Pharmacy Locum Tax Planning
At what point should a sole trader pharmacy locum consider operating via a limited company?
The answer to this depends on a number of factors, which are specific to the individual.
For instance,
- How long do you anticipate acting as a pharmacy locum?
- What is your level of income as a sole trader? Are you a higher rate tax payer? For 2011/12, Any income earned over £42,475 and under £150,000 is subject to tax and National insurance at 42% (NB, NI is also payable at 9% on earnings over £7,225 and up to £42,475).
- Would you be happy to deal with the increased burden of paperwork and compliance that a limited company requires?
For a locum who intends to operate for a short period, perhaps less than eighteen months, the flexibility of operating as a sole trader makes this a preferred option to incorporating as a limited company.
If however a locum is earning a typical fee of £30 per hour, perhaps £57,000 per annum then higher rate tax would be incurred and operating using a limited company may be a better approach to ring fence the surplus income.
As a sole trader, you are taxed on the profits of your business in the tax year you have earned it however with a limited company, you become the shareholder and employee of the company.
The company is taxed at 20% on its profits and you are only taxed on what you extract from the company each tax year. With the right tax planning, this could leave you with no personal tax to pay each year and the highest level of tax paid by the company of only 20%.
The below table gives an indication on the tax payable as a sole trader and as a limited company on the basis that all the income is extracted from the company.
The savings as a limited company could be significantly increased, (in this example by up to £2,080) if you were prepared to leave some of the profits as retained reserves and not extract all the profits each tax year.
|
Sole Trader |
Limited Company |
Tax Saving |
Tax charge on profits of £57,000 on 2011/2012 |
£16,124 |
£12,035 |
£4,089 |
A limited company has, however, a number of compliance and reporting requirements and the additional paperwork and record keeping isn’t for everyone.
For a more in depth discussion of the pro’s and con’s of operating as a Limited company and a more specific tailored projection of the tax savings that could be achieved please contact Pete Edwards.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in the future.
Disclaimer
This document has been produced for general guidance only and does not constitute tax advice. Whilst every care has been taken in its preparation, Warr & Co will not accept liability for any loss incurred as a result of any use made of this document or its contents. We will be happy to offer specific advice to clients when requested. Should you have any queries or wish to discuss any of the points raised please contact Suresh Dhokia or Peter Edwards on 0161 477 6789.
Date of Article: 4th March 2011
