Locum Doctor Expenses: Inside vs Outside IR35

If you locum through your own limited company, the single biggest thing that changes what you can claim is your IR35 status. The same trip, the same indemnity premium, the same set of receipts can be fully deductible on one contract and largely worthless on the next.

The frustrating part is that nobody hands you a clear before-and-after. You get a status determination, the money lands net of tax, and you are left guessing which of your usual costs still count.

This guide draws the line for you. It covers what a locum can claim outside IR35, what survives inside IR35, the one 5% allowance that only exists in a specific situation, and how travel between sites is treated. Figures are for the 2026/27 tax year.

It is written for GP, hospital and out-of-hours locums working through a personal service company. If you want this handled for you, that is what we do for locum doctors.

Does IR35 really change which locum expenses I can claim?

Yes, and more than most locums expect. Outside IR35, your company claims genuine business costs against its profits in the normal way. Inside IR35, most of your fee is taxed as if it were employment income, and only a narrow set of deductions is allowed before that tax is worked out. The travel rules tighten too. Your status, not your receipts, sets the rules.

Who decides my IR35 status as a locum?

This matters before you think about a single receipt, because the decision-maker also decides whether the 5% allowance is even on the table.

Under the off-payroll working rules, the person who determines your status depends on the type of client you contract with:

• If your client is in the public sector (most NHS trusts and many health boards) or is a medium or large private organisation, the client decides your status. If they decide the rules apply, the fee-payer (often the agency) makes a "deemed direct payment", deducting Income Tax and employee National Insurance before your company is paid.
• If your client is a small private-sector organisation, your own company decides whether the rules apply. If they do, your company calculates a "deemed employment payment".

That split is the whole reason inside-IR35 expenses differ depending on the contract. The two calculations are not the same, and one of them includes a flat allowance the other does not.

A status that says you are outside IR35 leaves your company taxed as a normal business, which is the most generous position for expenses.

What expenses can I claim outside IR35?

Outside IR35, your personal service company is taxed like any other small company. It pays Corporation Tax on its profits, and you deduct genuine business costs to arrive at those profits.

The governing test is that an expense must be incurred wholly and exclusively for the purposes of the trade. For a locum company, the costs that usually pass that test include:

• Professional indemnity and medical defence subscriptions.
• GMC registration and Royal College or faculty fees where they relate to the work.
• Mandatory training, revalidation costs and relevant CPD.
• Practising privileges, DBS checks and occupational health where a contract requires them.
• Business travel and mileage between workplaces (subject to the travel rules below).
• Accountancy and payroll fees, business insurance, and the running costs of a home office used for admin.
• Equipment such as a laptop or medical bag, claimed through capital allowances.

Because these reduce taxable profit, the saving is the cost multiplied by the Corporation Tax rate. For the year to 31 March 2027 (Financial Year 2026), the small profits rate is 19% for profits up to 50,000 pounds and the main rate is 25% for profits over 250,000 pounds, with marginal relief in between.

What is left after Corporation Tax is normally taken as a mix of salary and dividends. For 2026/27 the dividend allowance is 500 pounds, and dividends above it are taxed at 10.75% (basic), 35.75% (higher) and 39.35% (additional). You can model the salary-and-dividend split with our dividend tax calculator.

What can I claim inside IR35?

Inside IR35, the picture narrows sharply. The point of the rules is to tax you broadly like an employee, so most of your contract income is treated as deemed employment income and only a short list of deductions is allowed before tax is calculated.

The deductions that survive depend on which calculation applies to you.

Where the client decides and a fee-payer makes the deemed direct payment, the fee-payer works from the payment to your company (less VAT), then deducts only the direct cost of materials and any expenses that would have been deductible from your earnings if you had been an employee. There is no flat-rate allowance in this calculation, and employer National Insurance is paid on top rather than taken out of your fee.

Where your own company decides the rules apply (a small client), your company calculates a deemed employment payment. That calculation allows more steps: a flat 5% deduction for the cost of running the company, plus actual expenses you could have claimed as an employee, capital allowances on plant and machinery needed for the work, employer pension contributions, and the employer National Insurance due.

In both cases, the practical effect is the same direction of travel. The big-ticket professional costs you took for granted outside IR35, such as indemnity cover, are only relievable to the extent an employee could have claimed them, and most ordinary commuting becomes non-deductible. We explain the wider mechanics in our guide for IR35 contractors.

