As a locum pharmacist, you are solely responsible for paying your locum tax and National insurance contribution with Her Majesty’s Revenue and Customs (HMRC). With all tax-related issues, we advise that you speak with your accountant. Most Accountants have a free consultation service, and they will be in a much better position to give you practical advice on how you should proceed.
Limited company or sole trader for locum pharmacists
Here are a few background facts you need to know:
1. Inform HMRC – whether you choose to be a sole trader or trade as a limited company within three months of working as a self-employed professional; if not, you may incur a fine
2. You are solely responsible for your tax and NI contributions.
When you work with Verovian Locum Agency as a locum community pharmacist, the contractor will pay you the full payment earned directly to your bank account. There are no deductions whatsoever from Verovian Locum Agency. For example, a shift of £25/hr over 8hr shift, you will be paid £200 (plus any agreed expenses such as mileage, when applicable). You are responsible for working out your deductions in expenses and tax due on your shifts.
Now to the main differences between working as a sole trader and limited company
LOCUM PHARMACIST TRADING AS SOLE TRADER
– There is a marginal difference between your private assets and business assets. This means there is no protection for your personal assets, should an unexpected crisis occur.
– There is less paperwork as there are no legal requirements to file your earnings with HMRC
– You are required to keep a record of income and expenditures
As of January 2020, your first £11550.00 is tax-free. You pay 20% tax on earnings between £11,550.01 and up to £33,500.00. 40% tax on incomes between £33,500 and £150,000. 45% tax on incomes over £150,000.00
LOCUM PHARMACISTS TRADING AS LIMITED COMPANY
A locum is required to register a limited company. This can be set up by an individual, although you may employ the services of an accountant for this. You will also be required to open up a company bank account.
Earnings can be drawn from your business bank account in two ways:
1. Salary – Locum, then sets up a PAYE, where salary is drawn. Depending on the regular monthly payment, National Insurance (NI) payment may be payable.
2. Dividends – The director can also pay dividends, of which over £5000 annually attracts a tax bill. NI is not payable on dividends. Corporation tax is 19% of profit, after deducting expenses from earnings (such as mileage/travel expenses, GPhC annual fee, insurance, accountant’s fees and more).
There is a lot more administrative work involved in working through a limited company. Accounts must be filed annually with Companies House.
By April 2020, HMRC will announce the final stand for IR35 in the private sector. Locum Community pharmacists who currently work in the private sector will review their employment status with respect to the new tax rules. HMRC have released the Check Employment Status for Tax (CEST) tool which is presently not robust to assess locum pharmacists’ status. There are several ways a locum pharmacist can determine their status, and we will update our stand as a locum agency concerning the practical support offered by Verovian Agency.
1. Umbrella Company – There is a third option – which is working as an umbrella company. This is not a common route for community pharmacy; however, it is worth mentioning to your accountant to determine the best option for your circumstance. With this option, a locum pharmacist will set up as an employee of another company, who specialises in umbrella payroll. Deductions will be made for the pharmacists, payslip issued and the net pay transferred to the locum’s personal account. This is usually more expensive, however, eliminates the need for any administrative work
2. Pension: This can be set up as a long term goal, via a limited company. Your accountant will advice on the best approach to set this up, to maximise your income long-term.
3. Income Protection Insurance: PG Mutual is a not-for-profit organisation which provides income protection for members, including locum pharmacists.
For more information about tax, visit the HMRC Self employment information page