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Financial advice for locums

Self-employment comes hand-in-hand with personal financial management, writes James Cheetham.

Balancing the books is a vital skill for freelance GPs who must deal with accountants and the taxman
Balancing the books is a vital skill for freelance GPs who must deal with accountants and the taxman

For some GPs, working as a locum is a short-term solution, undertaken while looking for a salaried post or partnership; for others, going freelance is a planned career move, enabling a varied, portfolio career. In either case, there is a range of practicalities to bear in mind.

Working as a GP locum might hand you greater control over your working life, but it also gives you responsibility for your own financial management.

This involves registering your tax status with HM Revenue and Customs (HMRC), setting up a business account, keeping on top of your paperwork and maintaining proper accounting records for tax and VAT inspection. Some of the key areas to look at are outlined below.

Tax arrangements
As a locum you will have self-employed status and will need to register as a sole trader (whereby the control of the business is yours, and you are responsible for all management decisions, and personally responsible for any debts you incur) or as a company limited by guarantee.

Establishing yourself as a limited company may be beneficial for tax purposes but it could impact on your NHS pension arrangements, so seek specialist advice before taking this step.

Assume that you must pay tax on everything you earn, when setting aside money for income tax and National Insurance (NI) contributions: it is better to have a buffer than an unexpected demand from the taxman.

A medical specialist accountant should be consulted for expert advice, including the items of expenditure that can be offset against tax: for example, training fees and the cost of IT equipment.

In light of the recent announcement by HMRC that it will be scrutinising the tax affairs of doctors, it is advisable to seek personal advice on what may, or may not, be allowable in your own individual circumstances. Claims previously processed may no longer be accepted.

In a few cases, locums may be employed on a short-term fixed contract (for example, to cover maternity leave), paying tax and NI via the Pay As You Earn system. Under this, contributions are deducted at source by the employer.

In such a scenario, check that the correct tax code is being used by the employer: if you do not provide the correct coding, a temporary tax code will be applied and you may pay the incorrect amount of tax.

Most services provided by locums are VAT-exempt. However, certain activities, such as cosmetic work or medical reporting, are subject to VAT at standard rates.

You need only register for VAT if the total income derived from non-exempt services exceeds £68,000.

Indemnity insurance
Locum GPs, often working in unfamiliar environments and with unfamiliar patients, are vulnerable to medicolegal risk.

Professional indemnity insurance should be arranged via a medical defence organisation and kept up to date. Many locum agencies will not accept your application to register on their books without assurance that the appropriate cover is in place.

If you have previously worked as a partner or salaried GP, changes to your cover are likely to be required because each policy is tailored around the number of hours and type of work being done by the individual. Talk to your defence organisation about your own circumstances.

Income protection
NHS employees are entitled to sick pay benefits of up to full pay for six months, followed by half-pay for six months.

On becoming self-employed, these benefits cease so you should consider arranging a suitable income protection policy to ensure you can still pay your bills in the event of an accident or illness preventing you from working.

Choose a policy that covers you in the event of being unable to perform your specific duties as a locum, on an 'own occupation basis'. Expert advice is available from medical specialist independent financial advisers (IFA).

Pension contributions
If you undertake locum work that is arranged directly with the NHS or via a locum agency that has a contract with the NHS, you may elect to maintain your NHS pension.

You will need to complete the necessary forms provided by the NHS Business Services Authority (entitled GP Locum A and GP Locum B) to record and notify your pensionable contributions and submit these to the PCT.

It is sensible to request an annual pension benefits statement to check the correct contributions have been recorded at the NHS Pensions Agency; if you have an IFA, they could do this on your behalf, as part of your annual review.

If none (or not all of) the work that you do is superannuable under the NHS pension scheme (for example, medico-legal work), consider the level of private provision required to enable you to retire when you want to, on your own terms.

Vehicle insurance
If you are required to use your vehicle for work, check with your insurer that you have the correct business use applied to your insurance policy.

For locum GPs, this would include travelling from home to the surgery as well as making home visits to patients.

  • James Cheetham is a financial planner and director of specialist medical independent financial advisers Bailey Beaumont Financial Solutions, www.baileybeaumont.co.uk

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