Should Veterinary Locums Use Umbrella Companies?

Veterinary locums, that may be new to working on a temporary contract, often find themselves with a problem when they are accepted for their first locum contract: how to get paid and how to pay their taxes. In fact, you will find more problems than just that because you will also have indemnity insurance and various other aspects of employment to consider that employees never have to worry about.

PAYE: A Wonderful Thing!

All of a sudden, the payroll and accounts department of a business seem like wonderful things, because the problem is that while a veterinary practice will deduct tax as normal through the Pay As You Earn (PAYE) scheme for their regular employees, they are reluctant to do so for locums. It is extra work for the practice you are working for that they would rather not have, so they generally refuse to include you on their regular payroll, even for the limited period of your veterinary locum contract.

This applies whether you are a locum veterinary surgeon or a locum veterinary nurse, and you each have the same problem. Do not despair, however, because there are solutions available, and one of these is an umbrella company. This is a system whereby an umbrella company is set up to help people such as veterinary locums, who are having problems with their income tax and national insurance.

What is an Umbrella Company?

You join and become an employee of the umbrella company, and the umbrella company invoices the practice for which you are working for your gross salary. The umbrella then deducts your income tax according to a tax code provided by the Inland Revenue, and also your national insurance. You then get your net income less their fee paid into your bank account by the umbrella, which passes the tax and NI to the relevant body.

Umbrellas might seem a good idea to locum vets who are not financially savvy, but in fact it is not really all that good. For a start, they cost money every time they deal with a transaction - that is every time you get paid you pay the umbrella to deduct your tax and NI. There are alternatives.

Managed Services Company

You could become a shareholder of a Managed Services Company. You inform the MSC of the income you are due from the various practices you have worked for over each month, and the MSC invoices them for the gross salary, deducts tax and NI and gives you the rest. You might even get a dividend because you are a shareholder. This is OK if you are a locum veterinary surgeon or locum vet nurse that has been working for several different practices over the month.

Limited Company or Self-Employed?

However, it is better to set yourself up as a limited company. You are advised to have an expert do this for you, and once done you can pay yourself what you want. You could become self-employed, and claim every penny you spend in connection with your work against tax. Each of these costs money for the initial set-up, after which you can reap the benefits. However, you may need to use an accountant to keep your books and look after your tax returns.

Nevertheless, on balance, each of the latter two means of dealing with your finances as a locum veterinary surgeon or nurse is preferable to an umbrella company due to the charges made for which you see no benefit other than having the tax problem taken out of your hands. The umbrella will charge on average about £30 weekly (£120/month) or in percentage terms they can cost up to 12% a month, but only a very few charge that amount.

Which to Use?

You have to choose whether you want to pay a business to deduct tax and NI for you, or whether you want to pay an accountant a fixed sum per year to keep your books in order at tax time. Unless you are good financially, it is not easy for a veterinary locum to look after his or her income tax and national insurance payments.

However, there is one aspect of umbrellas and MSCs that has not yet been mentioned, and that is that they have not been successful in keeping under the radar of the Inland Revenue. Both of these are being closely looked at and guess who suffers should they be found to be operating a bit too close to the wind!

Most believe that becoming self-employed is the best way for veterinary locums to go, followed closely by declaring themselves a limited company. Actually, if done properly at not too high an initial cost, the limited company approach shades it on simplicity after the initial set-up, and also offers you most opportunity to claim your expenses against your income tax.

The Inland Revenue has set rules on determining what constitutes self employed (i.e. not employed) or employed by the contracting veterinary practice. Nevertheless, an umbrella company might appear to be the simple way to look after your taxes and contract payments as a veterinary locum, but is it the most economical and should veterinary locums use umbrella companies? That is up to you!

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