Registering as self-employed

Registering as self-employedWho these days doesn’t have a portfolio career? Even if you’re not technically locuming at the moment, it’s pretty likely there will be opportunities over the coming months when you’ll be offered work outside your existing PAYE arrangements.

Running your business arrangements is not as simple as PAYE for salaried staff – you are still a business, which means ensuring you comply with all the accompanying red tape.

Registering as self-employed with HMRC

  • When you first start you need to register as self employed with the HM Revenue and Customs and arrange to pay Class 2 National Insurance contributions. You can do this on line by going to HMRC’s website or your accountant can do it for you.
    • If your projected net earnings are less than £5,885 p.a.(2014-15) consider obtaining exemption from Class 2.
    • If you are also employed and paying Class 1 National Insurance, consider obtaining deferment of Class 2 and 4 National Insurance contributions.

Keep appropriate records

  • Failing to keep records can attract a fine of up to £3,000 (and more if failure continues).
    • Records do not need to be elaborate – a simple spreadsheet recording income and expenses, backed up by invoices and receipts may be all you need. Consider a separate bank account and credit card account just for business items, this will make it easier to collate the information.
    • If you intending to be a career locum rather than a temporary one, you may prefer to use bespoke software for your records that will also include your diary, invoicing and your pension forms.

Pensioning

  • Pension your income using forms Locum A and B (available on nhsbsa.nhs.uk). You must do this promptly each month – late claims are not permitted. Remember you can NOT pension your income if you route it through a limited company.
  • If you are tempted to use a limited company to save tax and national insurance, make sure you discuss the situation with a pensions specialist so that you fully understand what you are losing by dropping out of the NHS scheme. Remember the main saving for using a company is the national insurance (and if you are also employed, that might be a much smaller saving than you expected); whilst company profits are taxed at only 21%, if you are a higher rate taxpayer, you’ll have to pay a further 25% of any dividends you take out.

Remember you can NOT pension your income if you route it through a limited company.

Tax deductible expenses

  • Looking at tax deductible expenses as a self employed person (company rules are different and are not covered here)
  • Keep a mileage log – so that you can justify the business miles claimed. If you prefer you can just use the approved Inland Revenue mileage rate of 45p for the first 10,000 business miles (and 25p per mile for any subsequent mileage), rather than having to total up all your individual car expenses.
  • keep an eye on telephone usage – splitting it between personal and business

Note that rules have changed in recent years on what is business mileage. If you are working at lots of different practices with no regularity, then you should still be able to argue that you are running your business from home and claim mileage from home to each surgery. However, if you are doing long term locums, or if you are regularly in a particular practice, then the argument is that the practice premises are your place of business so travelling to get there is not a business expense. Detailed mileage records should enable you to prove that what you are claiming is allowable.

Similarly keep an eye on telephone usage – splitting it between personal and business. If you can show how your have arrived at the apportionment, rather than just guessing, there should be no problem obtaining the tax deduction.

Use of home is harder to claim than it used to be. Keep a record of how many hours you work from home, so that your accountant can maximise the relief you claim.

Be organised

  • Save for tax as you go – don’t leave it until the payment is nearly due.
  • Provide your accountant with information promptly – the earlier you give it to them, the earlier that they can warn you accurately about tax liabilities.
  • Consider using a specialist accountant from day one – they will be able to set up your self employment with HMRC, provide you with checklists of expenses that you can claim, tell you how much tax to save and deal with all the set up work for you, so that you can spend your time earning money! Ask them for a fixed fee – to include phone calls – so that you can approach them when necessary without wondering what it will cost.
  • Provide your accountant with information promptly – the earlier you give it to them, the earlier that they can warn you accurately about tax liabilities.
  • Always be totally honest with your accountant. Money laundering rules mean that all accountants have a legal responsibility to report any tax evasion they suspect however small, or face criminal charges themselves. A good accountant will ensure that you always pay the minimum tax legally required.
  • Remember to ask for advice before acting rather than afterwards when it will be too late to change how something is done.
  • Some recent examples we have come across where a quick phone call would have saved large amounts of tax:
    • Buying a low emissions car the day after the rules changed, so the car no longer qualified as low emissions – so tax relief was hugely restricted.
    • Not understanding the allocation rules for shares: shares were sold and repurchased too close together to create the intended capital loss – so no tax relief, just the unnecessary costs of the transaction.

Finally remember that you are your business – if you do not work, no money comes in. Make sure that you have life cover, critical illness cover, sickness and accident insurance etc appropriate to your personal circumstances and needs.

Honey Barrett

Honey Barrett

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 liz.densley@honeybarrett.co.uk.
Honey Barrett

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