This article is part 2 of the series: Becoming a Locum Vet in the UK
UPDATE: As of April 2020, there are to be new tax rules implemented in the UK that will effect the ability of veterinary locums to work as limited companies. The extent of the impact of the updated IR35 legislation on the veterinary industry are yet to be seen, but I would strongly recommend speaking with your accountant and the businesses where you plan to locum before making any decisions about starting a limited company at this time.
So, you weighed up your options and decided to work as a locum through your own limited company? That’s great news! To help you with the set-up, I’ve broken down the steps that I undertook when I started up in July 2018. I’ve also highlighted some of the legal and financial concepts that I had to get my head around before I started.
If you’re still not sure if you’re better suited to working as an umbrella employee or as a limited company (or if you don’t know what that means yet), head back to my first article in this series for a run down on your options.
I’ve divided this post into sections to make it a little easier to digest:
a) The Basics
b) Choosing an Accountant
c) Registering your Company
d) Opening a Business Bank Account
e) Purchasing Insurance
f) Understanding Deductions and Expenses
g) The IR35 legislation
h) Should you become VAT registered?
So, lets get started!
Disclaimer: Please note that I am a veterinary surgeon, not a financial advisor or lawyer. I strongly recommend that you do your own research and contact your own financial advisors before undertaking locum work or starting a limited company.
a) The Basics
Any simple google search can give you a long list of steps (along with frightening legal jargon) about how to incorporate a private limited company- in fact, the UK Government page has a handy guide on what’s involved. But I found a lot of this info wasn’t relevant to me as a one-woman locum company, and didn’t give me the specifics needed for the veterinary profession.
So, in this article I’ll be explaining locum companies from a veterinary perspective, and keeping it practical and relevant to our profession.
The basic things you’ll need decide before getting started are:
1) A company name- it must be unique, inoffensive, and usually includes Ltd at the end. Mine is just my full name Ltd (eg. J Smith Ltd). Get more info on naming your company here.
2) A company address- must be a physical UK address, either your own or that of your accountant.
3) Company directors, shareholders and secretaries- for locums, all of this is usually just going to be you, and shows you are legally responsible for the company and its obligations.
b) Choosing an Accountant
Not all veterinary locums employ an accountant, and it certainly is possible to do your monthly and annual accounts yourself. However, I prefer to spend my days working as a vet, not learning how to manage corporate tax and dividends. So I recommend getting some financial and legal help, especially when you’re starting out.
There is a huge range in the level of service that you can receive from an accountant. You’ll have to decide for yourself which level of assistance you need, and how much you’re willing to pay for it.
For me, I found using a large accounting firm to be the way to go when I started out. My accounting firm talked me through creating my limited company, and they registered my company name and opened my business bank account on my behalf. In addition, they explained how to charge expenses, how to calculate company and personal tax and how to invoice for my work- things that were all new to me.
Now that I’ve had a leg-up in the world of limited companies, I would feel more confident transferring to a smaller, less expensive accounting firm- but its a personal choice, and depends on your experience too!
So where can you find an accountant?
Your accountant doesn’t have to be veterinary specific, but it may help to look for an accountant who already works with locums or small limited companies. They also don’t have to be physically near you- mine is entirely managed online.
For me, the most valuable place to look for an accountant is to search in the veterinary facebook groups for discussions on accountants, where you’ll find many personal recommendations from experienced locums.
So, get in touch with a few accountants and find the one which best suits the level of service that you need.
If you choose an accountant who will register your company and open a business account for you, you can skip past the next two steps!
c) Registering your Company
So, you’ve chosen a company name, address, a director and shareholder, and an accountant to help you with your finances?
If you decide to register your company yourself, next you’ll need to prepare a couple of legal documents- the Memorandum of Association, and the Articles of Association. These documents act as an agreement between all shareholders that you’d like to open a company, and outline the rules about how the company will be run. The best resource for finding more on this is the UK Government Website.
You’ll also need to be aware of which records your company will need to keep and be responsible for. Find out more here.
Finally, you’re ready to register your limited company with Companies House, and register with HMRC to pay corporation tax. This costs £12, and can be done entirely online. Head back over to the UK Government website to get started.
And seriously, if this whole section sounds a bit over-whelming (it certainly did to me!), many accounting firms will perform the whole process for you for under £100. So definitely something worth considering if you don’t have a legal or business background.
d) Opening a Business Bank Account
A business bank account is essential for all limited companies. This is where your ‘clients’ (that is, the vet clinics your work for) pay your invoices, and then from there you can pay yourself your salary and dividends.
The bank account should be in your business name, not your own. You may also get a business debit card, but this is to be used for business expenses only (see more on expenses and deductions below).
My business account was opened with the help of my accountant and is with an online bank. That means it links to my accounting software, and all my funds are managed from my phone or laptop. All the major banks will offer a business account, so get in touch with them to evaluate your options.
e) Purchasing Insurance
Professional Indemnity Insurance is compulsory for Veterinary Surgeons and RVNs working in the UK. It covers you should any complaints be made against you in relation to your professional skills, and you’ll need it before you start working in practice.
You can find a heap of Professional Indemnity Insurance options with a google search, but the most well known veterinary insurer is the Veterinary Defence Society. VDS specialises in insurance for vet professionals, and has a great helpline if any issues should arise. You can take out short or long-term policies, and the fees vary with the type of work you do- mixed practice insurance is more expensive than cover for just smallies, for example. Give them a call to discuss your policy options and prices. And remember to always do your research and pick the right insurer for you.
Another type of insurance you may consider is Public Liability Insurance which covers property damage and public injuries that could occur as result of your work. If you plan to work from your own property or perform housecalls, this would be worth looking into.
