Your Own Limited Company (Personal Service Company)

In recent years we have seen a marked increase in doctors wishing to set up their own limited companies, (personal service companies) to avoid paying higher rates of tax and national insurance.

A personal service company can be a very attractive business structure.  In the right circumstances it is possible for a doctor to achieve savings by:

  •  Splitting their income with a spouse or civil partner.
  • Arranging for income to be taxed at 20% rather than the higher 40% or 45% tax rates.
  • Reduce national insurance contributions.

In running a personal service company you will need to prepare a set of annual company accounts as well as completing an annual corporation tax return and an annual income tax return.  You can offset business costs as expenses against your tax bill.

You will pay considerably less tax and national insurance than being paid by a salary operating through an umbrella company or trading as a self employed contractor.

A personal service company is not the right structure for everyone, however, and in certain circumstances operating in this way can leave a doctor worse off.

WARNING IR35

Locum doctors need to be aware of a piece of tax legislation known as IR35 which applies to all personal service companies.  We frequently deal with tax enquiries involving locum doctors who have traded through personal service companies unaware of their IR35 obligations.

The IR35 legislation was introduced in 2000 but until recently has been rarely enforced.  In 2012 HMRC brought forward  a package of measures to tighten up on what they perceived as tax avoidance using personal service companies.  These measures made IR35 easier to understand and apply.

The likely effect of this is that those personal service companies that are currently operating without taking IR35 legislation into account could find themselves with an HMRC enquiry and potentially a substantial tax liability.

AGENCIES

Agencies are happy to pay locums through their own limited company (personal service company).

An agency will not be held responsible for unpaid tax or national insurance if a locum uses a personal service company and does not apply IR35 correctly.  The responsibility for this always lies with the locum.