How does the 5% allowance work, and when do I get it?

The 5% allowance is the most misunderstood part of inside-IR35 expenses, so it is worth being precise.

It is a flat deduction equal to 5% of the relevant engagement income, given for the general cost of running your company. It is built into the deemed employment payment calculation that your own company performs.

Here is the catch. You only get it when your company is the one applying the rules, which in practice means a small private-sector client. When a public-sector body or a medium or large private client decides your status and a fee-payer handles the deduction, the deemed direct payment they calculate does not include the 5% allowance.

So two locums on identical day rates can end up with different taxable figures purely because of who their client is. The locum working for a small private clinic that runs the calculation keeps the 5% cushion. The locum inside IR35 at a large NHS trust does not.

This is not a loophole to chase. It is a structural feature of the rules, and it is one of the reasons a careful status review at the start of each contract is worth the effort.

How is travel between sites treated?

Travel is where locums lose the most money to a misunderstanding, because the rules changed for workers engaged through intermediaries.

Outside IR35, your company can claim travel to a temporary workplace. A site stops being temporary once you expect to attend it for more than 24 months, after which it is treated as a permanent workplace and the travel is ordinary commuting, which is not allowable.

Where you provide services through an intermediary and you are under, or under the right of, supervision, direction or control as to how you do the work, each engagement is treated as a separate employment for travel. That means home-to-work travel to that site is an ordinary commute, and you cannot claim tax relief or a National Insurance disregard on it, nor on the related subsistence. Inside IR35, that restriction typically bites, because the same control that puts you inside IR35 also triggers the travel rule.

When travel is genuinely allowable, you claim either actual costs or HMRC's approved mileage rates. For cars and vans the approved rate is 45p per mile for the first 10,000 business miles in the tax year and 25p per mile after that, unchanged for 2026/27. You can work out a claim with our mileage calculator.

The takeaway is simple. Do not assume the drive to your locum shift is claimable. Outside IR35 it often is, up to the 24-month point. Inside IR35, with the client controlling how you work, it usually is not.

Illustrative example: the same locum, two contracts

Illustrative example. Imagine Dr Asha runs a locum company and bills 90,000 pounds across the year. We will look at one outside-IR35 contract and one inside-IR35 contract to show how the same costs land differently. The figures are simplified to make the point, not a full tax computation.

On the outside-IR35 contract, her company treats its costs as normal business expenses:

Those costs reduce the profit her company pays Corporation Tax on. At the 19% small profits rate, the 7,500 pounds of costs above save her company 1,425 pounds of Corporation Tax (7,500 x 19% = 1,425).

On the inside-IR35 contract with a large NHS trust, the fee-payer makes a deemed direct payment. Only employee-deductible expenses come off before Income Tax and National Insurance, there is no 5% allowance because the client decided her status, and her daily drive to the trust is ordinary commuting under the intermediary travel rule. Most of that same 7,500 pounds of cost no longer reduces her taxable income at all. The indemnity premium still has to be paid; it just is not relievable in the way it was outside IR35.

Same doctor, same overheads, very different outcome, decided almost entirely by status. These figures are illustrative and your own position depends on your contracts, your status determinations and your actual costs.

Where does my NHS pension fit in?

Many locums also pay into the NHS Pension Scheme, and this sits outside the IR35 expense rules entirely.

The NHS Pension Scheme is administered by the NHS Business Services Authority (NHSBSA), with practitioner and GP locum pensions routed through Primary Care Support England (PCSE) processes rather than through HMRC. Contribution tiers, the earnings bands they apply to, and the forms and deadlines for paying locum contributions are set by those bodies, not by HMRC, and they are reviewed periodically.

Because those tier rates and deadlines change and are set outside the tax system, check the current figures and the correct forms directly with NHSBSA before you rely on a number. What matters for this guide is that pensionable NHS work and your IR35 status are separate questions. Being inside or outside IR35 on a contract does not, by itself, decide whether that income is NHS-pensionable.

If you are juggling a limited company, NHS pension paperwork and shifting IR35 statuses across contracts, that is exactly the kind of tangle we untangle for locum doctors.

Want a clear read on your status and what you can actually claim this year? Book a free call with a Zmartly accountant and we will review your contracts before your next one starts.

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