Income Protection Insurance is also an important consideration for locums, especially if you have debts, a mortgage or a family to support. Locums are not employees, so don’t receive any income if they are sick or injured, so consider how you would manage financially if you were unable to work.
Finally, health insurance is highly recommended, especially if you are not covered by the NHS. If you’re not sure if you’re covered, check out my previous post to find out who is eligible for the NHS and how to register.
f) Understanding Deductions and Expenses
It may seem pretty exciting to hold a company debit card in your hands, but there are actually really strict laws governing what you are allowed to put “on business”. However, even if you are the only employee of your business, there are still definite tax benefits to paying for your work expenses from your company bank account. This is because your corporate tax is paid only on your company’s profit, and if you spend money from the business account before tax time, you have less overall profit (and pay a little less tax). In addition, you don’t have to pay any personal tax on this money before you spend it (like you would as a normal employee on a salary) because its spent before your salary is paid.
So as an example, if you spend £100 on work expenses from your own personal account, at the end of the year you are down by £100. Whereas if your company spends that £100 from the business account, you might be down only £88, because although it reduces your company profits, you save on your corporation tax bill.
So what can you claim expenses on? Here’s a brief list:
– Equipment required for your job- stethoscope, personal stamp, name badge etc. If the equipment is also used in a personal manner (eg reading glasses) it cannot be claimed .
– Vehicle- you can claim milage for commuting in your personal vehicle to a temporary place of work
– Meals- lunches during a workday
– Accomodation when travelling for work
– Fees for accounting and insurance
– Work clothing- for clothing worn exclusively for work (this means- specific work shoes, scrubs, or clothing with logos)
If you’d like more information, this website provides a pretty extensive guide to what you can claim.
If you have expenses for specific work-places, you can also invoice the workplace directly for your expenses- but only if you’ve discussed this as part of your contract beforehand (I’ve never needed to do this in the veterinary industry).
g) The IR35 legislation
The IR35 legislation has been around for a while, but it was only in 2018 that the UK Government really began to crack down on it in a way that affects locums (especially locums in the human healthcare industry). The legislation is designed to catch out people who are working as ‘hidden employee’, that is, vets who say they are locums but for all intents and purposes, are just like employees (for example, receiving employee benefits, while simultaneous gaining the tax benefits of temporary workers).
The best way to demonstrate that you are not a ‘hidden employee’, is to take on a role that is significantly different than that done by a normal employee (eg. if you’re a builder, being signed on for a specific project or using skills that other workers do not have). However, this is difficult for workers in our industry, as most locum vets are general practitioners, and they do perform a similar role to those of normal full-time employed vets. If your limited company is chosen to be investigated by HMRC and you are found to fall inside the legislation, there are serious consequences. These may include a court case, repayments of the tax you may have saved, a fine, and even the closure of your limited company.
So how do we show that we are true locums, not employees? Well, there are quite a lot of aspects to consider, but it basically it boils down to these three points:
1) Supervision– show that you do not need to be supervised or directed, that you are responsible for your own case management, and that you choose your own work hours and days. Also you must not receive sick pay, holiday pay, a pension, employee discounts or other benefits of employment.
2) Right of Substitution- highlight that you are legally allowed and able to supply another suitably qualified and competent vet in your place if so desired
3) Mutuality of Obligation– Shows that you are not obliged to take work offered by a client, and they are not obliged to hire you again. Also you are free to work for their competitors with no exclusion zone.
Basically, you need to outline these points in your contract, and then stick to them in your work practices. For example- showing you are working for multiple practices short-term, that you have no obligation to work for one company, that you don’t get paid on sick days and that you make your own clinical decisions. This also means that, yes, you do need a contract for your work- I’ll cover more on this later on.
You can also hire legal advisors to review your contract and situation. They will tell you if you are at risk of falling ‘inside IR35’, and advise you on what to do to comply with legislation. My accountant offers this as a free service currently.
It is yet to be seen if IR35 will have a big impact on veterinary locums, but I would not take the risk.
h) Should I become VAT Registered?
Unless your limited company turns over more than £85,000 per year (and if so, good for you!), you’ll have to make the decision of whether you would like to become VAT registered or not. If you earn over that amount, VAT registration is compulsory.
Becoming VAT registered means that you can charge VAT on all your invoices, and reclaim the VAT cost on all your business expenses.
VAT is currently at 20%, so it means that instead of charging £200 per day as a locum, you charge £200 + VAT, which is £240. You then pay that extra £40 to the government quarterly. So it doesn’t affect how much revenue your company makes on invoices, but it charges your client a little more.
But the benefit of being VAT registered is that you can reclaim the VAT that you pay for any goods and services for your business- meaning you’re effectively claiming 20% back from the government on your purchases. If you claim a lot of business expenses, you can imagine that this saving could add up quickly. In addition, in the business world, being VAT registered is a mark of a professional large company, and may help you to garner respect as a company.
In short- the pros of VAT registration are:
– savings on business expenses
– it gives the impression of a professional, growing business.
The con’s of VAT registration are:
– you have to submit quarterly returns (aka more paperwork)
– you have to charge your clients more- this won’t affect larger companies (as they are VAT registered themselves), but might deter smaller practices
Personally, I am not VAT registered. As a vet, I really don’t have many business expenses, so savings would be minimal. Plus I like to keep my rates as reasonable as possible for my smaller clients. But its something each locum has to decide for themselves.
Check out the HMRC website to find out more details, as well as how to become registered.
Further Information
Well team, thanks for sticking with me so far! I hope this article has been helpful, and I promise things will get a whole lot lighter and less legal-ly from here!
Wondering how you actually find work once your company is set up? Read the next post in the series here.
And if there’s any questions that I haven’t answered, leave me a comment or use the contact me page to get in touch! Thanks!
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