Should UK Doctors Use a Limited Company for Locum or Private Work? The IR35 Truth Nobody Tells You

As a doctor, should you use a limited company for your locum or private work? I talked about this in chapter 5 of my book, but I'm going to explain it to you. You may have heard that using a limited company could help you be more tax efficient and save more tax, but there is a more important question to answer first. Does a limited company actually fit the way you work? Are you eligible to work through one? I'll explain that in this video because registering a company does not automatically make you self-employed in the eyes of HMRC, and putting income through a company does not automatically take that work outside the off-payroll working rules, popularly known as IR35. HMRC looks beyond the company name or whatever title your job is. It looks at the real working relationship between you and the organization paying you. So if you get that distinction wrong, you could face a massive unexpected tax bill with interest, penalties, and a lot of stress. And I've seen some doctors fall into it. Let me explain this with an example from my local plumber. A little while ago, I needed some work done at home. Having no DIY skills, I looked at the boiler, I looked at the pipework, and I quickly accepted that I had no idea what I was doing. So I put back my toolbox, which is basically for fancy. I called a plumber, which is a smart thing to do. Now, my plumber didn't give me tax advice, but the way he worked gives us a surprisingly useful way to understand IRO 35. Now, IR35 is the name commonly used for off-payroll working rules. If your work falls under IR35, you're unlikely to be eligible to work through a limited company. On the other hand, if what you do falls outside IR35, you may be eligible to work via a limited company. And I'll explain the concept to you. Now, in simple terms, the rules ask this question: if your limited company disappeared and you worked directly for the client, would you look more like an employee or more like someone running an independent business? I mean, that question matters more for doctors doing locum shifts, private clinical work, medical advisory work, expert witnesses, they're doing, you know, consultancy. Now, some of that work may be genuinely independent. Some arrangements may also look much closer to employment, and the answer is not always obvious. If you're new here, hello, I'm Dr. Andy Egwim. I'm a former salary-deductible GP. I've been an investor for 21 years. I'm the founder of moneywise doctor.com. 4 years ago, tax-efficient investing helped hit financial independence and gave me the choice to leave my salaried GP role. I've not needed a job since then. Since then, through our videos, workshops, programs, and my best-selling book, The Money-Wise Doctor, we've helped more than 4,400 doctors better understand tax efficiency, investing, and personal financial well-being. Now, before we continue, a quick disclaimer. This video is for general education only. I'm not your financial advisor, tax accountant, employment status specialist, or even solicitor. Nothing here personal, financial, tax, or legal advice. Tax rules, as you know, can change. They do change quite a bit these days. And employment status depends on the complete facts of the working arrangement. Please seek suitable professional advice before making any decisions. Now, let's return to my plumber, okay? When HMRC considers whether someone is employed or self-employed for tax purposes, there's no single magic question they use. It looks at the whole relationship. Of course, the written contract matters, but what happens in real life matters too. A clause copied into a contract will not help much if the day-to-day working arrangement says something completely different. And I'll explain. There are 3 areas that are especially useful when trying to understand the distinction. 1, substitution. 2, control. And 3, mutual obligation. We'll break that down. Now, these are not the only factors, but they are the top 3 to start with. Later, we'll also look at other factors like financial risk, equipment, multiple clients, and whether you appear to be operating A genuine business. So let's start with number 1, substitution, because that's test 1, substitution. Now imagine my plumber could not attend for any reason. Maybe he had a cold. Could his business send another suitably qualified plumber to complete the work instead? Potentially, yes. I was paying for his business to solve a plumbing problem. I was not employing him personally as a member of my household Okay. That helps us understand substitution. Can the business genuinely provide another suitable professional to complete the agreed work? Not merely because there's a substitution clause hidden on page 12 of a contract or anything like that, but it must be genuine and practical. Okay.

If you're wondering if a limited company is right for you as a doctor or physiotherapist or healthcare professional, maybe a medic doing some locums or have some side gigs, a limited company could save you thousands, but it's not for everyone. Now, my free guide explains on my own experience and from research, when to consider a limited company, the pros and the cons, how it works for doctors and healthcare professionals, and you can get it all for free. So get your free guide with the link in the description. Now let's jump right back to the episode.

