Locum Doctor limited company, considerations when getting a mortgage
With growing demand for doctors not slowing, we are seeing many doctors undertaking locum work to help temporarily fill gaps in hospitals and GP surgeries. There are different ways this can be done - on an employed basis, self-employed as a sole trader or via their own limited company.
In this article, we will look at why you might work as a Locum Doctor via a Limited Company, and how it affects the mortgage process.
There are different types of locum income for doctors and we often see those who are employed on normal PAYE rules as with any other employed doctor. This could be directly via the NHS or through a locum agency or umbrella company. This means they are treated as employees, receive regular payslips and are paid net of Income Tax, pension contributions and national insurance contributions and receive just take home pay.
locum doctors can work either as sole traders or via their own limited company with an employment status of self-employed. In either situation, the locum doctor is responsible for their personal liability to income tax and national insurance and will need to submit self-assessment tax returns.
We often see this situation for locum GPs who may have a casual arrangement to work regularly with a GP practice.
For those who undertake a lot of locum work (perhaps full time), there may be benefits to working via a limited company but this is dependent on individual circumstances. You are able to draw an income from the company and you can do this in the most tax efficient way to minimise your personal liability. You should also be able to claim business expenses.
Any profits left in the company after salary payments, dividends and business expenses will be taxable and you will have to pay Corporation Tax.
Working as a locum doctor via a Limited Company may also result in the loss of some employment benefits, such as holiday pay, sick pay, and the ability to contribute to the NHS pension scheme. These benefits may be replaced by tax relief and other tax planning opportunities, but it is important to weigh the pros and cons carefully.
You should seek advice to ensure this is the most tax-efficient route for you.
You can find out more about setting up a Limited Company here on the government website.
You should make sure you seek advice from an accountant to see if this is the right route for you.
It is also important to make sure you are abiding by the IR35 guidelines which explains how contractors should work with company/partnership if not an employee.
When it comes to applying for a mortgage, an important factor is your employment status. If as a locum doctor, you are a sole Director of your Limited Company or own at least 25% of the company shares, a mortgage lender will consider you as self-employed.
In general, this means you need to prove your income for a longer period than an employed person. Most mortgage lenders will need you to have been working via the Limited Company for at least two years (and have two years worth of accounts and self-assessment tax returns to show this).
There are also some lenders who will accept a shorter period of self-employment providing you have been a Doctor for a number of years.
We often hear that Doctors working in this arrangement are drawing a minimal salary and dividends from the Limited Company to minimise tax and National Insurance liabilities and this could impact the amount you can borrow.
For self-employed locum doctors, there are different ways a mortgage lender may assess your income and therefore how much you can borrow.
Most lenders base their calculations on your salary and dividends you receive from the company. For those who are taking a minimal and tax efficient salary from the company, this could mean you are not able to borrow as much as expected.
However, as a specialist mortgage broker working with medical professionals, we have access to some mortgage lenders who will base their calculations on the net profits made by the company and not just the salary you pay yourself.
There are also many other standard criteria which apply to all mortgage applicants such as right to reside in the UK and a good credit history. You can check your credit rating and report for free as sites such as credit karma and experian.
You also need to have a deposit saved to use towards the purchase and will need to provide proof of this (for example bank statements).
This will be used to calculate your loan-to-value (that's the percentage of a property's value you need to borrow) and therefore the interest rates available to you.
As a locum doctor, there are some other key points to consider when it comes to your finances.
As there is no employment contract in place, you will not be entitled to employment benefits such as holiday pay or sick pay. You should consider Income Protection as a way of ensuring if you can't work long term due to illness or injury, you will receive an income until you are able to return to work.
Also, if you are working via a limited company, your earnings will not be pensionable to the NHS pension scheme. However you could consider making contributions to a personal pension which could save Corporation Tax whilst also building your own pension provision.
This could be done as adhoc lump sums or regular monthly contributions which you pay directly from the company into a personal pension as part of your remuneration from the company.
You should consider seeking expert accountancy advice as well as financial advice to help with tax planning.
Our advisers specialise in working with doctors in a range of circumstances including locums and GP Partners. We have extensive knowledge and experience in how to present your case to a mortgage lender to increase your chances of achieving a mortgage offer.
You can book an online meeting with one of our advisers at your convenience here.
