Article relevant to the tax year 2018/19
The corporate tax rate is to fall to 17% by 2020
Locum doctors, dentist and other medical professionals to save even more tax
One of the most frustrating aspects of tax is that locum doctors and other medical professionals pay too much. Many GPs and locum doctors are taxed on their private work as self-employed. This is a sad fact given that their income tax liability could be 45%. This is in addition to the national insurance charges. A locum doctor could easily move some of their private income to a limited company. The current corporate tax rate tax is just 19%. The corporate tax rate is to fall even further by 2% to 17% by 2020.
A locum or medical consultant that earns £20,000 that is an additional rate taxpayer (45% income tax) will have cash in the bank of just £11,000. We will ignore national insurance for the purposes of this example. Compare this against medical consultants that hive off their private work into a limited company. They will yield a net income after tax of £16,200. This means that a locum doctor or medical consultants will pay 26% less tax using a limited company compared to being taxed as self-employed. In the example of earning £20,000 private work, the additional tax is a huge £5,200.
We, of course, appreciate the fact that the income is now stuck in a limited company. We also appreciate that the money will be taxed on the individual when the money is taken out. However, many locum doctors do not always need the money they generate from their private work, so why pay tax on it until you do need it. What’s more, there are many ways in which a medical consultant or locum doctor can pull money from their limited company without paying tax at all.
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Is it time to start your own private portfolio as a locum doctor
Our team of accountants that focus on doctors, GPs and locums are here to help you make more wealth and pay less tax on your business and investment activities. We have written a more detailed article about extracting money out of a limited company which you can read here.
For too long we have been advising our locum doctor and medical consultant clients to increase the amount of money they generate from private work. Not only can they earn more money per hour but they will also be able to earn that money with less tax given the above examples around corporate tax rates.
Before you start your own portfolio of clients you do need to consider what your specialist is and what is in demand. The greater the demand the greater rewards, especially if you do a really good job. We wrote a previous article that discussed how locum doctors and medical consultants were leaving good money on the table as they did not value their time appropriately. There are two treatments and one may be charged at £150 per hour and another at £350 per hour. It is clear which one you would choose. However, in the practical world, some medical professionals do not treat their profession as a business. They may become a generalist and do not make as much money as they could.
The dreaded IR35 for locum doctors
In another article, we highlighted the fact that HMRC is now targeting the medical profession to prevent them from using a limited company structure to be tax efficient. As you can see by the current corporate tax rate of 19% that will fall to 17% by 2020. IR35 is most likely to affect those that work for just one or two GP surgeries or hospitals. If your earnings from one GP surgery or hospital is more than 20% then iIR35 may apply. As such your provider will need to deduct income tax and national insurance as though you are an employee. This is irrespective if you have invoiced them through a limited company.
If you are to set yourself up as a true business, look at the number of clients. We suggest that you have a broader client base. You avoid IR35 and avoid the issues of risk of that money being taken away. Money may be taken away if your GP surgery chooses another locum at a cheaper rate.
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