So HMRC treats a genuine right to provide a substitute as a pointer towards self-employment. Although the full circumstances still matter, that's not the only thing they check. Now apply that question to a doctor or whatever you do. Most people that watch my channel are doctors. Suppose you have a locum shift. Could your company genuinely send another appropriately qualified approved doctor in your place? Would the hospital, GP practice, or clinic accept someone else other than you? Who would choose the replacement? Who would pay them? Would you remain responsible for making sure the work was completed? Or is the organization specifically engaging you and nobody else? I mean, in medicine, substitution can be a bit more complicated than it is for a plumber. 'Cause there are some issues like clinical governance matters, credentials matter, induction matter, access to patient records matter, patient safety matters. So the organization may reasonably need to approve any replacement. That does not automatically decide your employment status. So this is just one test, but it's an important part of a wider picture. So ask yourself, is substitution genuinely possible? Or does it only exist on paper? Okay, that's test 1. Now there's a second test which is even more interesting, is test 2, control. The second area is about control. So when my plumber arrived, again, back to plumber, I explained the problem as I understood it from a layman's view, but I did not tell him which tool to use. I barely know which the names of the tools myself. In fact, I did not prescribe the order in which you should test the system to find the problem. I did not supervise each part of the repair. He decided how the work should be completed because in this case, he was the specialist. Best I could do was to offer him a copper and get out of the way. So that helps us to understand control. So who decides what work gets done? When you get to work, are you being directed on what to do? You know, who decides how it's done? Who decides when it's done? Okay, so Are you, do you have a supervisor supervising your work? And who decides where it must be done? Okay. Now compare that with your own work. Do you work within a fixed rota? You have to show up and you're inside a fixed rota with close supervision. Does the organization decide your hours? You have to, you know, you can't just pick the hours you work. The organization decides it. Can also the organization move you between clinics or duties? Like you show up for something else, they can ask you to go do something else. Are you being supervised and managed in largely the same way as Now, interestingly, can you refuse a task that falls outside the originally agreed scope? Of course, in healthcare, some control is unavoidable. Every doctor must follow clinical standards. Every doctor must work safely. And a hospital controlling access to records or requiring compliance with safeguarding rules does not automatically make someone an employee. But the more useful question is, when are the organization controls your work beyond what is reasonably required for clinical safety and the agreed service? A doctor engaged to provide one independent report may have far more control over how the work is completed than a doctor filling a recurring rota gap every Tuesday and Thursday in the acute medicine department of a local hospital. Now, the title on the invoice may say the same thing, but the working relationships may be very different. Control is always relevant, but it's not the only factor that determines employment status. So let's look at test 3. These are the big 3. Number 3 is mutual obligation. And that third area is often called mutuality of obligations. And it's in the name. This is the most difficult of the 3 to explain simply, but I'll try. At the most basic level, whenever work is done under a contract, each side normally owes the other something. The worker agrees to perform the work. The client agrees to pay for it. So that's a contract. That's how it works. The basic exchange alone does not tell us whether the person is employed Or self-employed, but there's an exchange. So what you also want to understand is the wider relationship. Again, let's go back to my plumber. After my plumber completed the agreed job, he did not have to return the following week. That was it. It's all done. He gets paid. I did not offer him— I don't have to offer him another job. So I'm not obliged to offer him another job. And if I did, he could turn down my next request. And if I had another job, I could choose another plumber. So there's mutuality of obligation. Okay. There was no continuing expectation that I must keep offering work and he must keep accepting it. There was no obligation on both sides. Now ask similar questions about your own work. Is the organization required to keep offering you shifts? Are you expected to keep accepting them? Can you freely refuse future assignments? Does each engagement stand on its own? I mean, these are areas that people trip up without understanding it. So is there an ongoing relationship in which work is regularly offered and you're expected to perform it? Is there an ongoing expectation of work? I mean, it can make the relationship look more like employment to HMRC. But mutual obligation should never be used as a simple pass or fail test on its own. It's just one aspect. As with the other factors, the full arrangement matters. So let's look at some of the other things like financial risk. So my plumber has business expenses. Of course, he has tools. He has to take out insurance. He has transport, some, maybe some staff. He has to price the work