locum set up business?

Re: locum set up business?

Evelyn Barbour-Hill — Tue, 08 Mar 2011 14:52:04 GMT

[quote user="Cat Henstridge"]

Why, would she be upset? I am a Times reader myself.

[/quote]

Sorry. For those of you who have not heard of her, Polly Toynbee is the hatchet-faced doyenne of the Guardianistas, in a recent article condemning those who practise tax avoidance (rather missing the point that tax avoidance is not only perfectly legal and every citizen's right, but arguably every citizen's duty since governments often use taxes to encourage us to do things or discourage us from them). As somebody has already said, one wonders how Comrade Toynbee herself puts into practice her principle that we should all voluntarily pay extra tax: does she perhaps pop in a little extra when she sends her cheque to HMRC?

By the way (I merely mention it, I have no axe to grind) that extra cash has to come from somewhere, it does not magically materialise.

Re: locum set up business?

Malcolm Ness — Tue, 08 Mar 2011 11:55:23 GMT

I know I might be accused of looking for problems where none exist but.............

We have had an unfortunate experience with a locum recently who was working as a ltd company.

Problem is now resolving but a friend of mine who is a builder raised his eyes in horror when I discussed this with him. They frequently employ sub-contractors on larger jobs and these are typically Ltd companies, hence the analogy with our situation. One of the major paper-work exercises they feel obliged to put in place is the agreement about who (ie which Ltd company) is responsible for Health and Safety and other on-site legislation - in effect the sub-contractor must sign to say that they are happy that the main contractor has everything "tied-down" and that the sub-contractor and all their staff know, understand and will follow all the HSE requirements. This is considered necessary to ensure that there is agreement about where the buck will stop should something go wrong.

Re: locum set up business?

Tim Mainland — Mon, 07 Mar 2011 21:23:01 GMT

[quote user="Clive Ansell"]

Although it is still worth joining the scheme, it is not as lucrative as it first appears;

if one earns £1000, the practice is also charged VAT at 20% = £200 = £1200 total. Practice then reclaims VAT, so no cost to them, but may not help with their cash flow.

Under the flat rate scheme 11% (10% in the first year as an intro sweetener) of the total VAT inclusive amount is handed over to HMRC, so 11% of £1200 = £132.

Therefore one is left with £68 on every £1000 earned, 6.8%.

The £68 is then subject to 20% income tax and 8% national insurance as a business profit (£68 - 28% = £48.96).

In the end therefore one earns, after taxation, £48.96 on every £1000, or 4.89%

Also; it is possible to separately reclaim VAT on any capital purchase in excess of £2000 (excludes cars, not vans needed for work), and to reclaim VAT on capital expenditure for goods in the 4 years, and for services in the 6 months prior to registration (excludes consumables such as petrol, printer paper etc).

[/quote]

ONLY an extra 4.89% of turnover..........dohhhhhhhhhhhhh!

Any other business which could increase after tax profits by 4.89% OF TURNOVER would think they'd found The Holy Grail. Actually I think you have.

First time I've ever come across a business model which genuinely makes money out of VAT. That really is brilliant. I'm only very jealous indeed!

Re: locum set up business?

scarlet — Mon, 07 Mar 2011 18:31:29 GMT

thanks for the reassurance Cat! glad someone else is on the same scheme as me. the way i look at it any extra money is better than none in these uncertain days!

Re: locum set up business?

Cat Henstridge — Mon, 07 Mar 2011 15:52:05 GMT

Why, would she be upset? I am a Times reader myself.

Re: locum set up business?

Evelyn Barbour-Hill — Mon, 07 Mar 2011 14:56:39 GMT

[quote user="Cat Henstridge"]

I am on the Flat Rate VAT scheme and find it works well for me. I have never had a practice have any concerns about the VAT, they just claim it back like they do with a lot of other things. Now I have figured them out VAT returns are very easy and even if you do make a mistake it is simple to correct it on your next return.

