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Limited company vs sole trader

From the 6th of April, a legislative change is coming into force that will affect all Locum GPs working through their own limited companies.


In 1999 Gordon Brown announced measures to counter tax avoidance by contract workers working through limited companies. Prior to the legislation, referred to as IR35, contract workers who were indistinguishable from employees with respect to the way they worked were able to pay less tax compared to on-payroll workers doing the same job. Under the IR35 rules, the amount earned by the limited company from the contract is deemed to be the worker’s salary and subject to NIC and PAYE accordingly, bringing these worker’s tax liability inline with on-payroll workers.


Currently the limited company is responsible for applying the IR35 rules. However from April 6th, the responsibility is shifting from the limited company to the public sector body engaging the worker or agency (where there is one.)

In practical terms locums working through limited companies on contracts that are subject to IR35 rules will now be taxed at source for NIC and income tax in the same way as a salaried employee. The locum’s limited company will receive the net amount after taxes.

Clarifications – Does the public sector definition include GP practices?

Although GP practices are private partnerships they receive public funds and are considered public sector bodies for the purpose of this legislation. The legislation makes use of the Freedom of Information Act definition of public sector which includes GP surgeries. I have also received confirmation of this directly from the HMRC IR35 policy team. This may change, but as of today GP practices are included.

Are GP locum contracts caught by IR35 rules?

The underlying spirit of the IR35 rule is intended to establish if the day to day work of a contractor is not materially different from those of a salaried employee.

Confusion arises when the decision making criteria is incorrectly applied to working as a locum in general, and not to a specific contract. For example, one of the questions used to determine scope is; “does the worker have the right to choose when and where to work, and to refuse work”. Many locums answer instinctively that of course the do. In fact that’s the definition of a locum, you can pick your jobs and work when you want. So they are not in scope. This however is a fallacy. The question relates to the contract, and should be read, “in the context of the contract do you have the right to decide when and where to work?” Clearly not, if you accept a contract you can’t choose to work from home or deliver your GP services at hours you choose.

The length of the contract is not a factor here, it’s the work itself, not how long or short the engagement. So even ad hoc sessions will be in scope if the work undertaken in those sessions is materially the same as work undertaken by on-payroll GPs.

Under the new rules coming into force in April it will be the practice’s responsibility to determine if a contract is caught by the IR35 definition. The legislation includes provisions for financial penalties if practices fail to identify IR35 contracts therefore a conservative approach is expected.


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