appropriately. If he prices the job poorly, he might make less profit, maybe even a loss. If his work was faulty and he had to return to correct it without another payment, he could lose time, maybe a bit of money, maybe a lot of money. So there's risk. If he was ill and did not work, even if he's great and I really think he's a fantastic guy, I would not normally pay him for that day. So there's no sick pay. So there's a risk, financial risk. Now, those are examples of financial risk that you can see in a business. Someone operating a genuine business may have the chance to make more profit through good management. They may also risk making a loss through poor management or circumstances. An employee is normally paid an agreed amount and does not personally carry the commercial risk Of whatever the employer, you know, makes money. Whether the employer makes money or not, that's not the issue. HMRC considers factors like financial risk, equipment, the opportunity to profit, sick pay, and several other factors when assessing IR3530s. No single checklist can determine the answer. So in fact, equipment can also provide useful context. My plumber brought the tools needed to complete the work. He did not arrive and ask me to provide a drill, spanners, insurance, and a van. It's a little bit like the way a locum GP might turn up with, you know, like a doctor's bag and can actually run their whole job without being told what to do, but they have the equipment in their bag. Now think of your own arrangement. Do you provide meaningful equipment needed for the job, for the work, or does the client provide almost everything? For many hospital doctors, this factor will be less helpful. I mean, a hospital system must provide clinical systems, patient records, and much of the specialist equipment. You're hardly going to be rocking up to a shift with your own MRI scanner to a locum shift or a CT scan. So equipment alone will rarely settle the question for a doctor, but it's also an important thing that is looked at. You look at the whole thing. So it's simply one piece of a larger picture. It's one piece of a much larger picture. It's not just that. Other things to look at is, are you working for several clients? It's another question. Are you genuinely in business on your own account? Do you advertise your services? Do you negotiate your fees? Do you work for several unrelated clients? Do you correct poor work at your own cost? Do you manage your own business systems? Could your business continue without relying completely on one organization? So it's not one organization that gives you all your jobs. Okay, these are some of the tests that HMRC famously looks at. Now, having several clients does not automatically make you self-employed and outside the hour of 35, and having one important client doesn't also make you an employee, but the broader pattern may show whether you are building an independent business or simply performing a job through a company. Now, what does this mean for you as a doctor? Let's look at the 4 common doctor scenarios when it comes to limited company. Now, these are general illustrations. They are not status decisions. The real answer depends on the facts of each engagement. And I have, I've had limited companies in different areas in medicine, outside medicine. Scenario 1, a locum doctor working through regular NHS hospital shifts. You're using the organization's systems. You follow his rota. You must personally attend. You cannot provide a substitute without extensive approval, especially in a hospital job. The organization decides how, where, and when you work. You require close supervision. You don't bring your own equipment. Now, that arrangement may look closer to employment, even if an agency and your limited company sit between you and the hospital. I'm not saying it is, but HMRC may look at it that way. That does not mean every locum is automatically inside IR35. It means the word locum does not automatically make someone eligible to work outside IR35. The nature of the relationship, the actual relationship, matters. Now, scenario 2: a doctor providing independent advisory work, maybe to a health tech company. You agree to deliver a defined report, review, or project for a health tech company. You decide how the work will be completed. You use your own systems and equipment, We are practical. Might even work for several clients, might be consulting for several clients. You negotiate your fee. You carry the cost of correcting poor work. You are paid for the agreed output rather than simply for being available between 9 and 5. And I've done this with medical legal reports many years ago. Well, not that many, maybe it's 4 or 5 years ago. Now, that may look more like a genuine business arrangement. Now, scenario 3, a different scenario again. A doctor can work with a limited company. Let's say you're an expert witness. You are engaged for your specialist expertise. You accept specific instructions. You control much of your own research, preparation, and report writing. You may work for several solicitors or organizations. You have professional costs of your own and responsibility for the quality of your work. Now, that arrangement could look very different from filling the same clinical shift every week at your local hospital in the acute medicine department. Now there's scenario 4, a private clinician. Now this depends entirely on how the private work is organized. Do you operate your own clinic? Do you attract your own patients? I mean, do you set or negotiate your own fees? Do you carry the risk of unpaid appointments and operating costs? Basically, are you a real