Leaving PAYE and becoming self-employed – what do you have to do?

by honeybarrett

This is the time of the year when a lot of new NASGP members will be moving on from being an employed GP registrar and branching out on their own as locums – or as a mixture of locum/salaried work.  This entails a whole new way of thinking about work and you need to make the mental change from employee status to running your own small business.

Here’s a brief summary of important first things to consider.  It is not an exhaustive list.  Start off as you mean to go on – there are onerous penalties for getting things wrong or leaving them too late.

  • Make sure you get your P45 from your employer.  You do not need to send it anywhere unless you obtain another employment – but you will need it for your tax return,so keep it safely.
  • Register with HMRC for self-employment and Class 2 National Insurance. See Revenue website or consult a professional adviser.
  • Record keeping:
    • Retain receipts for all business expenses, for example:
      • Motor expenses
      • Telephones/internet access
      • Professional subscriptions
      • Training courses/technical books, etc
  • Keep a mileage log – you are running your business from home, so record miles from your home to each individual place of work.  It is not quite the same if you are doing a long-term locum, that might make it harder to argue that the surgery is not your place of business
  • Keep copies of invoices issued.
  • NHS pension scheme
    • Locums may pension their income through the NHS scheme and the PCT will pay the 14% employer contribution
    • You should get a ‘pack’ when you register with your PCT (or equivalent) and they will advise on your initial tier level
    • You must complete forms Locum A & B on a regular basis and send them to the primary care support team promptly – late applications are not permitted.
    • Consider business entity:
      • If you wish to be a member of the NHS pension scheme, then simple self- employment is most beneficial.
      • If you do not wish to be a member of the NHS scheme and are prepared to forego the 14% that the PCT will contribute, then it may be possible to save money by using a limited company.  You should not opt out of the NHS scheme without proper advice.  It is rarely beneficial.
  • Save for your tax, national insurance and student loan repayments as you go.
    • Your professional adviser can estimate your tax liability for you
    • If ‘going it alone’ you will find some assistance on the HMRC website
    • Your first tax payment, if you are starting in August 2012, will not be until January 2014 – at which time you will pay your 2012-13 liability plus half as much again as a payment on account for 2013-14.  This will be a scarily large figure if you haven’t been saving.
    • Consider if you need to defer Class 4 National Insurance contributions where you have an employment and self-employment in the same year to avoid overpaying. (Again, forms are available on HMRC website or ask your professional adviser)
    • If you only have a small amount of student loan outstanding, consider whether you need to pay it off before you do your tax return, rather than overpay and have to get some back again.  The refund is not a fast process!
    • Tax return deadline:
      • If you are issued with a return for 2011-12, you will need to submit it online by 31st January 2013.  Normally, if you have had no other income and you start self-employment in August 2012, your first return will be for 2012-13, which must be submitted by 31st January 2014.
      • Do you need a professional adviser?
        • If you are worried about whether you are going to get it right, make the right claims for expenses, meet deadlines, comply with all your obligations as a self-employed person – then you need a professional adviser
        • If you want to do it yourself, be prepared to spend a lot of time researching to make sure that you don’t accidentally get something wrong.  New penalties for ‘careless’ returns are expensive.  Consider if the time spent might be better spent practising medicine and using the money earned to pay a (tax deductible) adviser
        • How do you go about finding the right accountant?
          • Look for someone who is not only professionally qualified but also experienced in dealing with doctors and the complexities of the NHS pension scheme
          • Ask for recommendations from colleagues and experienced GPs
          • Look on the AISMA website (the Association of Independent Specialist Medical Accountants) for specialists in your area
          • Consider if you are happy with an email/post/phone service or if you will need regular face to face contact with your accountant
          • Meet or speak to the person you will actually be dealing with – it needs to be someone who not only has the technical knowledge, but that you feel comfortable with
          • Ask for a fee quote and make sure you understand what it covers

Liz Densley is medical specialist partner with Sussex Chartered Accountants, Honey Barrett, and is secretary of AISMA (the Association of Independent Specialist Medical Accountants). Contact Liz at liz.densley@honeybarrett.co.uk.

 This article was first published in the NASGP Newsletter June/July 2012

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