My accountant advised it and set me up, it appears to be a very accepted scheme, and said it would probably make me an extra £1500-£2000 a year depending on how much I work, which makes it worth it in my eyes!

Cat

[/quote]

Don't let Polly Toynbee find out or you'll be for it!

Re: locum set up business?

Cat Henstridge — Mon, 07 Mar 2011 09:03:55 GMT

Cat

Re: locum set up business?

Clive Ansell — Mon, 07 Mar 2011 08:38:43 GMT

Although it is still worth joining the scheme, it is not as lucrative as it first appears;

if one earns £1000, the practice is also charged VAT at 20% = £200 = £1200 total. Practice then reclaims VAT, so no cost to them, but may not help with their cash flow.

Under the flat rate scheme 11% (10% in the first year as an intro sweetener) of the total VAT inclusive amount is handed over to HMRC, so 11% of £1200 = £132.

Therefore one is left with £68 on every £1000 earned, 6.8%.

The £68 is then subject to 20% income tax and 8% national insurance as a business profit (£68 - 28% = £48.96).

In the end therefore one earns, after taxation, £48.96 on every £1000, or 4.89%

Re: locum set up business?

scarlet — Sun, 06 Mar 2011 23:07:10 GMT

thats exactly how i was told it works - i get 9% or thereabouts of the vat as a bribe for being vat registered and having the hassle of vat returns. practices claim it back so its no skin off their noses , and after paying accountants fees, i am slightly in pocket. . i believe since the vat rate went up i am slightly more in pocket as the goverment havent asked for the full 2.5% extra. however after the first year they do take an extra 1%.

Re: locum set up business?

Tim Mainland — Sun, 06 Mar 2011 22:28:47 GMT

[quote user="alison howell"]

I think the VAT thing is just to encourage small businesses with a turnover below the compulsory VAT-registering rate to to register for VAT thereby paying the government more - rather than being a loophole it is designed to make more tax. The business gets to keep some as a sort of bribe. I don't think it is specific to vets just a generic small business thing. Think the limit is around £70,000 if you earn any more then you have to be VAT registered anyway and pay the lot to the government. So it wouldn't apply to most vet practices.

I haven't bothered with that as it seems a bit complicated...at what salary is it worth becoming a ltd company? Only if you end up in the higher tax bracket?

Scarlet - does this extra VAT not put practices off employing you? Or can they claim it back somehow as well?

[/quote]

Alison,

Do the maths. If a flat rate VAT registered locum charges a practice £100+ £20 VAT for some work, the locum is £20 up at this point. The practice is £20 down but reclaims it from HMRC so is neutral. HMRC is now £20 down. But locum pays HMRC £11 on the flat rate VAT scheme. Net result is that HMRC is £9 down on the deal! If locum is not registered, HMRC is not out of pocket at all! HMRC is hoping the locum is spending loads on overheads and unable to reclaim the VAT. If the "flat rate VAT " business was a vet practice then this would be true, but a locum has few such overheads, so HMRC is genuinely out of pocket. That's where the ruse lies, and how it is financially beneficial to a flat rate VAT registered locum - assuming the 11% rate is correct. The flat rate VAT scheme relies on HMRC getting an accurate average chargeable level of VAT for the business model involved - and in most cases they seem to err on the side of HMRC.

This does not just apply to £70K businesses. That is the threshold level at which a business must register for VAT in some form. The flat rate scheme can be joined at any t/o below £150K but one can stay in it right up to a t/o of £230K. So some practices could well use it. But would find it nowhere near as advantageous as a locum!

Re: locum set up business?

vs0u — Sun, 06 Mar 2011 20:32:29 GMT

I haven't bothered with that as it seems a bit complicated...at what salary is it worth becoming a ltd company? Only if you end up in the higher tax bracket?

Scarlet - does this extra VAT not put practices off employing you? Or can they claim it back somehow as well?

Re: locum set up business?

