Understanding Tax, National Insurance, and Pensions as a Locum Pharmacist in the UK

Becoming a locum pharmacist in the UK offers unparalleled flexibility and often a higher hourly rate compared to a permanent position. However, this freedom comes with increased responsibility, particularly when it comes to managing your finances. As a self-employed professional, you're solely responsible for calculating and paying your own Income Tax, National Insurance (NI) contributions, and planning for your pension. This guide aims to demystify these crucial financial aspects for locum pharmacists in the UK.

1. Registering as Self-Employed

The very first step after deciding to locum is to inform HM Revenue & Customs (HMRC) that you are self-employed.

• When to Register: You must register as self-employed with HMRC by 5th October in your business's second tax year. For example, if you start locuming in the 2024/25 tax year (which runs from 6th April 2024 to 5th April 2025), you must register by 5th October 2025.

• How to Register: You can do this online via the HMRC website. You'll need your National Insurance number and details of your business.

• Unique Taxpayer Reference (UTR): Once registered, HMRC will send you a Unique Taxpayer Reference (UTR) number. You'll need this for all your self-assessment tax returns.

2. Income Tax: The Self-Assessment System

As a self-employed locum, you'll pay Income Tax through the Self-Assessment system. This means you declare your income and expenses annually, and HMRC calculates how much tax you owe.

How it works:

• Tax Year: The UK tax year runs from 6th April to 5th April the following year.

• Gross Income: This is the total amount you earn from all your locum work before any deductions.

• Allowable Expenses: As a self-employed individual, you can deduct certain business expenses from your gross income. This reduces your taxable profit, and therefore your tax bill.

  • Common Allowable Expenses for Locums:

    • Travel Costs: Mileage (using approved mileage rates), public transport fares to and from locum shifts.

    • Professional Fees: GPhC retention fees, professional indemnity insurance, union memberships (e.g., PDA, Pharmacists' Defence Association).

    • Training & CPD: Costs of courses, books, and resources directly related to maintaining or improving your pharmaceutical skills.

    • Home Office Costs: A portion of utility bills, internet, and phone if you regularly work from home (e.g., for admin, CPD). You can claim a simplified expense (e.g., £6/week) or calculate a proportion of actual costs.

    • Equipment: Stethoscope, blood pressure monitor, computer, printer, relevant software.

    • Accountancy Fees: Costs for an accountant to prepare your self-assessment.

    • Stationery & Postage: For your locum business.

    • Bank Charges: Related to a separate business bank account.

• Taxable Profit: Your gross income minus your allowable expenses.

• Personal Allowance: Everyone has a tax-free personal allowance (£12,570 for 2024/25). You don't pay tax on income up to this amount.

• Tax Bands: Income above your personal allowance is taxed at different rates:

  • Basic rate: 20%

  • Higher rate: 40%

  • Additional rate: 45%

    (These rates apply to most of the UK. Scotland has slightly different tax bands and rates).

• Deadlines:

  • 31st January (online): Deadline for submitting your online Self-Assessment tax return and paying any tax you owe for the previous tax year.

  • 31st July: Second payment on account deadline for the current tax year.

Example: If you earned £40,000 gross and had £3,000 in allowable expenses, your taxable profit would be £37,000.

Taxable income: £37,000 - £12,570 (Personal Allowance) = £24,430.

Tax owed (basic rate): £24,430 x 20% = £4,886.

3. National Insurance (NI) Contributions

National Insurance contributions ensure your eligibility for certain state benefits, such as the State Pension. As a self-employed locum, you typically pay two types:

• Class 2 NI: A flat weekly rate (£3.45 per week for 2024/25). You pay this if your profits are above a certain threshold (£6,725 for 2024/25). If your profits are below this, your contributions are voluntary to protect your State Pension record.

• Class 4 NI: Paid as a percentage of your profits above certain thresholds.

  • 9% on profits between £12,570 and £50,270 (2024/25)

  • 2% on profits above £50,270 (2024/25)

Both Class 2 and Class 4 NI are calculated and paid through your Self-Assessment tax return alongside your Income Tax.

4. Planning for Your Pension

As a locum, you don't have an employer automatically enrolling you into a workplace pension scheme or making contributions on your behalf. This makes personal pension planning absolutely vital.

• Why a Pension is Crucial:

  • Retirement Income: To provide income when you stop working.

  • Tax Relief: Your pension contributions receive tax relief at your highest marginal rate. For a basic rate taxpayer, a £100 contribution only costs you £80 (the government adds the other £20). Higher rate taxpayers can claim additional relief via their Self-Assessment.

  • Compound Growth: Investments grow over time, compounding returns.

• Types of Pensions for Locums:

  • Personal Pension (or SIPP - Self-Invested Personal Pension): These are flexible private pensions that you set up and contribute to yourself. A SIPP offers more control over your investment choices.

  • NEST (National Employment Savings Trust): A government-backed scheme, often used by employers but also open to self-employed individuals. It's a simple, low-cost option.

• How Much to Contribute: A common rule of thumb is to take your age when you start contributing to a pension, halve it, and contribute that percentage of your salary for the rest of your working life. For example, if you start at 30, aim for 15% of your income.

• Seeking Advice: It's highly recommended to speak to a financial advisor who specialises in pensions for self-employed individuals. They can help you choose the right pension product and determine an appropriate contribution level based on your financial goals.

5. Keeping Records: Your Best Friend

Accurate record-keeping is fundamental to managing your self-employed finances.

• What to Keep:

  • All invoices for your locum work.

  • Receipts for all business expenses.

  • Records of mileage and travel.

  • Bank statements (ideally for a separate business account).

• How to Keep Them:

  • Digital: Use accounting software (e.g., FreeAgent, Xero, QuickBooks Self-Employed) or a simple spreadsheet. Scan and store digital copies of all receipts.

  • Physical: Keep original receipts in an organised filing system.

• Retention: You must keep your business records for at least 5 years after the 31st January submission deadline of the relevant tax year.

6. Managing Your Cash Flow and Tax Savings

One of the biggest pitfalls for self-employed individuals is not setting aside enough money for tax and NI.

• The Golden Rule: Treat a portion of every payment you receive as not yours. A good starting point is to put 25-30% of your gross income into a separate savings account specifically for tax and NI. This percentage may need to be adjusted up or down based on your income level and expenses.

• "Payment on Account": HMRC requires you to make two advance payments towards your next tax bill, usually due on 31st January and 31st July. Your first payment on account will be 50% of your previous year's tax bill. If you haven't saved enough, this can come as a nasty surprise.

  
  

💡Locumr helps you manage and keep track of your shifts and expenses. Also, you can estimate your tax and allow you to save for tax.

7. Consider an Accountant

While it's possible to manage your self-assessment yourself, many locum pharmacists find value in hiring an accountant.

• Benefits of an Accountant:

  • Ensures accurate submission of your tax return.

  • Identifies all allowable expenses, potentially reducing your tax bill.

  • Provides advice on tax efficiency and planning.

  • Saves you time and stress.

  • Can advise on whether it's more tax-efficient to operate as a sole trader or through a limited company as your income grows.

Conclusion

Embracing the role of a locum pharmacist in the UK opens doors to professional growth and flexibility. By understanding and proactively managing your tax, National Insurance, and pension responsibilities, you can ensure a stable financial future and fully enjoy the benefits that locum work offers. Don't leave it to chance – get organised, keep meticulous records, and don't hesitate to seek professional financial advice.