Managing your finances as a locum

You will need to handle your tax, national insurance and pension payments, explains Dr Lynda Carter.

Dr Lynda Carter: 'New locums should consider employing an accountant'
Dr Lynda Carter: 'New locums should consider employing an accountant'

One big difference when starting work as a locum is that instead of deductions being automatically taken from salary payments, you must pay your tax, national insurance (NI) and pension contributions.

Locum work also means keeping accounts. It is worth getting an accountant straight away who specialises in medical clients and, in particular, GP locums. Also consider setting up a separate business bank account.

Tax and national insurance
You need to register with HM Revenue & Customs as self-employed within three months of becoming a locum, otherwise you will receive a fine.

The tax year runs from 6 April to 5 April. If you start out as a self-employed locum in the 2010/11 tax year, you will have to pay your first income tax bill by 31 January 2012. However, after the first year, you will pay your tax in two instalments in January and July.

To make class 2 (self-employed) NI contributions, you need to set up a direct debit of £2.40 per week. Class 4 NI contributions are due on your profits each year and you pay them along with income tax. The class 4 rates are currently 8 per cent on profits from £5,715 to £43, 875 and 1 per cent on any excess over £43,875.

Pension contributions
As a self-employed locum GP, you can still contribute to your NHS pension. Your income is not NHS-pensionable if you work for an agency or channel your income through a limited company you have set up. You can, however, contribute to a private sector personal pension.

To pay into your NHS pension, you need to fill out GP locum forms A and B, which you can download at the NHS Business Services Authority website (www.nhsbsa.nhs.uk/pensions). You fill out form A for each practice you work for. Form B is filled out monthly and is a summary of your form As.

When completing form B, include all payments received in that month - not the month when you did the work or sent the invoice. You then submit each form A and your form B, to arrive no later than the seventh day of the month following the month the form B relates to.

There is a 10-week deadline for declaring NHS pensionable income. Keep a copy of all your forms A and B. How much you need to pay in NHS pension contributions each year depends on your total NHS pensionable pay. This includes NHS locum pay, and income from other NHS sources, including GP principal and salaried GP earnings (see table below).

Your local NHS employer (the primary care organisation) will then contribute an additional 14 per cent based on your annual NHS-pensionable income.

If you are doing work for an absent out-of-hours GP contracted directly between you and an out-of-hours provider, use forms C and D (equivalent to forms A and B).

However, if you are doing regular, non-'deputising' out-of-hours work, use the GP SOLO form.

Record-keeping
Use a software system to create and record invoices and payments and also to log receipts and expenses. There are several available, such as Penny Perfect, Microsoft Money and Excel.

Record any expenses for business use of your car. To work out the business proportion, keep a mileage log for travelling to/from home to locum jobs, patient visits and educational meetings. You need to log fuel costs, insurance, breakdown cover, repairs, cleaning and so forth.

You can get capital allowances to reduce your tax bill if you claim a portion of the depreciation of your car's value each year. Your accountant can tell you about special capital allowances for cars with low carbon dioxide emissions. You can also claim capital allowances for depreciation of equipment such as computers, diagnostic machines and so on.

Tax relief is available on business use of your home, your telephone and internet, and for consumables such as postage stamps and computer paper, and for attending work-related educational courses. Books and journal subscriptions, and medical defence, GMC/BMA/RCGP annual fees and pension payments also attract relief.

NHS PENSION CONTRIBUTION RATES 2010/11
Annual NHS-pensionable pay Rate based
on total earnings
Up to £20,709  5%
£20,710 - £68,392
6.5%
£68,393 - £107,846 7.5%
£107,847-plus
8.5%

Income protection
You have probably already arranged income protection cover but this will be as a salaried doctor. This means it may not kick in until you have been off sick for six months and may start at only 50 per cent of pay. Look into changing the cover so benefits are paid after a shorter period.

As you will be saving for your tax bills, it may be worth considering a savings account for this money or an offset mortgage where you pay tax only on the difference between the amount in linked savings accounts and the mortgage debt.

  • Dr Carter is a GP locum in West Yorkshire
  • Book a place at our 'Maximise Your Potential As A Locum' conference on 6 October in central London by visiting www.gplocumsevent.com
Practical tips
  • Find an accountant
  • Open a business bank account
  • Use a spreadsheet to keep track of income and expenses
  • Register as self-employed with HMRC (within three months of starting work)
  • Pay class 2 national insurance by direct debit
  • Review your sickness insurance/income protection cover

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