Introduction
Can a limited company for doctors in 2025 help you save more on taxes this year? This is a key question from Locum GPs and Locum Consultants working in NHS or private hospitals.
Locum often find themselves at a crossroads when considering how to best manage their finances and professional responsibilities. One increasingly popular option is setting up a limited company. This is not new but more doctors are becoming more proactive when considering their tax situation, especially senior NHS and Private doctors at risk of falling into the dreaded 60% tax trap.
However, a Limited Company is not ideal for every doctor, and while it may offer numerous benefits, including tax efficiency, enhanced credibility, and limited liability protection, the wrong use of a Limited company as a doctor could land you in tax hot water with HMRC.
In this comprehensive guide, we will explore the advantages and steps involved in establishing a limited company for locum doctors and the financial and legal considerations that come with it.
What is a Limited Company for Doctors?
A limited company for doctors is a distinct legal entity separate from its owners. Unlike sole traders or those operating through umbrella companies, a limited company provides limited liability protection, meaning that personal assets are safeguarded from business debts. This structure also allows for more flexible tax planning and financial management.
Why Consider a Limited Company as a Doctor?
There are a few reasons that may lead a Locum Doctor to consider working through a Limited company and I will explore some of them below.
i) Tax Efficiency for Doctors Operating Through a Limited Company
Operating through a limited company can be more tax-efficient than being a sole trader. You pay corporation tax on profits, which is often lower than income tax rates. You may also deduct allowable expenses before tax. See list of expenses to consider below.
Additionally, you can split your income between salary and dividends, reducing your overall tax liability.
From 1 April 2023, the main rate of Corporation Tax increased from 19% to 25%.
Here are the Corporation Tax rates:
| Rate Type | 2024/25 | 2023/24 | 2022/23 | 2021/22 | 2020/21 | 2019/20 | 2018/19 | 2017/18 |
|---|---|---|---|---|---|---|---|---|
| Small profits rate (profits under £50,000) | 19% | 19% | — | — | — | — | — | — |
| Main rate (profits over £250,000) | 25% | 25% | — | — | — | — | — | — |
| Main rate (all profits except ring fence profits) | — | — | 19% | 19% | 19% | 19% | 19% | 19% |
| Marginal Relief lower limit | £50,000 | £50,000 | — | — | — | — | — | — |
| Marginal Relief upper limit | £250,000 | £250,000 | — | — | — | — | — | — |
| Standard fraction | 3/200 | 3/200 | — | — | — | — | — | — |
| Special rate for unit trusts and open-ended investment companies | 20% | 20% | 20% | 20% | 20% | 20% | 20% | — |
Source: HMRC 2024
Here’s a comparison of the tax rates for sole traders:
| Band | Taxable Income | Tax Rate |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Basic Rate | £12,571 to £50,270 | 20% |
| Higher Rate | £50,271 to £125,140 | 40% |
| Additional Rate | Over £125,140 | 45% |
Understanding these tax differences is crucial for making informed decisions about income structuring and optimising tax efficiency.
When drawing a salary or dividends through a limited company, you must declare these in your self-assessment. It is highly recommended that you work with a specialist accountant experienced in helping Locum Doctors with these matters. They can help navigate complexities and ensure compliance with tax regulations, maximizing your financial benefits. This approach provides you avoid pitfalls and efficiently manage your tax liabilities.
ii) Dividend Payments for Locum Doctors using Limited Companies:
Dividends are taxed at a lower rate than salary, allowing you to maximize your take-home pay. Any dividends you withdraw above £500, would be taxable based on your usual income band
Dividend Tax Rates:
| Income Band | Tax Rate |
|---|---|
| Basic Rate | 8.75% |
| Higher Rate | 33.75% |
| Additional Rate | 39.35% |
Claiming Business Expenses:
A wide range of business expenses can be claimed, reducing taxable profits and further enhancing tax efficiency. I have shared a list of potential claimable expenses below. The list is not exhaustive and it is essential to check which expenses apply in your case If in any doubt, speak to a specialist accountant to help you avoid HMRC tax trouble.
Think of deductible expenses as financial analgesics that alleviate the sting of heavy taxation while boosting your net income. As a director of a limited company, you hold the power to claim a range of business-related expenses that, like a well-prescribed medicine, can substantially enhance your financial health.
The list of claimable expenses below is not exhaustive but it’s a fantastic start!
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Life Insurance for Locum Doctors Working in a Limited Company (Relevant Life Plan)💰:
As a locum doctor operating through a limited company, you can opt for a life insurance policy known as a Relevant Life Plan. This policy is specifically designed for company directors and allows you to deduct the premium payments as a business expense before paying taxes. This tax-efficient setup ensures that your loved ones are financially protected without increasing your taxable income, providing both peace of mind and financial security.
By using pre-tax money to pay for the policy, you effectively reduce your overall tax liability while securing essential life insurance coverage.
2. 🏡 Home Office Costs:
If you’re working from home, you may be able to claim a proportion of your household bills, such as mortgage or rent, heating, electricity, and even council tax.
3. 📚 Office Equipment & Stationery
This includes computers, laptops, software, phone bills, internet packages, and stationery. If you use these for your work, you may be able to claim the cost as well.
