BEING a self-employed doctor requires you to:

• keep records of all your income and work related expenses;
• pay your own National Insurance Contributions (NIC);
• save for tax payments to the Inland Revenue at the end of the tax year.

It is easier to do this by opening a current account that is solely for your work. Be warned. Most banks will levy bank charges at some stage on accounts that they know are used for business.

National Insurance Contributions
Self-employed people are liable to pay two classes of contributions:

• Class 2 contributions, and
• Class 4 contributions which are paid on profits at or above a certain level.

Class 2 contributions
These are a flat rate payment. The weekly rate for 1997/8 is £6.50. The benefits which Class 2 contributions enable you to receive are Incapacity Benefit, Retirement Pension, Widow’s Pension and Maternity Allowance. They do not count towards Unemployment Benefit. Class 2 contributions can be paid by quarterly bill or monthly by direct debit, both paid in arrears. Late payment of quarterly bills may mean you have to pay them at a higher rate and will affect any claim you make. To arrange to pay National Insurance contributions, call the Contributions Agency. Telephone: 06451 56921.

Class 4 contributions
If your profits are over a certain amount you have to pay Class 4 contributions and Class 2. Class 4 contributions are based on a percentage of annual profits. The 1997/8 rate is 6%. The levels are set each year in the Budget. The lower profit level from which you have to pay Class 4 contributions is £6,860. There is a maximum of £1008 which is payable as Class 4 contributions on profits. Class 4 contributions do not entitle you to any benefit; they are just a tax. The amount which you owe is assessed at the same time as your income tax.

Record Keeping
The information that you will require at the end of the tax year is detailed. It is essential to maintain a clear record of your income and expenses to enable you to calculate your earnings and tax liability. Such records can be written in an A4 ledger or recorded on a computerised spreadsheet. All income, whether cash, cheque or bank transfer, should be recorded, along with its source and the date. Similarly, all expenses should be recorded with the dates and reason for the expense. It is easier to keep a separate record for each calendar month. Financial software (such as Intuit Quicken or Microsoft Money) will do all the tedious sums for you and separate expenses into categories if you add the details throughout the year.

The Inland Revenue have provided guidelines on expense categories, most of which can be used by non-principals.

Expense categories

1. 1. Employee costs - secretary/spouse’s salary and pension contributions - worth paying and setting against tax if your spouse’s income is less than the personal allowance.
2. Premises costs - you can claim a proportion of household bills if one room is used predominantly as an office. Include here office furniture, and a proportion of the following: utility bills, Council tax bills, window cleaning, burglar alarm installation, home insurance, general administrative expenses - postage, stationery, printing, telephone, computer, fax machine.
3. Motor expenses - car tax, insurance, MOT, servicing, repairs, breakdown insurance, fuel, cleaning, interest on car loans and any car hire. You can claim a proportion of costs equivalent to your business usage. To prove your business usage you need to keep a logbook of work journeys and you can include travelling to and from home as home is your base.
4. Travel and subsistence - probably few expenses in this category ^{Note 1}
5. Advertising, promotion and entertaining - much of these expenses will be included under administration.
6. Legal and professional costs - accountants fee, BMA, medical indemnity cover, GMC and RCGP subscriptions.
7. Training expenses - these are generally allowed unless excessive.

You may be able to complete your tax return yourself. The Revenue sends out detailed guidance and booklets of flow charts on how to do it. However if you are not confident that you will claim everything you can, it might be cost effective to use an accountant. They will need good records from you. Accountants should check you have claimed everything you can. The Tax Return Guide (sent with your tax return) contains a table of permitted business expenses but always ask if you are unsure.

To complete records your accountant will need:

• Your tax return forms;
• A record of your work income;
• Any wage slips, P45, P60;
• All original receipts, including renewal notices in respect of professional subscriptions;
• Bank/building society statements, annual certificates of interest;
• All dividend vouchers and other remittances vouchers in respect of investment income;
• All statements and certificates relating to mortgage interest payments and contributions towards pension plans.

How to pick an accountant

• Personal recommendation;
• Yellow Pages;
• BMA Professional Services Ltd;
• Those advertising or recommended by the GP press.