business? Do you carry any financial risk? Or does one organization provide the patients, premises, timetable, equipment, and rules while paying you an agreed amount for your So the words private practice does not automatically mean you're eligible to work off payroll via a limited company. That's outside IR35. Again, the details matter. And there's another thing to consider. Who decides your status? I mean, whether you're in or out. Another common source of confusion is who is responsible for making that status decision. Now, for public sector clients and medium or large private or voluntary sector clients, the client is generally responsible for assessing whether the off payroll working rules apply. So the client that provides the job. Now, where the rules apply, the client should give the worker and the organization paying the worker a status determination statement explaining its conclusion. I've had those a few times. For a qualifying small private sector client, responsibility generally remains with the worker's intermediary, which is often the limited company. So the NHS is part of the public sector for these rules, although the exact contractual chain still needs to be understood. This is why you should not rely on a social media post Or a random generic contract template, or the fact that your colleague uses a limited company, or the fact that your accountant registered one for you, you're still ultimately responsible because you don't know. Your colleague may perform a different role under a completely different working arrangement and it might look similar to yours. You can also use, if you want to be doubly sure, you can use HMRC's tool. It's called Check Employment Status for Tax tool. So that's CEST for short. Search It can help you explore whether an engagement is likely to be employed or self-employed outside Ireland for tax purposes. The tool can be used by workers, employers, agencies, and other parties, but it relies on accurate information about the real contract and working practices. Right. So in conclusion, should you open a limited company? What do you think? Well, it depends. A limited company can be useful when you're genuinely operating a business and want the formal structure through which to manage that activity and you want flexibility around your expenses and tax. But it's not a magic tax switch. It's not automatically appropriate for every locum doctor. And the ability to register a company is not the same as the ability to treat every payment entering that company as outside the off-payroll working rules, aka IR35. I know you still want to set up a limited company, but before setting one up, ask yourself, What work would the company actually do? Who controls the work? Am I required to deliver the work personally? Could the company genuinely provide a substitute? Do I carry real financial risk? Do I work for several clients or just one client? Can I negotiate my fees and terms? Am I delivering a defined service or simply filling a role in the rota? Would it still look like an independent business arrangement if the company name disappeared? So that last question, it really, really matters because the core IRO 35 question is whether you would have been regarded as an employee for tax purposes if you had provided the services directly rather than through your intermediary. Okay. So finally, the main lesson is simple. Having a limited company does not by itself make you self-employed or outside IRO 35. How you actually work determines whether the structure and tax treatment fits and whether it will stand HMRC's test. So my While a plumber naturally appears to operate as an independent business, some doctors do too. But not every locum shift, private clinic, expert witness instruction, or advisory role produces the same answer. And 2 different pieces of work performed by the same doctor may have different statutory outcomes. So if you are considering a limited company and would like a simple way to think through these questions, what I've done is I've created a free limited company fit check. For doctors. It takes around 3 minutes and it walks you through substitution, control, mutual obligation, and the other signs HMRS may consider when looking at how you actually work. It's totally free of charge. You can download it through the link below. It cannot tell you definitively whether you are inside or outside the IL-35 because that depends on the full facts of the arrangement, which I don't know, but it can give you a clearer picture of the questions worth discussing Maybe with your accountant, client, or employment status specialist before making any decisions. You can just download it using the link below or comment check and I'll send it to you. And let me know in the comments, do you work with a limited company? Are you planning to work with a limited company? Which of these 3 areas do you meet the criteria in your own work? Substitution, control, or mutuality of obligation? I'll be very interested to know because I like to know who's watching the video and I like the feedback I get from you. And in the next video, I'll show you 7 common mistakes doctors make after opening a limited company. As someone who has had one for almost 10 years, I'll tell you those mistakes, including one pension opportunity many company directors completely overlook. Now subscribe so you don't miss it and share it with a colleague who may benefit. Let's not be selfish, let's share it. And if you're wondering which of my videos to watch next, click this one here on the screen. I think that's the one the algorithm thinks you're going to benefit most from. All right then, bye-bye.