Working through an agency for Locum work is a path many new Doctors take, but there are a few questions that should be asked if you think the agency employing you might be using a “loan scheme” or “disguised renumeration scheme” to pay you. If your Agency is paying you a minimum wage and giving you the rest of the money in a “tax free loan” then this could have serious repercussions, as HMRC are taking action against certain loan arrangements. We asked specialist medical accountants and Medics’ Money founder members, BW Medical to give us an update….
The Locum finds an agency for a temporary post, and the agency then passes them over to an umbrella company to be paid. The umbrella company invoices the end-client and retains a fee, paying the Locum a salary at, or just above, the minimum wage but below the limits for tax and NIC. The balance of the money is then paid to the Locum in the form of a loan and the tax benefits arise, in theory at least, because the loan does not count as part of the worker’s employment income and thus, provides the worker with the money tax-free.
While, nominally, the loan is repayable, in reality the worker doesn’t pay the loan back. HMRC say that these loan schemes don’t work – the money is no different from normal employment income and is therefore taxable and subject to NICs, indeed in 2011 the law was changed to try and stop people using them.
HMRC appreciate that not everyone entered into these arrangements knowingly to avoid tax. Indeed, some agency workers may have had little choice to participate in such schemes, if they wanted to work. If you are a Locum, working under these arrangements you may be finding it difficult to understand what is happening or be worried about how you will pay back any tax you owe.