Every locum doctor eventually gets the same advice over coffee in the mess: "you should set up a limited company, it's much more tax-efficient." Sometimes that's true. Often it isn't, and for a lot of locums incorporating actively costs them money or, worse, their NHS pension.
A limited company is a tool, not a default. It suits some locums very well and is the wrong call for others. The difference comes down to your income level, where your work comes from, and whether you want to keep building an NHS pension.
This guide is the other half of the conversation: when incorporating is the wrong move for a locum doctor in 2026/27, and how to spot that before you spend £100 and a year of accountancy fees finding out. It's written for GP locums, hospital and sessional doctors, and anyone weighing up the company route.
If you want this looked at properly for your own numbers, that's exactly what we do for locum doctors.
Should a locum doctor set up a limited company?
Not always. A limited company can be the wrong choice if you want to keep paying into the NHS Pension Scheme (limited company income is not pensionable), if your locum work falls inside IR35 or the off-payroll rules so it's taxed like employment anyway, or if your profits are modest enough that the extra running costs outweigh any tax saving. For many locums, staying a sole trader is simpler and just as efficient.
When does incorporating make sense, and when does it not?
The case for a limited company is real but narrow. It tends to work when your locum profits are comfortably into higher-rate territory, your income is genuinely outside IR35, and you don't need to leave it all in your bank account each month. Retaining profit inside the company and drawing a mix of salary and dividends can defer or reduce tax.
The case against is broader than most locums realise. Incorporation is usually the wrong move if any of these apply to you:
- You want to keep building your NHS pension on your locum work.
- Your engagements fall inside IR35 or the off-payroll working rules.
- Your profits are modest, so the running costs eat the saving.
- You draw most of what you earn to live on, so there's little to retain.
- You value simplicity and a single annual tax return over company admin.
The rest of this guide takes the three big ones in turn. Get these wrong and the "tax-efficient" company can leave you worse off.
Will a limited company cost you your NHS pension?
This is the single biggest reason a locum doctor should think twice before incorporating, and it catches people out every year.
NHS pension contributions for a freelance GP locum are administered through PCSE (Primary Care Support England) using the Locum A and Locum B forms. To pension your locum income, you have to be working in a way the scheme recognises, on the Medical Performers List, doing GP work for a recognised NHS employer such as a practice or an out-of-hours provider.
Income you earn through your own limited company is not NHS-pensionable. When you invoice through a company, you are working for your company, not directly for the NHS, so that income cannot go through the Locum A and B route. The BMA's guidance for sessional and locum GPs sets out how locum income is pensioned as an individual, and PCSE administers it on that basis.
For a lot of locums, that's the whole decision. If you are mid-career and the NHS pension is the most valuable thing you own, giving up years of pensionable service to save a slice of tax is rarely a good trade. The defined-benefit NHS pension is hard to replicate with a SIPP funded from company profits.
If keeping your NHS pension matters to you, sole-trader or salaried locum work usually wins. Some doctors who hold both a sole-trader and a company profile choose which to use session by session, but you should take advice before assuming you can mix the two cleanly, because the pension and tax consequences differ.
The pension rules here are set and administered by NHSBSA and PCSE, not HMRC, and tier rates and submission deadlines change. Always confirm the current position with NHSBSA or PCSE before you make a structural decision.
Does IR35 wipe out the benefit of incorporating?
Often, yes. IR35 (the intermediaries legislation) and the off-payroll working rules exist precisely to stop people getting a tax advantage from working through a company when they are really doing the job of an employee.
Most NHS bodies are public sector clients, and many private hospitals and agencies are medium or large clients. Under the off-payroll rules, the client (or the agency paying you) decides your employment status for tax and, if your engagement is "inside IR35", deducts Income Tax and National Insurance from your fee before you're paid, as though you were an employee.
The practical effect is blunt. If your locum contract is inside IR35, the dividend planning that makes a company attractive largely disappears, because the income is taxed like employment anyway. You then carry all the cost and admin of a company for little or no tax benefit.
Whether a specific engagement is inside or outside IR35 turns on the working arrangements: control, substitution, mutuality of obligation and the rest. HMRC's Check Employment Status for Tax (CEST) tool and guidance are the starting point, but locum arrangements are often finely balanced. Before you incorporate on the assumption your work is outside IR35, get the contracts reviewed. Guessing wrong here is expensive.
Are your profits actually high enough to justify a company?
A company only saves tax if there's enough profit, and enough retained profit, for the salary-and-dividend structure to beat sole-trader rates after costs.
