Is a Limited Company Right for You? | NHS| Locum Doctor Tax Tips

In my experience, there are some serious advantages with using a limited company. Lately we've seen a surge in traffic to moneywise Dr. Websites. Moneywisedoctor.com for many is about keeping more of what they earn while optimizing their finances. As you can see, running a limited company gives you the ability to reduce your taxable income in ways that a sole trader simply can't. I actually see it as an investment and it saves me future headaches from hmrc. I think it's well worth it and the peace of mind of being compliant. Very important. Is a limited company a good idea for you? I mean, are you a doctor or healthcare professional and you're wondering if setting up a limited company could be a game changer for your finances? I mean, can it help you cut down your tax bill and can it keep more of your income? Well, the truth is that it might, but it's not a one size fits all. It depends on your situation. In my experience, there are some serious advantages with using a limited company, like tax efficiency and more control over your money. But there are also a few hurdles. Talk about extra paperwork, IR35 rules and potential accounting cost. But stick around because in this episode I'll be breaking down the pros and cons and even sharing a guide with you towards the end that can help you navigate your decision. Now, if you're short on time and you want to skip ahead to the end to grab that guide or use the time timestamps to jump to the parts that interest you most, please feel free. By the way, if you're new here, I'm Dr. Andy Grim, former salaried NHS GP, investor and entrepreneur and I founded Money Wise Doctor to help doctors and healthcare professionals make smarter financial decisions and avoid costly mistakes. Now, let's dive in. So why are more and more healthcare professionals suddenly thinking about setting up a limited company? Lately we've seen a surge in traffic to moneywise Dr. Websites moneywisedoctor.com especially the pages that write about limited companies. We have received numerous inquiries via emails and in our community over the last couple of months. What's driving this interest? Well, in my experience is mainly about tax efficiency, especially for medics, doctors and healthcare professionals worried about getting caught in the 60% tax tax trap for many is about keeping more of what they earn while optimizing their finances. Now, for example, if you're a sole trader and you're in above a certain amount, a significant chunk of your income is taxed at 40% or more. That's a higher tax rate. Payer now, if your income falls between 100,000 and 125,140, you fall into the 60% tax trap. This happens because £2 and every £2 you end above 100,000 means that you lose £1 of your personal tax allowance, effectively raising your tax rate to 60%. I mean, we have a blog on this that is quite detailed and is ranking number one on Google. You can check it out with the links in the description and have a read about it. But now back to limited companies. Setting one up gives you more control over how and when you pay yourself. You can strategically split your income between your salary and your dividend, reducing your overall tax liability. Plus, in my experience, you can claim a wide range of business expenses from professional cost to equipment, even electric vehicles, as long as they are for your business use exclusively. Now this can be particularly beneficial if you're looking to structure your income efficiently, maximizing what you keep while minimizing your tax burden. So you want to pay your tax, but you don't want to pay more than you have to. Now let's get into the benefits. Number one, tax efficiency. Now if you operate a limited company, you pay corporation tax on your profits, which is lower than a higher rate and additional rate taxpayers. For 2024, for example, it's 19% for profits under £50,000 and 25% for profit above 250,000. Compare that to a higher rate taxpayer in a sole trader, 40% and above. Number two, limited liability. So one of the best things about limited companies that your personal assets are protected. This means that if your company runs into financial difficulties, your personal finances are safe. However, for healthcare professionals like doctors though, while this is useful, your professional indemnity, like your medical defense cover, is often more important is more crucial. Your medical practice relies on having strong professional indemnity to cover any claims or legal issues arising from your work. So while limited company and limited liability is helpful, what's most important is your medical indemnity. 3. One big use of a limited company is a claimable expenses. You can claim a wide range of expenses that applies to your business and this can reduce your taxable income and put more money in your pocket. Now, there are a number of things you can claim, but here there's a catch. The expenses must meet the HMIOC standard test. So HMS has a test and one of them is that it must be wholly for your business use, eg medical equipment or for training. Two, it must be exclusively for your medical practice. So you can't just buy random things and just say it's for my medical practice. And of course it has to be reasonable, it cannot be excessive or something you're using for your personal use. So I'm going to give you a list of things you can claim, but this is not exhaustive and again of course it applies. Depends on whether you've actually used this in your, your business. So number one is office cost. If you work from home, you can claim a portion of your mortgages, rent, utilities and council tax. So use of home. Now there's two travel. So business travel, fuel, parking, accommodation expenses. If you stay in a hotel, they are all deductible. I mean you've gone for work. Of course there are professional fees like your indemnity insurance, general subscription, you could even claim your GMC and you can even claim your life insurance. You claim it as a relevant plan and put it in your trust. That's possible. Number four is training courses. Obviously if you need to do courses to advance your medical skills, medical education, these are also deductible. Of course. Number five is equipment. Sometimes you might need laptop, software, stationary