Accounting and Tax Planning for NHS Doctors and Consultants

While the NHS as a whole seems to be in turmoil, the system in place for taxing agency doctors and consultants is similarly up in the air. Only last month- May 2017- the NHS made a U-turn on its plans to change how locum doctors are taxed, through changes being put in place to tackle the tax savings on services rendered through ‘personal service company’. Read on to find out more about ‘Accounting and Tax Planning for NHS Doctors and Consultants’ and how you can legally lessen your tax obligations, as well as a number of pitfalls that locum doctors in particular fall foul of.

The basics: tax codes

One major issue for doctors working on a locum basis is that because of the rotation schedule you adhere to, there may be issues with your tax code. This is a basic part of figuring out what you have to pay, but all the same, it’s understandable if a busy professional isn’t able or just doesn’t want to think too much about their taxes! You might be surprised how many genuinely talented professional medical workers, despite their obvious intelligence and skill at their job, still don’t notice this basic mistake: so it really can happen to all of us!

An issue like this can be resolved fairly simply through online research or through contacting HMRC- if you don’t mind being left on hold for a little while- but you may prefer to let your tax accountant take care of this issue, as well as any others that may arise. But however you want to deal with the issue, it’s essential that you do: you could be missing out on a potential rebate, or even worse, you could owe more tax than you thought. And if you’ve been paying less tax for a long time, this could add up to a genuine and substantial shortfall that could force you to dig deep into your savings.

The basics: which expenses you can claim, and which expenses you can’t claim

What HMRC allows you to claim expenses for, and what they don’t, is deliberately vague. After all, they would rather you didn’t claim expenses for anything! It’s entirely possible that you are not claiming expenses that you are legally allowed to. Here’s a brief (and non-exhaustive!) list of things you can claim as tax-free expenses:

  • Basic subsistence expenses, such as food and drink, hotel costs and so on when you are away from home on official business
  • Travel costs incurred on business trips, e.g. rental car costs, airfares (but not duty-free!)
  • Pension payments for both personal and business accounts, depending on your exact employment status
  • Professional indemnity cover
  • Benefits in kind, such as your personal medical insurance

While it’s possible to devote extensive hours to online research or to ask colleagues for tips on how best to reduce your tax obligations, your best bet is to contact a public sector accountant. Accountants, particularly healthcare specialist accountants, will be able to assist you in finding that sweet spot where you can claim as many expenses as possible, without risking the wrath of HMRC!

The advanced: the changes introduced by IR35, and how you can still legally work through a ‘personal service company’

In April, the new regulation was introduced with the goal of cracking down on a tax loophole in use by NHS doctors, contractors and agency workers. NHS Improvement, the regulator of the of the health service, insisted that all agency employees should be taxed as and classed among the regular employees of the NHS, something which would have guaranteed a higher rate of tax for those people. Essentially, the new rule was intended to combat the growth of agency workers and other NHS doctors and contractors being paid through what are called ‘personal service companies’. Through being paid by a third party, these employees were able to avoid paying as much National Insurance or Income Tax: in total, the IR35 scheme should raise a whopping £200 million in extra taxes each year! This means that for doctors working on a locum, the introduction of the IR35 regulations might mean that the amount of tax you pay may have changed.

The U-turn mentioned above refers to the events of May 2017, when NHS Improvement admitted that some agency workers would still be allowed to work on the same basis as before. While this is confusing enough in itself, rather than issue clearer guidelines, NHS Improvement simply said that cases will be decided ad hoc. What this means in practice is that genuine freelancers, in particular, those only working part time, will still be able to lessen their tax obligations by working for a ‘personal service company’. That being said, the new IR35 regulations may not be the last attempt by either NHS Improvement or the government to close this particular tax loophole: so don’t be surprised if your circumstances may change in the short to medium term.

Any contractors who do still fall under the newly introduced IR35 rules are now liable to Schedule E-taxation, as well as National Insurance payments. This, of course, is after any deductions for the above expenses are made. Companies that must follow these new rules are allowed a mixture of turnover, including both IR35 and non-IR35 contracts, and in this case, the non-IR35 turnover remains exempt from additional taxation. The situation is quite complex, and the details are still being hashed out- after all, the latest U-turn only came last month, so we may be treated to additional policy changes which will yet again redetermine who is and who is not required to pay additional tax.

The best bet is to contact The Accountancy Solutions, as we are healthcare specialist accountants, in order to determine what you have to pay now, and what you may have to pay in the future. In particular, an IR35 specialist accountant will help you to understand the ins and outs of the new regulations.