A personal recommendation is usually sufficient provided the recommender has personal experience of the individual accountants or firm. A firm which deals with other GPs’ accounts particularly non-principals may give a better service than those who have no specific experience of non-principal or general practice work. There are a number of large firms with offices across the country who deal with general practice accounts. Flicking through the yellow pages is probably a poor option but enables you to select someone close and check what experience they have and how much they will charge. A fixed fee should be quoted of about £2-300 for a full time locums’ accounts.

BMA Professional Services Ltd is a relatively new wholly BMA-owned subsidiary. It has BMA council members on its board of directors. It was formed to provide a service to members, to satisfy the demand for specialist medical taxation and accountancy advice. The service is available to all BMA members. Fees are agreed in advance. Accounts can be prepared for practices, non- principals, hospital doctors and spouses. Members can get further advice from freephone 0500 262829. BMA Professional Services will also examine practice accounts for those considering joining a new partnership.

Self-Assessment
Thoughts of tax and completing tax returns bring on cold sweats in many (me included!). It’s not that we don’t want to pay our share of tax, just that the effort required to calculate that share is boring, complicated and intimidating. Accountants make the job easier but you’ve got to produce the records for the accountant and you’ve got to pay them for their efforts. Self-assessment is a new system of submitting tax returns, introduced in April 1997. It affects most people who have any income which isn’t taxed at source, including most non-principals.

The system is supposed to be fairer and more straightforward. Amongst the new features are:

• a current year basis of assessment, tax will be calculated on profits arising in the tax year itself, ending April 5th;
• one set of payment dates for everyone;
• one main point of contact for tax affairs;
• fixed penalties for late returns and surcharges;
• obligations to keep clear records.

To complete a tax return and calculate how much tax you owe you can:

• do it yourself;
• provide the figures and ask the Inland Revenue to do it for you;
• provide the figures and ask an accountant to do it for you.

If you do it yourself or ask an accountant to do it for you your tax return must reach the Revenue by 31 January in the year after the tax year ended. If you want the Revenue to do the calculations for you, your tax return should reach them by 30 September in the same year the tax year ended. Late returns attract an immediate fine of £100. The tax you are calculated as owing has to be paid by 31 January too. At this time the Revenue will demand an ‘on account’ payment for the current year. This will be approximately equal to half the total tax bill for the previous year (excluding Capital Gains Tax). If your income has dropped and you feel that you are likely to pay too much tax, you can ask for the ‘on account’ payment to be reduced. If when your final bill for that year is calculated, you were wrong and you should have paid the full 50% on account, you may be expected to pay interest on the amount the Revenue had not received. This is effectively a late payment penalty which will prevent tax-payers gaining interest on savings they have put aside in preparation for the final tax bill.

The most important aspect of tax assessment is keeping good records. They must be accurately and clearly maintained. Records need to be kept for at least 5 years from the latest date by which your tax return was filed. (If the Revenue make enquiries into your tax returns, you will need to keep them for longer). A penalty of up to £3000 can be charged for failure to maintain or return adequate records. TAKE HEED! If in doubt keep it.

Need to know more?
If you are unsure about aspects of your tax situation you should get advice sooner rather than later. You can get this from your local tax office, from the Inland Revenue tax helpline or from your accountant. Local tax offices are in the phone book under Inland Revenue and they can be very helpful. The Inland Revenue Helpline is open at present on weekdays from 5-10pm and at weekends from 8am to 10pm on 0645 000444. It may open all day in the future. Leaflets are available from the Revenue (Order line 0645 000404) which provide more detail on record keeping and completing the tax return.

The leaflets are:

SA/BK2 - A General Guide for the Self Employed;
SA/BK3 - A guide to keeping records for the self employed;
SA150-3 - The Tax Return Guide that comes with the Tax Return booklet is detailed and reasonably easy to follow.

Most accountant firms will provide you with additional written information too.

Note 1
Some employees, for example company reps who travel a lot, are able to offset meal expenses against tax. Self-employed locums might be viewed as being in a similar position (especially if travelling considerable distances for work). However the notes for self-employment in (page SEN5) of the Tax Return Guide (for the year to end April 1997) states that meals (except the reasonable cost of meals on overnight business trips) are disallowable expenses. An advisor on the self-assessment helpline (Telephone: 0645 000444) advised that individuals should make a case for being treated in the same way as such employees and send written enquiries to their local tax inspector. They have the ability to make a local decision. Good luck!

Update from the NASGP Webmaster May 1999
The Inland Revenue Web Site contains some useful information on self-assessment and other tax matters and there are spare tax return forms to download.