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bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4181
Experience:  FCCA FCMA CGMA ACIS
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I have been a NHS Hospital consultant until recently. I

Customer Question

Hi. I have been a NHS Hospital consultant until recently. I have recently started to have a career as a locum consultant. I am currently with a healthcare contractor and have started a limited company as advised. I was advised that I would get 85% in returns. I was also promised that the process includes "full IR35 review to ensure compliance". I originally rushed into it due to the attractive returns. Now, I am very concerned after reading some recent articles in the web that HMRC are particularly coming down hard on these "aggressive tax avoidance" schemes. what are my options?

Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I am Keith, one of the experts on Just Answer, and happy to help you with your question.
You are being paid for your locum work through a service company. As a Director of such a company you are deemed an employee and must be remunerated through PAYE arrangements. Any income left in the company will be a profit to the company and subject to Corporation Tax at 20%.
You will immediately appreciate HMRC's dislike of such schemes as in your position you will already be in the 40% tax bracket and possibly into the 45% band also, so if you leave you income elsewhere ie in the company, HMRC will only get 20%.
Your only real way to reduce your tax exposure would be to absorb your locum income by contributing to a private pension plan or, alternatively, top up your NHS pension by making additional contributions. There is, however, a 40K limit to this contribution in the 15/16 tax year. You can see that your room for manoeuvre is becoming further limited.
I do hope my reply has been of assistance. My only conciliatory advice to you is that to be taxed on it you must earn it!
Customer: replied 2 years ago.

Hi Keith

Thanks a lot for your prompt reply. I absolutely understand the jest of your answer. However, as an expert, I will be grateful if you can briefly clarify on the following issue: My understanding (limited as I really have a poor understanding of the economics of these issues!) is that as a self employed, one goes through the "normal" PAYE channel (paying 40% tax) and the other channels are working through one's own limited company and this offshore healthcare contractor arrangement (paid as dividends, loans etc). I am inclined to think that you may not be in a position to give a yes or no answer for this one: Do you think I should continue paying the taxes through self assessment for all my earnings (as usual) or try and manage my earnings through a limited company with the help from an accountant? I will be grateful for your guidance. Many thanks

Expert:  bigduckontax replied 2 years ago.
As a self employed contractor ie your locum work, you would merely, as you surmise, declare your net income on your annual self assessment tax return and HMRC would bill you for any additional tax and NI contributions due, payable by 31 January in the year after the end of the tax year in April.
Working through a limited company requires you to be paid under PAYE arrangements which will result in over payment of NI contributions which are irrecoverable. Payment of dividends is limited in any event and such distributions are not allowable against the company's Corporation Tax computations. Loans by a company to a director are fraught with problems and in any event must be repaid within 9 months of the end of the company's tax year to avoid horrendous tax complications.
You could try using a local, trusted accountant, but these services do not come cheap; they are big business and if you are doing them through a company in a tax haven the costs will be increasingly higher.
Frankly, I don't think that game is worth the candle and remember HMRC are very wise to all these capers and keep a beady eye thereon. I am so sorry to be so negative, but that's regrettably the name of the game these days.
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Expert:  bigduckontax replied 2 years ago.
Thank you for your support.