to do your job. And as part of running your business, employees, you might be able to hire admins to help you with sort of keeping up with the paperwork. I can pay them salaries and these are deducted as expense. As you can see, running a limited company gives you the ability to reduce your taxable income in ways that a sole trader simply can't. But of course nothing is perfect. There are also downsides to consider. One, obviously with a limited company there's extra admin, extra paperwork. Running a limited company does come with administrative tasks like filing annual accounts, dealing with paye, tracking dividend. However, for me this hasn't been a headache in any way because I use a specialist accountant who knows exactly what needs to be done and they file even semi reminders. Now many doctors will hire an accountant and why is an added expense is one that you can actually deduct from your expenses before tax. I actually see it as an investment and it saves me future headaches from hmrc. I think it's well worth it and the peace of mind of being compliant, very important. Number two, IR35, the IR35 rules, you don't want to fall foul of it. So IR35 is a piece of legislation that is aimed at preventing, you know, workers who are supposed to actually be employees from claiming that they are working in a limited company and avoiding paying their due tax. For locum doctors, IR35 is crucial because if HMRC determines that you are inside IR35, you lose the tax benefits of a limited company and you'll be taxed like an employee. That can be quite big disastrous. It can come with hefty penalties if not managed correctly. So it's important to work with a tax expert or specialist accountant to ensure that you are compliant and safe outside IR35. I explain IR35 in more details in the downloadable guide. You can get it at the end of the video. Number three, cost. The cost of running a limited company. It comes with its own expenses, accountancy fees, insurance, other financial obligations. Now, while this cost can all add up, they often is often cost that you can claim as expenses. As long as they are business compliant, you can claim them as expenses. So for instance, if you hire an accountant, I pay them a fee, you would be able to go and claim them as part of the expense of running the company before you are taxed. So as long as you keep your cost reasonable and it's just for running the business, you should be fine. Now there's number four. This downside of using a limited company is lack of employee benefit and is one of the most significant downsides for locum doctors. Working through a limited company is that absence of employee benefits, employment benefits you're not if you. Especially if you are outside the nhs pension. Unlike permanent NHS staff, locum doctors don't even receive perks like NHS pension, sick pay, holiday pay. This means that as a locum, you must take proactive steps to protect yourself financially. So prioritize a robust emergency fund, three to six months of your monthly expense, adequate life insurance, income protection. Just become a bit more thoughtful about your own financial plan and financial stability. So how do you get money out of the company? Number one, salary. You can pay yourself a salary which is subject to income tax national insurance. However, working with a specialist accountant helps you to optimize how much you take in salary. For example, example, if you receive a salary of 12,570, it keeps you below the personal tax allowance threshold, meaning that you don't even pay income tax on that. On that. But again, be careful because when you want to apply for a mortgage or a visa, you can. You may not be able to demonstrate that you make enough money to be eligible, so work with a specialist to sort that out. Number two, way to get our money. Dividends. So it's patri, a limited company. Of course, these dividends are a share of the profit after tax and dividend rate differs. It's 8.75% for basic tax rate payers. And as high as 9.35% for additional tax rate payers. So the key here is to find the right balance between salary and dividend and figure out a way to maximize your take home pay while minimizing your tax liability. Structuring the income in that way can help you keep more of what you earn. 3. How to get Money out of Limited Companies of course expenses. So expenses like the salary you pay yourself, the salary you pay your staff, the business expenses you make, whatever you pay for consultation of professionals, memberships, travel, office equipment and more. I mean there's a whole list of it in the guide that I put here in the links for you to download, but make sure that it meets that HMRC criteria. It's wholly for your business. So is setting up a limited company the right move for you? I mean if you work outside R35, have reasonable earnings and you're ready to handle or outsource the accounting work, then it could be a great way for you to save on taxes and take more control of your finances. But if your income or you know, if your income is not that steady through your locum work or you're not ready for the hassle of the paperwork, if you're unsure, I highly recommend you talk to a specialist accountant first. Someone who works specifically with healthcare professionals so that they can help you to avoid costly mistakes. And remember, everything here is not legal or accountant advice, it's just based on my own experience. If you are looking for an accountant, head over to moneywise.co.com where you can find a vetted specialist accountant. And before you go, don't forget to grab in the links and also put it in the comments. Your limited company guide for Medics. So if you're a doctor or healthcare professional, it includes a detailed list of what you can claim as part of your expenses and as long as they are related to running your business. The link will be in the description now. Thank you for watching. If you found this video helpful, you might also like my other video on self invested personal pension options. In it I explore the best sip platforms for healthcare professionals and what you should look out for when choosing one. So don't forget to subscribe for more valuable tips and insights to help you make smarter financial decisions. Alright then, see you next week. Bye.