Tim Mainland — Sun, 06 Mar 2011 18:38:07 GMT

Hi Scarlet,

Certainly looks like you have covered the necessary bases. I understand you can't make any reclaims for VAT under this flat rate scheme. I also know that HMRC designs VAT so that nobody except HMRC actually wins! I've just looked at their site and the new rate of payment for Veterinary Medicine associated businesses is 11%. This is not far out for most practices. There is also a figure for "Management consultancy" of 14% - and to my mind that would be a nearer match to the business model of a Veterinary Locum Ltd. However there do seem to be only limited options available to describe/designate where a business will fit into this, and hopefully Veterinary Medicine will be that nearest option for you. It is - IMHO - a great ruse, and something of a tax loophole! So make the most of it while it lasts!

Best wishes!

Re: locum set up business?

scarlet — Sun, 06 Mar 2011 17:53:52 GMT

hi tim,

all my information is from my accountant who is a well known long standing specialist veterinary locum accountancy firm . he assures me it is all above board and legal. you have worried me though - what i do know is this flat rate vat small business scheme does mean you usually cant claim back vat yourself on purchases etc as a trade off. i will recheck but havebeen regularly assured that many locums use this scheme. i HATE anything to do with tax . ialways did it all my self as selfemployed sole trader, however was persuaded at congress that ltd company with voluntary vat was more economical . if i have been ill advised, i will be after my pound of flesh no mistake!!! and yes i have it all in writing - am just coming up to end of first year as a ltd company so lets see what tax return brings

Re: locum set up business?

Tim Mainland — Sun, 06 Mar 2011 12:09:49 GMT

[quote user="scarlet"]

if you plan on being a locum for a fair while a limited company and voluntary vat registration is the most profitable benefitting from the governments flat rate vat scheme (you charge vat at the 20% but the government only gets 12% (or 11 i cant remember post vat increase) and you keep the rest!) you take out at wage at the minimum rate and the rest as directors loans which are taxed at company tax rate (19%). simples!

[/quote]. Scarlet whilst this sounds an excellent VAT ruse, and I am definitely envious I'm also concerned on your part. The rate of fixed rate VAT which you quote sounds like that which HMRC uses for veterinary practice, making allowance for VAT which would otherwise be reclaimed against sizeable raw material and other overhead costs. Locum business is a totally different business model with far less reclaimable VAT. I hope you are on the correct fixed rate- I'd want written confirmation from both HMRC and my accountant to avoid the shock of any retrospective clawback.

Re: locum set up business?

salome2001 — Fri, 04 Mar 2011 23:23:40 GMT

I'm self-employed and keep records of all work-related mileage, professional subscriptions, CPD (don't forget travel and subsistence) and home office costs (stationery, printer ink, broadband) etc. Estimate a reasonable amount for electircity, gas, rent/ mortgage (most advice is that £2 a week for a home office won't be disputed)

You do not have to register for VAT unless you earn more than £70K a year or something and good luck if you get that locuming!

If you can keep decent records you can fill in your tax return yourself and save yourself an accountant (the one year I used one they cost more than they got me)

Just remember that when you file your first year's tax return you'll have to pay not only the tax due for that year but also about half again as a "payment on account" for the next year, which can be a nasty surprise if you'd forgotten about it (like I did...)

You can also be mostly self-employed but PAYE for other employers (make sure you tick the box saying it's a "second job" so they deduct the right amount of tax). one of the practices I work for will only pay locums PAYE. Mainly because in the past they've paid "self-employed" locums (shamefully, often from my Antipodean part of the world) who bogged off from the UK without paying tax... the responsibility then fell to the practice to pay it....

Re: locum set up business?

Rob Loxley — Thu, 03 Mar 2011 18:35:06 GMT

[quote user="scarlet"]company tax rate (19%)[/quote]

Surely the tax payable by the company on unrepaid director's loans is at 25%?? Does this not make it more efficient to take payment as dividends (unless you're taking way into the 32.5% band)?

Re: locum set up business?

bob lehner — Thu, 03 Mar 2011 18:04:00 GMT

It was more the 'directors' loans ' that I was a bit dubious about - but I'm sure it's AOK !

