Do Locum Doctors Have to File Taxes?

When it comes to their finances, it's natural for medical professionals working on a locum basis to have a lot of questions about tax. With all those years of study and work experience, there probably wasn't much time to delve into the complexities of business structures.

Working as a locum doctor can be particularly perplexing in terms of taxes. You may choose to work through your own limited company or through an agency or the NHS. This affects how and when you pay tax on money earned from locum work.

Read our guide to paying tax and the tax refund ailable for locum doctors to help answer your questions (including ones you might not think to ask!).

Choosing a business structure or learning how to work as a locum doctor

Many locums work through an agency or directly for the NHS, so their pay and taxes are handled in the same way that an employer does for employees. They'll calculate your pay each payday and deduct tax and NI contributions 'at source,' then pay these deductions to HMRC on your behalf.

It simplifies taxes because you won't have to do anything (beyond checking your payslips, and shouting at them if they get it wrong). You will also benefit from employer contributions, such as those made to your National Insurance or pension. Working for yourself requires you to set up your own pensions and savings plans.

Cheap Accountnats in London
Cheap Accountnats in London

Despite this, some locum doctors prefer to work through their own company, whether for tax reasons or a desire to work for themselves. For example, you will be able to claim tax relief on expenses (which you would not normally be able to do through your employer) as long as they are solely related to your job.

Locum work essentially means working as a contractor, and there are numerous options in this regard. If you go this route, the business structure you choose will affect how (and when) you pay taxes.

Sole proprietor

As a sole trader, you are the business, so there is no legal distinction between your personal and business finances. All of the company's assets and liabilities are directly attached to you, but you also get to keep all of the profits.

Working as a sole trader locum has advantages and disadvantages. The tax and reporting side of things is straightforward to navigate and use. One potential disadvantage is that you are personally and solely responsible for any problems the company may encounter.

Limited liability company

One of the primary advantages of forming a limited company for locum work is the ability to appoint yourself as a director. This means that you can pay yourself via dividends, salary, or a tax-efficient combination of the two.

Do locum doctors have to be concerned about IR35?

Contracting as a locum doctor through your own limited company does require you to be aware of IR35. This legislation seeks to address 'off payroll working,' in which someone is essentially an employee in all but name while benefiting from the tax advantages of your own limited company.

In a nutshell, being 'inside IR35′ means that your client(s) treats you the same way they treat their full-time employees. This means that your earnings will be subject to National Insurance and Income Tax, and you will be considered a 'disguised employee' by HMRC.

Applying this specifically to locum doctors: if you regularly work within the same practise and under the same hours for extended periods of time, HMRC may consider your business to be 'inside IR35.'

The practise you work for will then pay your invoices after making the necessary deductions, just like a PAYE employee. It is then up to you to ensure that you are not taxed twice.

Is it necessary for a locum GP to file a tax return?

Yes, a locum doctor must file a tax return just like any other self-employed professional. How and when this must occur is determined by the legal structure of your company.

For example, if you register as a sole trader, you must file Self Assessment returns and pay Income Tax and National Insurance on your profits.

If you form a limited company, you must file Company Tax Returns and pay Corporation Tax. As a director of a limited company, you must also submit your own separate Self Assessment, as your earnings are distinct from those of the company.

Deducting allowable expenses will help you reduce your tax bill regardless of how your business is set up.

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