NHS consultants are in a strong position to take advantage of private practice opportunities, but make sure you follow the rules and plan your business structure carefully.
Notifying your employer
First, the right of NHS consultants to take on private practice work outside of their NHS time is an important element of the flexibility and freedom built into national contracts. However, there is a requirement on consultants to make sure such work does not have a detrimental effect on their NHS patients or services, or take away public resources from the NHS. And there must be no conflict of interest between their NHS and private work.
There is also an obligation to disclose your private practice commitments to your employer – but you do not require its permission to take on this work. However, the rules do require you to offer your employer an additional programmed activity (PA) over and above your standard commitments before taking on private work.
Not making such an offer would constitute one of the grounds for your employer to defer your pay progression for the year in question. But if you decide to give up your private practice, you can also give three months’ notice to quit your additional PA (in England and Northern Ireland). We would recommend speaking with the BMA in this instance to ensure you remain within the rules
How to structure your private practice
The way you set up your business will have a significant impact on how you run it day-to-day, but also on your tax planning. Medical practitioners can choose between several different business structures, but each comes with its own set of risks and implications.
The simplest option is to operate as a self-employed “sole trader”. You’ll need to keep basic records of your earnings in order to complete your annual tax return under the self-assessment tax system, but the administration required is not arduous. You will continue to pay income tax through the PAYE system on your NHS earnings, with further income tax to pay on your private work, once you declare its value on your tax return.
The alternative is to set up a limited company and work through that. There are potential tax advantages to working this way. For example, you can decide how much income you take out of the company in order to keep your tax bill under control. And some of this income may be tax-free under the dividend allowance.
Limited company structures can work particularly well if your income fluctuates significantly, since you’ll have more freedom to spread your income over different tax periods, in order to manage your income tax liability.
The downside to these arrangements is that limited company set-ups can make it difficult to maintain your membership of the NHS Pension Scheme, particularly if you work as a locum. You must be an employee of the NHS to contribute to this valuable scheme, so employees of limited companies risk missing out.
Dealing with IR35
The Off Payroll Working rules were introduced to stop “disguised employment”, where people set themselves up as corporate entities to target a tax saving, even though in reality they are effectively employed. In the health sector, these rules have the potential to catch out locums providing services through limited companies or other “intermediary” arrangements to businesses such as companies providing out-of-hours, urgent care and walk-in centre services.
The IR35 regulations can get quite complicated, and there are various employment status tests to consider. Some are more important than others but it’s always advisable to consider them all. Do you personally perform services for another person or organisation, or have an obligation to do so? Do you perform those services under arrangements involving an intermediary, rather than under a contract directly with the client? If you had provided those services under a contract directly, would you be regarded as an employee or office holder of the client for income tax and national insurance (NIC) purposes? If the answer in each case is yes, it is likely that IR35 applies.
In which case, you will be treated, by the client, as a deemed employee when they make payments to you and they will have to deduct income tax and NIC from the payments. This is to ensure youll pay more or less the same amount of tax and NIC as you would if you were directly employed by the client.
One key factor is the “right of substitution” – whether you can send someone else in your place to do the job. In other words, does your contract with a client specify that if you’re not available, another suitably qualified doctor will be made available and that the client must accept this? And more importantly has it actually happened in practice? If so, it is more likely that IR35 will not apply to your arrangements, though every case is considered individually.
If you’re not sure whether IR35 applies, consider seeking expert advice. BMA Law offers legal advice at discounted rates for BMA members.
Content correct at the time of writing and is intended for general information only and should not be construed as advice.