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Medical accountants warn of locum GP tax hit

Locums could lose £2,000 a year under a new Government clampdown on people contracting their services under a corporate structure.

The Government’s Spring Budget has announced a reduction to the tax-free dividend allowance from £5,000 to £2,000, set to come in from April next year.

The budget statement said this would ‘reduce the tax differential between the self-employed and employed, and those working through a company, to raise revenue to invest in public services, and to ensure that support for investors is more effectively targeted’.

Announcing the changes, chancellor Philip Hammond said: ‘The gap in total tax and NICs between an employed worker and one who has set up his own company will normally be greater even than the gap with the self-employed, and there are several perfectly legal ways in which that gap can be made bigger still.

‘This is not fair. And it’s not affordable.’

James Gransby, head of healthcare at MHA MacIntyre Hudson and executive board member of the Association of independent specialist medical accountants (AISMA), said: ‘For Locum GPs the fall in the tax free dividend allowance from £5,000 to £2,000 per year from April 2018 will be a blow for those operating through a limited company and follows hot on the heels of a 7.5% increase to dividend rates that they are already reeling from.

‘The tax cost of this change for a husband and wife owning shares in a limited company who are both higher rate taxpayers will be £1,950 per year, and more for additional rate taxpayers.’

But AISMA committee member Luke Bennett, of Francis Clark LLP, said: ‘Reduction of dividend allowance will reduce the tax incentive to form new companies, but I doubt it’s enough to cause existing companies to be wound up.’

The news comes as Pulse reported earlier this week that GP practices could have to pay locum tax and NIC under new legislation – which accountants warned could lead to GP practices having to pay higher rates to locums.

Under new ‘IR35’ legislation coming in next month, any company which pays contractors through a company – including GP practices using locums – will need to check in each instance if they are liable for paying tax and NIC at source.