If you pick up locum shifts, your tax position can flip depending on who books you and how. One week you're on a payslip with PAYE deducted at source, the next you're invoicing a private clinic as a sole trader, and a third arrangement runs through your own limited company. Each route taxes the same hour of work differently.
This guide explains how locum doctor tax actually works in the 2025/26 tax year. We'll cover when you're genuinely self-employed, when IR35 (the off-payroll rules) drags you onto PAYE inside the NHS, what it means for your NHS pension, and the expenses you can legitimately claim.
It's written for hospital and GP locums in England, Wales and Northern Ireland. Scotland sets its own income tax rates and bands, so if you work there, treat the income tax figures below as indicative only.
How are locum doctors taxed?
There's no single "locum tax". How you're taxed depends entirely on the structure of each engagement, and most locums run more than one at a time.
There are three common routes:
- PAYE locum work. You're booked through an NHS bank, an agency on their payroll, or a trust as a temporary employee. Income tax and National Insurance come off before you're paid, just like any employee.
- Self-employed (sole trader). You invoice the practice or clinic directly, keep records of your income and expenses, and settle income tax and Class 4 National Insurance through Self Assessment.
- Limited company (personal service company). You set up a company, the company invoices for your work, and you draw money out as a mix of salary and dividends. Here the off-payroll rules (IR35) matter a great deal.
The same shift can sit in any of these boxes. The job of getting your tax right is mostly the job of working out which box each engagement falls into, and then keeping clean records for the self-employed and company income.
Are locum doctors self-employed or employed?
You don't get to simply pick. For tax, HMRC looks at the reality of each engagement, not the label on the contract.
The classic tests of employment status are:
- Control: does the engager dictate what you do, how, when and where?
- Personal service: must you do the work yourself, or can you send a substitute?
- Mutuality of obligation: is the engager obliged to offer work and are you obliged to accept it?
A GP practice that books you for ad-hoc sessions, lets you decline shifts and doesn't integrate you into the team looks more like a genuine self-employed engagement. A trust that rosters you, supervises you and treats you like staff looks like employment, whatever the paperwork says.
In practice, the most common mistake we see is a locum assuming "I invoiced them, so I'm self-employed". The contract wording doesn't decide it. The working relationship does. HMRC's free Check Employment Status for Tax (CEST) tool is the starting point, but a borderline case is worth a proper review.
What is IR35 and how does it affect locum doctors?
IR35, properly called the off-payroll working rules, exists to stop people working like employees but paying less tax by routing income through a limited company.
If you provide your services through your own company (a personal service company, or PSC) and you'd be an employee if you worked for the client directly, IR35 applies. When it does, income tax and National Insurance must be deducted as though you were employed.
For locum doctors, two points matter most:
The NHS decides, not you. When a public sector body or a medium or large business engages you through your company, the responsibility for assessing your status sits with them, not with you. NHS trusts and many GP practices fall into this group. They run the status check and, if you're caught by IR35 (often called "inside IR35"), they deduct income tax and National Insurance before paying your company.
It's assessed contract by contract. Being inside IR35 on a trust booking doesn't make every engagement inside IR35. A genuinely independent private clinic role could still be outside. You can hold a mix at the same time.
If most of your NHS work is going to be inside IR35 anyway, a limited company often adds cost and admin without delivering the tax saving people expect. That's the calculation to run before you incorporate.
For a fuller walk-through of how the rules bite, see our guidance for contractors affected by IR35 and for locum doctors specifically.
Should a locum doctor use a limited company?
A limited company can be tax-efficient for some contractors, but it's not a default win for locums, and three things often tip the maths the other way.
- IR35 inside the NHS. If your trust or practice work is inside IR35, the company gives you little tax advantage on that income while still costing you accounts, filings and an accountant.
- The NHS pension. Income paid to your company can't be pensioned into the NHS scheme (more on this below). For many doctors that single point outweighs any corporation tax saving.
- Admin and cost. A company brings statutory accounts, a corporation tax return, payroll if you take a salary, and Companies House filings.
Where a company can make sense is genuinely outside-IR35 private work, sustained higher earnings, and income you don't need to draw immediately. For most locums whose bread and butter is NHS shifts, sole-trader self-employment for the non-PAYE work is simpler and frequently just as efficient.
If you do run a company, corporation tax is charged at 19% on profits up to £50,000 and 25% on profits above £250,000 for the financial year starting 1 April 2025, with marginal relief easing the rate between those limits (gov.uk). Money you then draw as dividends is taxed on you personally, after a £500 dividend allowance for 2025/26 (gov.uk).
This is exactly the kind of decision worth modelling properly. Our tax advisory team can run the numbers for your mix of work.
What about the NHS pension if I go self-employed?
This is the point that catches doctors out, and it's worth being blunt about.
You cannot contribute to the NHS Pension Scheme on income paid to a limited company. The scheme pensions employment and certain self-employed practitioner income, not dividends or company profits. So routing your work through a company can quietly switch off years of one of the most valuable pensions in the country.
Self-employed and PAYE routes can keep you in the scheme depending on the role and how it's set up, which is part of why incorporation is rarely the obvious answer for a working NHS locum.
If you do take income outside the NHS scheme, the standard response is to fund a private pension instead. That's a personal financial planning decision rather than a tax one, and a regulated financial adviser should sign it off. Our role is making sure the tax side, and the structure that flows from it, is set up cleanly around whatever pension route you choose.