4. 🚗 Travel & Accommodation Expenses:
You can claim costs related to business travel, including fuel, parking, train or bus fares, and even flights for business trips. Similarly, hotel stays, meals during business travel, and a reasonable per diem are claimable.
5.🧥 Clothing Costs:
Uniforms or any necessary protective clothing required for your work can be claimed. However, everyday clothing, even if you wear it for work, doesn’t qualify—it’s like differentiating between sterile gloves and everyday ones in a healthcare setting.
6. 👥 Staff Costs:
You can deduct salaries, subcontractor costs, and pension contributions for your employees. If you employ an administrative staff to help you with your paperwork, you could also deduct what you pay them as part of the expense of running your Limited company as a Locum Doctor.
7. 🏦 Financial Costs:
These include insurance, bank, overdraft, and credit card charges, hire purchase interest, accountancy fees, and professional indemnity insurance premiums. Like necessary medical procedures, these costs keep your financial body healthy.
8. 🛒 Cost of Sales:
Direct costs from producing goods or delivering services are deductible. Think of this as the medical supplies necessary for your practice.
9.🌐 Marketing Costs:
Costs incurred for business promotions, such as website design and maintenance, business cards, and advertisement costs, are deductible. This is similar to public health awareness campaigns.
10. Training Courses:
As long as the course is directly related to your business (for instance, refresher courses or advancing your current skills), it’s claimable. This is like continuous medical education.
11. Company Vehicles:
Here’s a bonus pill: if you’re considering buying a car, especially an electric one, purchasing it through your company can be tax-efficient. The vehicle should be primarily for business use, and personal use may attract Benefit in Kind (BiK) charges. As usual, I’d recommend you consult your accountant before doing this to ensure compliance.
12.🎁 Charitable Contributions:
If your company makes donations to registered charities, these can also be deducted from your pre-tax profits, much like a healthcare institution supporting community health initiatives. This can be a great way to support causes you care about while also benefiting your company’s financial health.
However, note that conditions apply, and it’s always best to consult with a specialist accountant for specifics. It’s crucial to remember that the devil is in the details when it comes to claimable expenses. It is wise to engage the services of a specialist accountant who has good experience in dealing with medics to help you navigate complex tax laws and ensure compliance. I’d recommend a Moneywise Doctor-vetted accountant here.
Keeping accurate records and receipts and justifying the business purpose of the expense is paramount – much like keeping detailed patient records in medicine.
Always consult a specialist accountant if you’re unsure to avoid falling foul of HMRC rules, just as you would seek a specialist doctor’s opinion on a complex case.
Common Mistakes to Avoid
Avoid over-claiming or claiming non-allowable expenses, which can lead to penalties and increased scrutiny from HMRC.
📚 Are You Eligible? Limited Company for Locum Doctors: IR35 Considerations
Understanding your eligibility and IR35 status is the heartbeat of your financial well-being when considering a limited company structure for your work as a healthcare professional.
IR35 is a complex piece of legislation akin to the intricate circuitry of the human nervous system. It’s designed to evaluate whether a contractor is genuine or merely an ’employee in disguise’ attempting to gain tax benefits. The implications of IR35 can have significant impacts on your tax obligations and your limited company’s financial health. Check your eligibility here.
Navigating the complexities of IR35 legislation can often feel like decoding a challenging medical condition. For instance, factors such as your contract type, working conditions, financial risk, and the nature of your working relationship with the entity you’re providing services to, all play a role in determining your IR35 status.
Given the potential complications, it’s vital to consult a professional – much like a patient would seek a specialist’s advice for a complex health condition.
Engaging a specialist accountant or a tax expert well-versed in IR35 legislation can clearly diagnose your situation and guide you to make informed decisions. After all, in both medicine and finance, prevention is better than cure!
Steps to Setting Up a Limited Company for Locum Doctors
You can set up a Limited Company on your own, but I prefer having my accountants handle the paperwork for accuracy and efficiency. If you decide to do it yourself, here are the steps:
Choosing a Company Name
Select a unique company name that is not already registered. This name will be used in all official documentation and branding.
Registering with Companies House
Complete the incorporation process online through the Companies House website. This involves providing details about the company’s directors, shareholders, and registered office address.
Appointing Directors and Company Secretary
Assign roles and responsibilities within the company. While a company secretary is not mandatory, having one can help manage administrative tasks.
Issuing Shares and Shareholder Agreements
Define ownership and profit distribution by issuing shares and creating shareholder agreements. This is crucial for managing relationships and expectations among shareholders.
Setting Up a Business Bank Account
Separate personal and business finances by opening a dedicated business bank account. This simplifies accounting and ensures compliance with tax regulations.
Financial Management
Accounting and Bookkeeping Requirements
Maintain accurate financial records to comply with legal requirements and facilitate effective financial management. The help of a specialist accountant will save you a lot of headaches.
VAT Registration and Compliance
It’s unlikely that you’ll need to register for VAT as a Locum doctor or GP as medical services are typically not subject to VAT. However, if you have a non-medical business, register for VAT if your annual turnover exceeds £85,000. This involves charging VAT on sales and reclaiming VAT on business expenses.
