Employed or Self-employed, Ltd Co or Umbrella?
Overview of the ‘usual’ contractor options:
Ltd Company – perceived by many clinics as the preferred’ way to engage a locum vet and can offer improved tax efficiency if you are doing locum work on a long term basis. There are set up and year end costs involved however if you have a friendly accountant and are happy to get involved with some of the administration of your own business, the rewards can be worthwhile.
Umbrella Service – a finanical service that you engage to invoice and deduct Income Tax and NI at source… essentially (in laymans terms!) they become your personal payroll department. They will invoice your practices for you, help you to maximise your earnings through compliant expense allowances and can be engaged on a pay as you go basis. They take care of your tax at source so no complicated tax returns and no IR35 risk to the end client practice. They are convenient and flexible, however over time their fees may total more than running your own company. There are additional National Insurance costs involved and realistically you must be able to legitimately offset expenses to make the sums work in your favour, but as a shorter term solution it can be a good option if you prefer not to have to run the finances yourself.
Self Employment – The most common issue with SE is that many contractors are unaware that a worker’s employment status, that is whether you are employed or self-employed, is not a matter of choice. Whether someone is employed or self-employed depends upon the terms and conditions of the relevant engagement and as such, you have to be aware of; and working with active compliance within the framework of the IR35 legislation.
Information gathered from the Inland Revenue suggests that as a general guide as to whether a worker is an employee or self-employed; if the answer is ‘Yes’ to the following questions, it will ‘usually’ mean that the worker is self-employed however the responsibility lies with the locum to establish their status for each and every assignment:
- Can they hire someone to do the work or engage helpers at their own expense? Self employed individuals must have the right to substitute themselves (though this right may not be exercised)
- Do they risk their own money?
- Do they provide the main items of equipment they need to do their job, not just the small tools that many employees provide for themselves? As veterinary consultants this would be knowledge and maybe a stethoscope.
- Do they agree to do a job for a fixed price regardless of how long the job may take? I.E a fixed daily rate .
- Can they decide what work to do, how and when to do the work and where to provide the services? Consultants work within the practice hours and are in ultimate control of their treatment decisions.
- Do they regularly work for a number of different people? Often the case for locums.
- Do they have to correct unsatisfactory work in their own time and at their own expense? Ensure you have your own liability insurance.
There must also be a lack of mutuality of obligation stated in writing as part of your terms of cover. This is not a criteria highlighted by the inland revenue but is one of the basic principles of case law relating to self employment status.
Just because a worker is self-employed in one job, doesn’t necessarily mean he or she will be self-employed in another job. Equally, if a worker is employed in one job, he or she could be self-employed in another.
Whenever you undertake a locum position, if you wish to invoice the client as a self-employed locum, you must must supply the practice with your Terms of Business. This should be a document that sets out the terms under which you are working and illustrates your IR35 compliance. Providing your Inland Revenue Self Employed Registration Number to the practice is also helpful.
Please feel free to contact us for further information to clarify what can be a confusing area. We can provide you with an overview based on information supplied by the Inland Revenue – however we absolutely recommend that you take professional advice from a tax/accountancy expert.
Some Useful contacts:
IR Self Assessment order line on 0845 900 0404.
IR Help line for the Newly Self-Employed on 0845 9154 515