Going independent can be a daunting step to take – both personally and financially.
But the rewards are worth it. Locum vets often earn more, have more flexibility with their hours and a more varied working life. And we’re here to help make it easier.
This guide will help you to make sense of:
Should I join an umbrella company, such as a locum vet agency?
As a locum vet, you’ll have a wide range of options to consider in terms of employment.
In the veterinary trade, the most common umbrella company is a locum vet agency. These are specialist recruitment agencies for veterinary locums.
For a fee, these agencies will take care of contracts, invoices and other paperwork, as well as your tax requirements. You’ll pay tax via PAYE, as if you were a standard employee.
Some agencies also insist on a minimum number of hours, which can feel restrictive.
How should I set up my business: limited company, sole trader or partnership?
Your first important decision is how to structure your business.
There are a range of options available to you at this stage. You could set up a limited company or a partnership – also known as an LLP – or become a sole trader.
If you’re not technologically-minded, then an accountant can set up your company. Appleby Mall incorporate our clients’ businesses for free – we’ll cover the £12 for you.
You’ll also need to open a separate business bank account.
Sole traders and partnerships
Alternatively, you can become a sole trader.
If you’re teaming up with another locum vet, then it might be worth considering a limited liability partnership (LLP). Partnerships and sole traders follow many of the same rules.
Do locum vets need to file accounts? What about tax returns and VAT?
Limited companies must file a company tax return with HMRC and annual accounts with Companies House.
This can be a complicated exercise. If you haven’t filed before, or you have a packed schedule, then an accountant will be useful.
Setting up as a limited company can offer savings on tax.
Corporation tax is fixed at 19% (and will drop to 17% in 2020) – compared to income tax at 20% or 40% above the personal allowance, plus self-employed national insurance (NI).
You’ll still pay income tax on any salary drawn from your company – but you don’t need to pay any NI contributions when taking a dividend.
Sole traders must file a yearly self-assessment tax return with HMRC.
As a sole trader, you’ll pay income tax on your profits – plus self-employed national insurance, based on your annual business profits.
If you have an annual turnover of more than £85,000, then you’ll also need to register for VAT.
This applies whether you operate through a limited company, as a sole trader, or as a partnership.
You can register for VAT online, or authorise your accountant to sign up on your behalf. VAT returns are filed to HMRC every quarter.
Do I need to set up my own pension?
Becoming self-employed means the responsibility for your pension shifts back to you. You’ll have to choose your own pension scheme and make your own contributions to it.
Whether you run a limited company or act as a sole trader, if you have no employees (like most locum vets) then you aren’t required to set up a workplace pension.
Your pension contributions will be counted against your company’s profits, reducing your corporation tax bill. Contributions are currently tax-free up to £40,000 per year.
You’ll receive tax relief from the government up to the £40,000 annual limit – or up to 100% of your earnings, if lower.
Pensions can often be difficult to understand. An accountant or business adviser can help you to grasp the inner workings of a complex system.
What is IR35? Does it apply to locum vets?
IR35 is legislation introduced by the government in 2000 to prevent companies from using contractors like locum vets to essentially act as regular employees.
This type of “disguised employment” is usually undertaken to reduce a company’s tax and NI bill.
Working as a locum instead of an employee can also reduce your tax payments. But, if HMRC find you to have been working inside IR35, they could issue you with a large bill.
IR35 is only applicable if you’re set up as a limited company.
The responsibility for making sure IR35 doesn’t apply to your locum contract is currently with you.
This is expected to change in April 2020 for larger businesses who use your services. The IR35 responsibility will then be with the company who approached you.
How to prove you’re outside IR35
• Make your own decisions at work.
This could include deciding on how you care for your customers’ animals, your equipment and clothing, your diary and working hours.
• Have a service agreement.
Someone should be able to act as a substitute for the services you provide.
• Don’t tie yourself to a specific practice.
Avoid rolling contracts and look for different practices to work at once your contract is up.
How do I manage my money?
It’s vital to stay on top of your finances as a locum vet.
Nobody wants to spend their free time digging through reams of files after a tiring few days out on call.
Cloud-based accounting software like Xero is a handy way to stay on top of your income and spending.
Keeping track of what you spend is particularly important for claiming business expenses.
From essentials like fuel to medical goods, you can get money back later.
You’ll declare this information on your annual tax return.
I have some more questions. Can you help me out?
While there may seem like a lot of hurdles to jump, becoming a locum vet has some clear financial and personal benefits.
Choosing the right structure for your business, accurately filing your tax returns, and keeping track of your finances will save you time and money in the long run.
If you have any more questions about managing your money as a locum vet, then we’d be happy to help. Give us a call or send an email and we’ll answer your queries as soon as we can.