What expenses can a locum doctor claim?
If you're self-employed, you reduce your taxable profit by deducting allowable business expenses, costs incurred wholly and exclusively for your work. HMRC sets out the broad categories (gov.uk).
For a locum doctor, the everyday claims usually include:
- Professional fees and indemnity: GMC registration, medical defence or indemnity cover, and relevant subscriptions such as a royal college or the BMA.
- Travel between workplaces: mileage or fares for travel to temporary sites (commuting to a permanent base doesn't count).
- Equipment: items like a stethoscope, and capital allowances on larger kit such as a laptop used for work.
- Training: refresher courses that maintain your existing professional skills.
- Admin and home office: a reasonable share of phone, software and a home working allowance where you handle bookings and records from home.
You can't claim the cost of getting qualified in the first place, anything for private use, or a permanent-workplace commute. Keep receipts and a simple mileage log, because the deduction is only as good as the record behind it.
How much tax will I pay as a self-employed locum?
As a self-employed locum you pay income tax and Class 4 National Insurance on your profit, which is your income minus allowable expenses. Here are the headline figures for 2025/26.
| Band | Rate | Applies to |
|---|---|---|
| Personal allowance | 0% | First £12,570 of income |
| Basic rate | 20% | Taxable income up to £37,700 |
| Higher rate | 40% | Income from £50,271 to £125,140 |
| Additional rate | 45% | Income over £125,140 |
Sources: income tax rates and rates and allowances.
On top of income tax, self-employed Class 4 National Insurance for 2025/26 is 6% on profits between £12,570 and £50,270, then 2% on profits above £50,270 (gov.uk). The personal allowance is reduced by £1 for every £2 of income over £100,000, disappearing entirely at £125,140 (gov.uk).
Illustrative example: a self-employed locum with £60,000 profit
This is a hypothetical to show the mechanics. Your figures will differ.
Dr Aisha works locum shifts at private clinics and bills directly. After deducting indemnity cover, GMC fees, mileage and equipment, her taxable profit for 2025/26 is £60,000. She's self-employed and outside IR35 on this work.
Income tax:
- First £12,570 at 0% = £0
- Next £37,700 at 20% = £7,540
- Remaining £9,730 (from £50,270 to £60,000) at 40% = £3,892
- Income tax total = £11,432
Class 4 National Insurance:
- £50,270 minus £12,570 = £37,700 at 6% = £2,262
- £60,000 minus £50,270 = £9,730 at 2% = £194.60
- Class 4 total = £2,456.60
Combined income tax and Class 4 NIC = £13,888.60, roughly 23% of her £60,000 profit.
That's why a sensible rule of thumb is to set aside around a quarter to a third of your gross self-employed income for tax and National Insurance, and a bit more once you're well into the higher-rate band. Don't forget payments on account, which can mean paying part of next year's bill in advance.
You can sense-check your own position with our self-employed tax calculator before you set money aside.
What are the key deadlines?
If any of your income is self-employed or company income, Self Assessment deadlines apply. The main ones (gov.uk):
- Register for Self Assessment: by 5 October following the end of the tax year you started.
- Online tax return and balancing payment: midnight on 31 January following the tax year.
- Payments on account: due 31 January and 31 July where applicable.
From 6 April 2026, Making Tax Digital for Income Tax begins for sole traders and landlords with qualifying income over £50,000, based on their 2024/25 return, meaning digital records and quarterly updates (gov.uk). If your locum profits are around that level, it's worth getting your bookkeeping ready now.
FAQs
Do locum doctors have to file a tax return?
Yes, if you have self-employed or limited company income from locum work, you'll need to file a Self Assessment tax return and pay any income tax and National Insurance due. If all your locum income is PAYE through an agency or NHS bank, you may not need to, unless you have other reasons to file.
Are locum doctors automatically inside IR35?
No. IR35 is assessed contract by contract, based on the reality of each engagement. NHS trusts and many GP practices make the status decision when you work through your own company, and many NHS roles are inside IR35, but a genuinely independent engagement can be outside.
Can a locum doctor pay into the NHS pension?
You cannot contribute to the NHS Pension Scheme on income paid to a limited company. Self-employed and PAYE routes can keep you in the scheme depending on the role. If you take income outside the scheme, a private pension is the usual alternative, and that's a decision for a regulated financial adviser.
How much should a locum doctor set aside for tax?
A common rule of thumb is around a quarter to a third of your gross self-employed income, rising a little once you're firmly in the higher-rate band. Setting money aside as you go, and budgeting for payments on account, avoids a nasty surprise in January.
Is it better to be a sole trader or limited company as a locum?
It depends on your mix of work. If most of your NHS shifts are inside IR35 and you want to stay in the NHS pension, sole-trader self-employment is often simpler and just as efficient. A company can suit sustained, genuinely outside-IR35 private work. Model both before deciding.
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Get your locum tax structure right
Locum tax goes wrong when the structure doesn't match the work, an inside-IR35 company, a missed expense, or a pension switched off by accident. Want it set up properly? Book a free 20-minute call with a Zmartly accountant and we'll review your mix of shifts and recommend the cleanest setup. See how we help locum doctors or get started with Self Assessment support.
