One of the most frequently asked question, when you are a locum doctor is should you go for a job at a limited company and it will help you save on taxes and make your earnings higher. If you are one of those people, here are some things that you should know and hopefully they will help you make the right decision for yourself.
Can you incorporate?
Even though it sounds like an odd question, it is something that you should know is an option for you. One of the biggest sticking points is tax avoidance or paying as little as possible which needs to be carried out legally. But when you want to retain your contributions to the pension scheme, working in a limited company might not be the right fit for you. If you do deceit to go with a corporation you should always discuss with your customers to see if they are okay with you incorporating your business.
How does a limited company work?
The most important thing that you need to know is that limited companies are separate legal entities therefore, they will have their legal entities. That means that any work that they complete even if it was done by an individual it will belong to the company. The ‘limited’ stands for the limited liability that the owner of the company can have. Under ideal circumstances, if there are any issues inside the company will remain inside and any debts that are created can’t be blamed on others. But if there is clear proof that there has been misconduct this won't be the case so you can't abuse the law.
Two main people are involved in running such companies. On the top, some directors are individuals that manage the whole company. Behind them, some shareholders also own that company and they benefit from the profits. In most cases that will be the same person just to avoid any complications.
Taxes
When it comes to limited companies there are a couple of tax planning opportunities. The most significant therefore the main one is that you are only taxed on the money that you withdraw from the company. For those who have high earnings who don't need all the money, they have earned this can be quite a large saving. But there are several ways that you can make a profit based on your needs, your salary as well as dividends. On an important note, you have to know that the company is an entity on its own as such they are taxed separately. The profits that you have made within the company are taxed at different percentages. All profits that are extracted by the owner for giving salaries and dividends, as well as benefits, are all then taxed at rates that go up to 45 percent depending on how much you are making. That is why you need to do proper planning so you can carry it out and if you make a slight error you can end up paying more tax as a limited company which is not something you want as a locum doctor.
The pension scheme
As a locum doctor, one of your most important considerations is access to the pension scheme. Limited companies will prevent access to the scheme for an individual but the rules are very black and white. When you are paying across pension contributions on your local income you won't be able to be incorporated. But then it comes to MS/PMS and APMS the incomes can be pensioned but your benefits will be overturned.
What are the pros and cons of working through a limited company?
● Pros
One of the biggest pros is that you will have control over how you will pay yourself tough dividends and salary and find the most tax-efficient way. Another great thing is that you will be able to claim business expenses.
● Cons
One of the cons of working in a limited company is that you are likely to need a specialist accountant which can sometimes be costly. Another thing is that you will have to do more book-keeping and personal admin to calculate and pay the national insurance as well as the taxes. Along with that, you will have to take responsibility just like a company director.
No one can give you the answer to whether you should go to incorporate or a limited company. It will all come down to your circumstances and preferences. What might be right for you might not be right for your friend. That is why you need to think for yourself and do what feels right for you, don't follow the crowd. Always talk to a few people before deciding as you will form a better opinion.
Leo King is a 29-year-old freelance English teacher and a passionate part-time writer. He is a novel aficionado and interested in reading and writing articles about home improvement, business, fashion, health, marketing, web designing, technology, and related niches. He lives with his wife and family in Sydney.