Re: locum set up business?

scarlet — Thu, 03 Mar 2011 12:47:24 GMT

its not tax avoidance bob, - indeed by voluntarily registering for vat when you dont have to , the government gets more than they would out of you so they acknowledge this in the fact that they let you keep a small amount. So even with accountants fees i still end up in profit from the scheme.

Re: locum set up business?

Bob Russell — Thu, 03 Mar 2011 09:17:19 GMT

[quote user="Tim Mainland"][quote user="Cat Henstridge"]

Hi,

If you are just starting out in the UK anyway, it might be best to just go directly through the locum agencies to get started and then see how you feel.

Cat

[/quote] Spoken like a true Locum, Cat! Locum Agencies are freeby sweetie bearing pussy cats to Locums! It's the practices who may employ you whom they nail to the wall! And devalue the locum's time as they take their rake off.there is no such thing as a free dinner and if a Locum wants to choose from all the jobs on offer, then avoid agencies at all costs. Oh, by the way, we also use John Sower at Bertram Kidson. His advice to us has always been to employ Locums only via PAYE whenever possible. And I believe he's none too keen on agencies either as they simply represent an unnecessary cost.

[/quote]

Spoken like a true employer!!

I agree the locum agencies are now very expensive and some are so aggressive in their marketing towards practices that they have to be told to bu**er off in no uncertain terms.

Re: locum set up business?

gorbi — Thu, 03 Mar 2011 02:30:33 GMT

thank you for your advise!

Re: locum set up business?

Cat Henstridge — Wed, 02 Mar 2011 22:17:01 GMT

[quote user="Tim Mainland"]Spoken like a true Locum, Cat! Locum Agencies are freeby sweetie bearing pussy cats to Locums! It's the practices who may employ you whom they nail to the wall![/quote]

Oh dear, you really don't like them do you! However, the OP will be starting out locuming in the UK having not worked here before (she mentioned it on another thread) and the agencies really will make starting out very easy, she can leave them behind once she has got on her feet!

And just to make you feel better, although I did start out with the agencies, I get the vast majority of my work independently and by word of mouth!

Cat

Re: locum set up business?

Tim Mainland — Wed, 02 Mar 2011 19:30:49 GMT

[quote user="Cat Henstridge"]

Hi,

If you are just starting out in the UK anyway, it might be best to just go directly through the locum agencies to get started and then see how you feel.

Cat

Re: locum set up business?

Cat Henstridge — Wed, 02 Mar 2011 18:18:59 GMT

Hi,

I am a locum and run my services as a limited company. My accountant advised it as a better way to deal with the tax man (but then I suppose he would!) and is has been very easy. I do my accounts every month, pay myself a small wage and take the bulk of the money as a dividend, which is much better for tax. I am also registered for VAT on the small business scheme Scarlet mentions above.

Otherwise it is very easy to be self employed (and if tax returns are too hard you can always get an accountant involved at that stage!) or go with a locum company (who aren't all as bad as they are painted on this site!) who will put you under an 'umbrella company' and they sort out all your tax for you and just pay you whatever is left.

If you are just starting out in the UK anyway, it might be best to just go directly through the locum agencies to get started and then see how you feel. My accountants are Bertram Kidson, who are veterinary specialists and their phone number is (01902) 422992.

Cat

Re: locum set up business?

bob lehner — Wed, 02 Mar 2011 18:11:28 GMT

[quote user="scarlet"]i cant remember post vat increase) and you keep the rest!) you take out at wage at the minimum rate and the rest as directors loans which are taxed at company tax rate (19%). simples![/quote]

Sounds good - but to be honest I am always slightly dubious about crafty accounting schemes to avoid tax. In my experience they can be sailing a bit too close to the wind for comfort and have a habit of biting you in the backside at a later date.

Re: locum set up business?

scarlet — Wed, 02 Mar 2011 17:18:39 GMT