Normally not required to complete a self-assessment tax return.
- Probably no need for an accountant.
- May suffer from incorrect tax coding.
- Difficult to offset expenses other than professional subscriptions.
As a self-employed locum, registered as a sole trader:
- Must complete a self-assessment tax return annually.
- All allowable costs and expenses may be offset against tax.
- Register separately for National Insurance contributions.
- Income tax calculated in arrears, but advance payments on account required.
- Unless very financially savvy, hiring an accountant to prepare and submit returns is recommended.
NB It is not unusual to combine both of the above options, working part-time in salaried employment and working additional hours as a self-employed sole-trader.
As a self-employed locum, trading through a limited company:
- Enables profits to be channelled through a corporate entity and dividends to be paid out of retained profits, in lieu of salary.
- Profits taxed at preferential corporation tax rates.
- Higher set-up/running costs and a specialist accountant is virtually essential.
Needless to say “the devil is in the detail”, so if have any specific questions then don’t hesitate to send them over to us at email@example.com. As specialist medical accountants, we get a regular stream of enquiries on these topics and are able to advise clients on the best solution for them personally, based on a complete understanding of their financial and employment circumstances.
Typical questions we are able to answer are as follows:
o Should I set up a limited company or operate as a sole trader?
o How do I register with HMRC?
o What records do I need to keep and for how long?
o What kind of expenses can I offset against tax?
o How do I claim tax relief for professional subscriptions?
o I am a higher rate taxpayer receiving child benefit. Do I need to complete a self-assessment tax return?
You don’t have to be a new locum or newly qualified GP either. Keeping on top of tax regulations and finances can be an ever ongoing battle. Do keep a look out for our monthly top tax tip blog posts with Network Locum. In future, we will attempt to provide some useful guidance on each of the points above. In the mean time, if you have any other questions, do ask us. Don’t be shy!
Above all, we would advise against just hoping it will all go away. It was Benjamin Franklin who wrote in 1789 that “In this world nothing can be said to be certain, except death and taxes.” This remains just as true in 2014!