GP partner becoming a locum – the tax and financial implications.

In recent times we have seen more partners deciding that the pressures of partnership are too much and preferring a theoretically more relaxed career as a locum. Whether that is the case is beyond this article, but I’ll just set out some of the tax and financial implications for those considering a move.

Income tax ‘time bomb’ on leaving a partnership: if your practice draws its accounts up to any time other than 31st March each year, there is likely to be a ‘catch-up’ charge when you leave the practice. You may also have a similar additional charge for superannuation. An example is the best way to explain this.

  • Joined a practice 01-04-1998, with a June year end, earning £48,000 a year.
  • For 1998-99 you would have been taxable on income earned for the 12 months to 31-03-99
  • For 1999-00 you would have been taxed on 12 months to 30 June 2000
  • So the period between 01-06-98 and 31-03-99 will have been taxed twice.
  • This will give you 9 months overlap of £36,000
  • Leave the practice 31-03-13 when profits are running at £120,000 a year.
  • For 2012-13 you will be taxed on the 12 months to 30-06-12 (£120k) PLUS 9 months to 31-03-13 (say £90k) LESS overlap of £36k as calculated above – which totals £174k – rather more than you might have expected.

If you have been reducing sessions in practice prior to leaving, you can also have an unexpected restriction of seniority payments in your final year because a similar overlap situation arises for pension contributions – you should confirm the situation with your accountant before committing yourself to a firm retirement date.

Claiming expenses:

Your expenses claim as a locum will not need to be hugely different to that as a partner. The exception is when you are running your business from home and have an itinerant work pattern; in that case travel to the surgeries should be allowable. If however you have a regular work pattern – so that you work Mon/Wed in one surgery and Tues/Thurs in another, HMRC are likely to use a recent tax case to argue that you have multiple places of work, such that home to work will not be allowable.

Certainly if you return to your old practice on a regular basis as a locum, it is unlikely you would be able to claim ‘home to work’ travel. In fact in this case you might be deemed to be an employee rather than a locum – this can be quite complex, so make sure you have a specialist accountant experienced with these arguments.

Watch this space for news about the tax case mentioned (which in fact related to a hospital consultant).

There will be other expenses which in the past would have been paid for through the practice – such as professional subscriptions and training costs. Don’t forget to keep full details of all expenses incurred to maximise your tax claims.

If you’ve been used to the practice paying your tax for you – make sure you put away sufficient money each month so that you can find the amounts needed when they fall due. Your accountant will be able to help you to estimate what you need to save.

Capital gains tax on leaving a partnership – if you are selling a share in the partnership premises for more than the value at which you bought in, you may have a capital gains tax liability. For example:

Buy in 01-04-98 when a 25% share of the property was worth £100k – but with a practice mortgage of £100k, so you did not put any money in.

Sell out at 31-03-13 when the 25% share is worth £200k with no mortgage.

The mortgage is irrelevant in calculating tax.

The gain on the property will be £200k minus £100k – so £100k gain. You were entitled to an annual exemption of £10,600 in 2012-13 (slightly higher this year) and with entrepreneur’s relief, actual tax liability would be around £10k – without it £28k. Please note there are plenty of pitfalls to trip you up, so you do need to take advice on the capital gains position.

There are investments available which will remove or defer the capital gains tax – but you need specialist advice to understand the risks before considering such a move.

Still in the pension scheme?

If you are still in the NHS pension scheme then as a locum you need to complete forms Locum A and B and make regular monthly returns of your income, paying over your pension contributions at the same time.

If you are still in the pension scheme but believe that you will exceed either the annual allowance or the lifetime allowance, do not assume that means you should automatically opt out going forward – you need to take specialist pensions advice. The scheme can still be good value despite extra tax liabilities.

No longer in the pension scheme?

If you have left the scheme – usually because you have taken 24 hour retirement, then no Locum A/B returns are required.

Remember you do have to take a break from NHS work, with restricted service for the next month when you take 24 hour retirement.

Don’t forget that once you have left the NHS pension scheme, you will have lost your ‘death in service’ benefit – make arrangements to replace this, if your dependents are likely to need it.

Now that the practices are directly responsible for employer contributions to the pension scheme for locums, you will find yourself much in demand if you are no longer in the pension scheme as the practice will not need to pay the employer contribution for you.

If you have taken 24 hour retirement, you will have had your lump sum which will enable you to meet the ‘tax timebomb’ liability mentioned above. Be aware going forward, though, that your pension will use up your personal allowance (only relevant if total income <£100k) and your basic rate band – so your locum earnings are likely to be taxed at 40% at least, plus Class 4 National Insurance at 9% between ££7,755 and £41,450 and then 2% on the balance (calculated in the same way as for partnership profits and payable via your self assessment return)

If you have been used to the practice paying your Class 2 NIC (now £2.70 per week) – remember you’ll need to pay it yourself until you reach state pension age.

Should you use a limited company for your locum work?

If you wish to remain in the pension scheme – no – it is not permitted to pension income through the NHS scheme if it is diverted through a company.

If you are not in the scheme – then possibly. There are risks – and continuing anti-avoidance legislation can mean there are traps for the unwary – but it is certainly worth discussing with your specialist accountant.

Should you use the same accountant as your former practice?

If you have left your practice with any disagreements, then you might want an accountant of your own to fight your side if you feel it is going to come to that. In general though, if you have an accountant who understands the medical profession and with whom you get on, then there’s no need to change just because your career path has changed.

Liz Densley is medical specialist partner with Sussex Chartered Accountants, Honey Barrett, and is secretary of AISMA (the Association of Independent Specialist Medical Accountants). Contact her at

4 Responses

  1. Having done this once before I made an effort over the last 3 years to build up a tax " reserve" of 6 months. I needn't have worried. For the last 12 months I'm turning work away .
  2. Paul
    I think there's a typo in the 'example' above as we suddenly jump forward a decade to 2009.
    • Richard Fieldhouse
  3. [name supplied]
    At my medical centre one of the GP senior partners, who reduced her work load to work as a locum in other local area's . To increase her income. I was told by someone at the practice that they have a shortage of GP's and a lot of your doctors are not choosing general practice as there future, partly due to lack of funding and short work contracts. As this practice is short of doctors and getting appointments is almost impossible. It would be a good idea if GP partner in medical centres were forced to sell back there shares to the practice so that they could afford to employer doctors who put there patients first, instead of screwing the system. Surely a GP salary is a liveable one. More than a lot of people are on. The other thing about GP's working longer hours, I went out at 4.45 am and saw a GP that I recognised leaving an elderly persons bungalow. He had to call an ambulance, So the GP's do already work longer hours.

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