Locum income and tax treatment

Atul Mehta from Moore Stephens Markhams Chartered Accountants discusses the rules and entitlements around working as an independent contractor.

Download the article in Contact Magazine August 2016 here.

When you work as a locum pharmacist, you generally work for more than one pharmacy on an irregular basis to help out with the short term needs of those pharmacies. In this situation, locums are generally treated as independent contractors for tax purposes, which means that PAYE tax is not deducted from income received. Under these circumstances, locums are not treated as employees and are not entitled to all the bene ts associated with being an employee of a business

The difference between an independent contractor and an employee has been a contentious issue in the past. To ensure all parties are clear about a worker’s status, we recommend that the parties have an agreement stating that the locum work is being carried out by an independent contractor who is responsible for their own taxes and costs. Generally this can be achieved by a simple document.

If the income earned by a locum is likely to exceed $60,000 then there is also a requirement to register and account for GST. If the locum is registered, whatever the charge to the pharmacy for the locum work, the total will be plus GST. When registered for GST, the locum is also able to claim the GST content of any work related expenses that are incurred.

Being considered as a locum, ie, an independent contractor for tax purposes, has some tax differences compared to working as an employee. Employees are generally not able to claim expenses incurred in relation to their employment, other than the costs paid to prepare a tax return and some income protection insurance. However, an independent contractor can claim any expenses necessarily incurred to derive their taxable income, for example, registration fees, work related travel, and in some circumstances meals etc.

Work related travel between two places of work can be claimed, but not from home to a regular workplace, or for regular travel required for work. There are three ways you can calculate the cost of travel:

  • actual expenditure incurred
  • a log book
  • mileage reimbursement rate.

Generally the mileage reimbursement rate is used because of its simplicity and the rate covers the expenses for most vehicles. The current IRD accepted rate is $0.77 per kilometre.

Tax rules around the ability to claim for meals, ie, food and drink, are covered by the entertainment rules. Generally the cost of meals would be considered a private expense and therefore not able to be claimed for tax purposes. However, if you were entertaining potential customers, such as a pharmacy or other business related people, then 50% of the cost can be claimed for both income tax and GST.

If costs are incurred while away from home on work, for example an Auckland pharmacist working a couple of days for a pharmacy in Tauranga, then the cost of meals and accommodation is fully deductible for income tax and GST purposes (if registered).

For more information contact us today.

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