Contracting with the NHS and your Business Structure

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Whether you’re a locum doctor or you’re establishing your own practice, when you decide to go it alone as a contractor to the NHS, you’ll need to consider the easiest and most cost-effective way of setting up your business.

There are a number of options – you could choose to work through an NHS or locum agency, under an umbrella company, you could become a sole trader or set up your own limited company.

Here we examine what each option means and some of the pros and cons associated with them.

Working through an NHS or locum agency for the NHS

Possibly the simplest way of setting yourself up to work with the NHS without being employed by them directly is to work through an NHS or locum agency.

While easy, they’re not the most financially efficient way of working as you’ll be paying full PAYE and National Insurance contributions.

The pros

  • An easy route into the NHS with contracts sought out for you.
  • Easy to manage as your pay and the amount of tax payable is all taken care of.
  • A good option if contracting is a short term role, or if you aren’t yet sure if contracting is for you.

The cons

  • An expensive way of working as you’ll pay full PAYE and National Insurance.
  • You can’t make the most of other tax efficiencies.
  • You are an employee of the agency, so not working for yourself.

Working under an umbrella company for the NHS

As with an agency when you set up under an umbrella company you are in essence becoming an employee of that company. For every contract that you undertake you’ll submit time sheets to your chosen umbrella company and once they have collected the money owed to you they will pay you under their PAYE scheme, less their fee.

You will find there are fewer tax efficiencies to take advantage of than if you were to set up as a limited company. However, you will be able to claim some business expenses through the umbrella company.

The pros

  • Easy to manage with no paperwork other than your timesheets and expenses forms.
  • Your pay and the amount of tax taken from it are all calculated for you.
  • A good option if contracting is a short term role or if you aren’t yet sure if contracting is for you.

The cons

  • An expensive way of working as you’ll pay full PAYE and National Insurance as well as a fee for the umbrella company’s services.
  • You are an employee of another company so you’re not working for yourself.
  • There may be a delay on your pay while the umbrella company collects the money owed for your work.

Your sole trader business working with the NHS

Establishing yourself as a sole trader is probably the next option if you’re looking at simplicity of set up. This is because there’s less administration to take care of in comparison to a limited company.

It does however mean that you could miss out on some of the tax efficient benefits associated with setting up a limited company.

You’ll also be personally liable for all the debts that your company incurs as well as for any act, either by yourself or by your employees, that causes harm to others during the course of your business.

The pros

  • Easier to set up, low cost and less statutory returns.
  • You can keep all of your business profits.
  • More flexible and a good option as a stop gap employment solution.

The cons

  • Less tax efficient benefits.
  • You are personally liable for all business debts.
  • More difficult to get business loans.

Forming a limited company to work with the NHS

While not the most straightforward option of starting a limited company offers real tax benefits, especially if you’re earning more than £150 a day and you have never been made bankrupt.

As a limited company owner, you can arrange your finances so that you are taking a lower salary and are therefore paying the lower rate of income tax and National Insurance. You can then make up the rest of your income as dividend.

You’ll also be able to claim expenses such as travel, clothing and equipment, charging them to your company rather than paying for them yourself.

The pros

  • Tax efficient, you can set up to pay the lowest PAYE and National Insurance.
  • You won’t be personally liable for business debts.
  • Better credibility, allowing you to grow your business more easily.

The cons

  • More returns and reports to file means more admin and professional support may be needed.
  • Less flexible if you are not sure if contracting is for you for the long term.
  • Less control over profits.

Forming a limited company – it costs less than you think

Many people believe that setting up a limited company is less accessible as it is seen as taking longer and costing more. While there is more administration involved and there is a fee to pay for your Companies House registration it can still be relatively quick and easy to do.

This is especially true if you’re using a formations agent, such as The Formations Company. Your incorporation can take as little as three hours and with packages that can actually cost less than your Companies House registration fee (which is also included in the price). Registering your company through The Formations Company is a great economical choice.

To form your company you’ll just need to tell us information such as your new company name and address, your directors’ and secretary’s details, the share capital involved and your shareholders’ details. What’s more, if you need help during the process our support team are on hand to help during the working day, either by phone, email or online live chat, to make your formation as easy as possible.


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