Locum GPs enjoy the flexibility of managing their schedules and the freedom to work across different practices. Choosing the right business structure for you can have significant implications. This article is a quick guide to understanding the key differences between Sole Traders and Limited Companies, helping you to make informed decisions when starting locum work.
Sole Trader
As a Sole Trader (self-employed), you and your business are considered one legal entity. This means you retain all profits, but the downside being you also take on all the liabilities. Essentially,
you’re both the owner and the manager, with no legal separation between you and your business.
Limited Company
Operating as a Limited Company establishes your business as a separate legal entity. As the Director, you’re shielded from personal liability—your personal assets remain protected if the business incurs debts or liabilities. Limited companies are subject to IR35 legislation and Corporation tax (currently 19% as of 2024) and whilst they can benefit from lower tax rates compared to sole traders, there is an increased amount of administrative burden involved.
Is it easier to set up as a Sole Trader or as a Limited Company?
Sole Trader
• Setting up as a Sole Trader is simpler, with minimal paperwork and less costly. You’ll need to:
• Inform HMRC that you’re self-employed (failure to do so may incur a £100 fine).
• Submit an annual self-assessment tax return each year
• Keep accurate bookkeeping records.
• Pay Income Tax, Class 2 and Class 4 National Insurance on profits depending on your earning level and register for VAT if your turnover exceeds £90,000.
Limited Company
Establishing a Limited Company involves more steps and costs, such as registering the company with Companies House.
Registering with Companies House:
• Choose a name and register it with Companies House. It must end in Limited or Ltd and can’t be too similar to other companies already registered
• Appoint a company director (or directors).
• Decide if you want to appoint an accountant
• You can choose whether to appoint a company secretary or not, but you will need to appoint at least one shareholder
• Create a memorandum of association and articles of association
• Register for Corporation Tax
As a Director, you’ll need to:
• Maintain detailed company records.
• File annual company tax returns. You can appoint an Accountant to do this, but you will be responsible for its accuracy.
• Submit a personal self-assessment tax return.
• Pay employer National Insurance contributions if applicable.
Can I change from Sole Trader to Limited Company?
Yes, you can change from working as a Sole Trader to Limited company. Many individuals start off as a Sole Trader and transition to a Limited Company later. You will need to de-register with the HRMC as a Sole Trader and set up a Limited Company through Companies House by following the steps above.
Sole Trader
As a Sole Trader, you pay Income Tax on all business profits. The more profitable your year, the higher your tax liability. After accounting for business expenses, taxes and NI contributions all business profits belong to you. Whilst you have full control of your business profits without needing to consider company formalities, as a Sole trader you are personally liable for all debts your business incurs.
Limited Company
Operating as a Limited Company offers greater flexibility in payments and tax planning. You will need to pay Corporation tax on all earnings but this is lower than standard income tax. You can draw a regular salary (taxed as normal income) and also earn dividends, which are taxed differently and paid to company shareholders.
Pension Options
Sole Trader
Sole Traders can contribute to NHS pensions and remain part of the NHS pension scheme.
Limited Company
Operating as a Limited Company means NHS pension contributions aren’t an option. Instead, you can opt for a private pension or a Self-Invested Personal Pension (SIPP).
Some GPs may prefer the simplicity of being a sole trader, while others are comfortable handling (or delegating) the administrative responsibilities of a limited company.
The choice between working as a limited company or a sole trader depends on your personal circumstances, financial goals, and appetite for administrative responsibilities.
Consulting with an accountant or financial advisor with experience in the medical field can provide tailored advice to maximize your earnings while ensuring compliance with tax regulations. By carefully considering the pros and cons, Locum GPs are able choose the structure that best suits their needs.
Find out more
For more details or if you would like to discuss this with our team further, please get in touch with Thomas who would be happy to go through this with you. Contact us today to arrange a time to speak.
Contact us today
