The Ultimate Guide to Managing Taxes and Finances as a Self-Employed Locum

Taking the leap into self-employment marks an exciting new chapter in your professional life. For locum professionals like optometrists, GPs, nurses, and dentists, the flexibility and independence that come with being self-employed are unmatched. However, with this freedom comes the responsibility of managing your own taxes and finances—a task that can seem confusing at first.

This guide will break it all down for you. From registering as self-employed to tackling income tax, National Insurance Contributions (NICs), VAT, and beyond, we’re covering everything you need to know. By the end, you’ll have a clear understanding of how to maintain HMRC compliance, manage your finances effectively, and set yourself up for long-term success.

Key Steps for Managing Tax and Finances

1. Registering as Self-Employed

Why It’s Important
The first step is registering with HMRC as a self-employed individual within three months of starting your locum work. This ensures that your earnings are reported correctly, and you remain compliant with tax regulations.

How to Register
You have two main options for structuring your business:

• Sole Trader: Ideal for locums earning under £50,000 a year. It’s simpler in terms of bookkeeping, and you’re taxed on profits directly. However, you’ll be personally liable for any business debts.
• Limited Company: Better suited to locums earning over £50,000 annually. This allows for tax efficiency through corporation tax (currently at 20%) and dividends, and it offers personal asset protection. But it comes with added administrative tasks.

Example: A nurse earning £40,000 may prefer to operate as a sole trader due to its simplicity. On the other hand, a dentist earning £100,000 might benefit from forming a limited company for the tax savings.

For more insights, check out our guide on the benefits of registering as a limited company.

2. Understanding Income Tax for Locums

How It Works
Income tax is calculated on your profits (total income minus allowable expenses). The tax brackets for the 2024–25 tax year are as follows:

• Personal Allowance (0%) for income up to £12,570
• Basic Rate (20%) for income between £12,571 and £50,270
• Higher Rate (40%) for income above £50,271

Pro Tip: To avoid surprises, set aside at least 20–30% of your income in a separate account for tax payments.

3. National Insurance Contributions (NICs)

Self-employed individuals are required to pay two types of NICs:

• Class 2 NICs: £3.45 per week for profits above £12,570.
• Class 4 NICs: 10.25% on profits between £12,570 and £50,270, plus 3.25% on profits exceeding £50,270.

Example: If your annual profit is £40,000, your NIC liability would be roughly £3,500. This includes Class 2 contributions of £179 and Class 4 contributions of £3,321.

4. Tracking Your Income and Expenses

Why It Matters
Accurate record-keeping not only simplifies tax filing but also ensures you claim all allowable expenses. Poor records could mean missed deductions or even penalties.

Examples of Allowable Expenses:

• Professional indemnity insurance
• Mileage and travel costs
• Work-related equipment
• CPD (Continuing Professional Development) courses

Pro Tip: Use software like QuickBooks or Xero to monitor your finances and stay organised.

5. VAT Considerations for Locums

When to Register:
If your annual turnover exceeds £90,000, you’ll need to register for VAT.

VAT Schemes to Consider:

• Standard VAT Scheme: Tracks VAT on every transaction but requires detailed bookkeeping.
• Flat Rate Scheme: Simplifies VAT payments by using a fixed percentage of your turnover. This is often a great option for locums, especially those with minimal VAT-eligible expenses.

Example: A GP earning £95,000 may choose the Flat Rate Scheme for its simplicity while working in an environment with limited VAT-eligible purchases.

6. Preparing for Payments on Account

What Are Payments on Account?
These are advance payments toward your tax bill for the following year. HMRC requires these payments in two instalments—one on January 31st and the other on July 31st.

Example: If your first-year tax bill is £8,000, you’ll be required to pay £12,000 in the second year. This includes your £8,000 bill plus 50% (£4,000) toward the following year.

Pro Tip: Save consistently throughout the year to avoid financial strain when payments are due.

7. Planning for Retirement

Unlike employed roles, self-employed locums must manage their own pension contributions.

Pension Options:

• Private pensions offer flexibility and allow for tax relief.
• NHS Pension Scheme options may still be available to medical professionals working part-time within the NHS.

Example: If you earn £50,000 annually, contributing 10% to a private pension could yield significant long-term savings while reducing your taxable income.

8. Filing Your First Tax Return

Key Deadlines:
You must complete and submit your Self Assessment tax return online by 31 January following the end of the tax year. Late submissions can lead to penalties.

What to Include in Your Return:

• Total income
• Allowable expenses
• Tax already paid

Pro Tip: Hiring an accountant can save you time, reduce errors, and ensure you claim all deductions.

9. When to Seek Professional Help

Managing self-employment taxes and finances can be complex. A qualified accountant can help by identifying tax-saving opportunities, ensuring compliance with HMRC regulations, and relieving much of the administrative burden.

Example: An audiologist could benefit from advice on claiming home office expenses, saving considerable amounts over time.

Simplify Your Financial Management with Expert Help

At Virtue Accountants, we specialise in making financial management easier for self-employed locums.

Here’s How We Can Help:

• Assist with registering as self-employed or setting up a limited company.
• Provide unmatched expertise in tax planning, filing, and compliance.
• Help you maximise your deductions while remaining fully HMRC-compliant.

Contact Virtue Accountants Today and take the hassle out of managing your taxes and finances!