Corporation Tax Responsibilities
Pay corporation tax on company profits. This requires careful planning and timely payments to avoid penalties.
PAYE and National Insurance Contributions
Set up PAYE to manage income tax and National Insurance contributions for employees and directors.
Report all income and pay the appropriate taxes, including corporation tax, PAYE, and self-assessment for dividends.
Hiring an Accountant: Limited Company for Locum Doctors
Engage an accountant or financial advisor who specialises in medical professionals to navigate complex tax laws and ensure compliance. I’d recommend a Moneywise Doctor-vetted accountant here.
Tax Benefits and Considerations: Limited Company for Locum Doctors
Maximizing Tax Efficiency
Utilize allowances and deductions to minimize tax liability. This includes claiming business expenses and taking advantage of tax reliefs.
Dividend Tax vs. Salary Tax
Understand the tax implications of receiving income through dividends versus salary. Dividends are often taxed at a lower rate, making them a more tax-efficient way to receive income.
Relevant Tax Reliefs and Allowances
Explore tax reliefs and allowances available to locum doctors, such as the annual investment allowance and research and development tax credits.
IR35 Rules: Limited Company for Locum Doctors
Simplified Explanation: IR35 is legislation designed to combat tax avoidance by workers supplying their services to clients via an intermediary, such as a limited company, but who would be an employee if the intermediary was not used.
Applicability to Locum Doctors: IR35 can affect locum doctors working through limited companies. It is crucial to determine your employment status to ensure compliance and avoid hefty penalties.
Disadvantages of Working as a Locum Doctor with a Limited Company
- Administrative Burden: Managing a limited company involves significant paperwork, including filing annual accounts, handling payroll, and ensuring compliance with tax regulations. I reduce this by using specialist accountants to file my paperwork annually.
- IR35 Legislation: Navigating IR35 rules can be complex. If your contract falls within IR35, it can diminish the tax advantages of a limited company.
- Inconsistent Income: Unlike permanent positions, locum work can result in irregular income, making financial planning and stability more challenging.
- Lack of Employee Benefits: Limited company locum doctors do not receive employment benefits such as sick pay, holiday pay, or pensions that permanent NHS staff enjoy.
- Increased Costs: Costs associated with running a limited company, such as accountancy fees and professional indemnity insurance, can reduce overall earnings.
- Professional Isolation: Being a locum can sometimes lead to professional isolation, as locums may not have the same level of integration and support within medical teams as permanent staff.
Legal and Compliance Requirements
Ongoing Compliance with Companies House
Submit annual accounts and confirmation statements to Companies House to maintain your company’s legal standing.
Understanding the Companies Act 2006
Familiarise yourself with the Companies Act 2006, which governs the operations of limited companies in the UK.
Limited Company for Doctors in 2025: Insurance Requirements
Obtain necessary insurance policies, such as professional indemnity and public liability insurance, to protect your business and comply with legal requirements.
Limited Companies for Doctors in 2025: Frequently Asked Questions
Can Doctors be Self-Employed?
Doctors can operate as self-employed professionals or through a limited company. Self-employment offers flexibility but lacks the tax advantages and liability protection of a limited company.
Many NHS roles allow for self-employment, providing opportunities to supplement income and gain experience in different settings. For example, a GP may work as a Self-Employed Locum GP rather than a salaried GP.
Can a GP Partnership be a Limited Company?
In some cases, a GP partner may work via a Limited company, but there are a few things to consider.
→ Operating through a limited company can reduce pensionable income, as dividends are not considered pensionable earnings.
→ Dividends offer a tax-efficient way to receive income from company profits but must be balanced against pension considerations.
Can a Limited Company for Doctors Pay for Life Insurance for Locum Doctors?
As a limited company owner, you can claim several expenses, such as life insurance as a relevant life plan and certain other expenses as listed above.
Relevant Life Policies provide life insurance for company directors, paid for by the company. This benefit uses pre-tax money, which is more tax-efficient than personal life insurance. This could also be put in a Trust for extra protection.
Some expenses, including medical and health-related expenses, are considered benefits in kind (BIK) and may be subject to extra tax.
Can a Doctor Work Full-Time and Have a Limited Company?
In most cases, this is not an issue,, and most Locum doctors can hold a Salaried position and work part-time as Locum doctors for another provider, through a Limited company. However, this is not always the case.
You must check your employment contract for restrictive covenants that may limit your ability to run a business while employed.
Can a doctor have a limited company?
Yes, doctors can operate through a limited company for tax efficiency and liability protection.
Does IR35 apply to locum doctors?
Yes, depending on the contractual arrangements and structure of employment.
Can a GP partner work via a limited company for doctors?
Yes, but it may impact pension contributions and profit distribution.
Conclusion: Limited Company for Locum Doctors in 2025
Setting up a limited company offers numerous benefits for locum doctors but requires careful planning and professional advice. Seek guidance from a specialist accountant to navigate the complexities and maximize your financial benefits.
Call to Action: Take our quiz to check your Limited Liability Suitability Score and consult a specialist accountant for an initial free consultation
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