Should I be self-employed? – What are the differences?
When you start working (or at a later time) you may have the decision to make as to whether you work as a self-employed locum or as an employee. Whilst it may not always be within your power to make the ultimate decision it can be useful to understand the differences.
You might also hear about people suggesting that you work as a locum but through your own company. This is a variation on a theme but again has certain implications which, if misunderstood, could prove to be very costly.
It should also be noted, as referred to in the article “Am I self-employed? – how you can get caught out by misunderstanding what this really means”, whether you are self-employed or not is a question of fact, based on considering your contract and how that contract is implemented. It will therefore be necessary, if you decide you wish to work in one category or the other, to ensure that your contract is suitable. The differences between the three routes are many however here are some examples.
You are entitled to claim certain expenses against your income which you are not entitled to claim as an employee. You are not however entitled to holiday, sickness or maternity pay and do not build up any statutory rights such as redundancy. Your tax liabilities however are often lower than that of an employee because of a lower rate of national insurance together with the allowance for various expenses. If you are incorrectly classified as self-employed but are really an employee, the majority of the cost of making up the difference in tax and national insurance which can go back over a period of six years will usually be borne by your “employer”.
As an employee your tax bill is usually higher than that of someone earning a similar amount but as a self-employed locum. You do however build up rights to sick pay and maternity pay together with a variety of redundancy rights.
3. Acting through your own limited company
If you are working through a limited company but in a contract between the company and the GPs practice which is one that would be suitable for a self- employed person, your tax bill can be reduced significantly. However, beware, as if you incorrectly consider the company has a contract in the nature of a self- employed person and this is successfully challenged by HMRC, it is your company and not the “employer” who picks up the tax bill. If this happens, you are likely to be in a worse position than not only if you had worked in your own name as a self-employed locum but also if you had been paid as an employee. Furthermore, if you are working through a limited company in this manner you are not able to become a member of and make contributions to the NHS superannuation scheme.
As detailed in the previous article there can be significant benefits of working as a self-employed locum and in many cases this will be the correct treatment. If, however, you are working as self-employed but in a manner that could be viewed as being an employee the costs of getting this wrong, not only from a tax perspective but also from the disruption to your normal routine, means that it is worthwhile ensuring you get the treatment correct from the start.
Daniel Prais heads the specialist healthcare division at Crawfords Accountants LLP.He has developed in expertise in the sector over 20 years, acting for many GP practices and health centres as well as locums and other healthcare professionals.
For Network Locum (now Lantum) see www.lantum.com