As a sole trader for 2026/27, you pay Income Tax at 20%, 40% and 45% on profits above your personal allowance of £12,570, plus Class 4 National Insurance at 6% on profits between £12,570 and £50,270 and 2% above that. Your profit is taxed once, on your Self Assessment return.
Through a company, the profit is taxed twice in stages: Corporation Tax first (19% on profits up to £50,000, rising towards 25% with marginal relief above that), then Income Tax on the dividends you draw. For 2026/27 the dividend tax rates are 10.75% (basic), 35.75% (higher) and 39.35% (additional), with a £500 dividend allowance. Those dividend rates rose from 2025/26, which narrows the gap that used to make incorporating an easy win.
The headline saving from a company comes mainly from retaining profit you don't immediately need. If you draw almost everything to live on, there's little left to retain, and the double layer of tax plus the running costs can leave you no better off, or worse off, than staying a sole trader.
As a rough rule of thumb, the company route is worth modelling once profits are comfortably above the higher-rate threshold and you can leave a meaningful chunk inside the company. Below that, simplicity usually wins. The only way to know is to run your actual numbers both ways, which our self-assessment service and a quick projection can do for you. You can get a first feel for the sole-trader side with our self-employed tax calculator and the dividend tax calculator.
Illustrative example: a locum better off as a sole trader
Illustrative example. Imagine Dr Anya, a salaried-and-sessional GP locum, makes £48,000 of profit in 2026/27 and draws nearly all of it to cover her mortgage and living costs. She's deciding between staying a sole trader and incorporating.
As a sole trader, her profit is taxed once. She also wants to keep pensioning her locum sessions through PCSE, which she can do on the sole-trader route.
If she incorporated instead:
| Factor | Sole trader | Limited company |
|---|---|---|
| NHS pension on locum income | Can pension via Locum A and B | Company income not pensionable |
| Layers of tax | Income Tax and Class 4 NIC once | Corporation Tax, then dividend tax |
| Profit retained for tax deferral | Not applicable, drawn to live on | Little to retain, so little benefit |
| Annual admin | One Self Assessment return | Company accounts, CT600, payroll, confirmation statement |
| Typical running cost | Lower | Higher accountancy and filing costs |
For Dr Anya, the company saves little tax because she retains almost nothing, and it would cost her NHS pension on that income plus extra fees. At £48,000 of profit, mostly drawn, staying a sole trader is the better call.
These figures are illustrative. Your own answer depends on your profit level, how much you can retain, your IR35 position and how much you value the NHS pension. The point is that "incorporate to save tax" is not automatic.
What are the hidden costs and admin of running a company?
Even where a company saves tax, it brings obligations a sole trader simply doesn't have. None of these are dealbreakers on their own, but together they're the reason a marginal saving often isn't worth it.
- Incorporation itself: registering a company with Companies House online costs £100.
- Annual statutory accounts and a Company Tax Return (CT600) for HMRC, on top of your personal Self Assessment.
- A confirmation statement filed with Companies House each year.
- Running payroll if you pay yourself a salary, with RTI submissions to HMRC.
- Keeping company money separate from your own, with directors' loan rules if you dip into it.
- Higher accountancy fees than a sole trader pays, every year, for the extra filings.
For VAT, the position is usually the same whichever structure you use, since most medical services a locum provides are exempt and the £90,000 registration threshold rarely bites on exempt work. So VAT is generally not a reason to incorporate either.
Add it up and the picture is clear: a company is the right tool when the tax saving is real and you'll keep it, and the wrong tool when it's marginal, when IR35 applies, or when it costs you your NHS pension. We help locum doctors model this properly before they commit, rather than after.
Not sure whether incorporating is right for you? Book a free call with a Zmartly accountant and we'll run your numbers both ways before you decide.
Frequently asked questions
Can a locum doctor pay into the NHS pension through a limited company?
No. Income earned through your own limited company is not NHS-pensionable, because you are working for your company rather than directly for an NHS employer. To pension locum income you generally need to work as an individual on the Medical Performers List and submit Locum A and B forms through PCSE. Confirm the current rules with NHSBSA or PCSE before deciding.
Is it always more tax-efficient for a locum to incorporate?
No. A company only saves tax when your profits are high enough and you can retain profit rather than draw it all. With 2026/27 dividend rates of 10.75%, 35.75% and 39.35% and a £500 allowance, plus Corporation Tax and extra running costs, modest-profit locums who draw most of their income are often no better off, or worse off, than as a sole trader.
How does IR35 affect a locum doctor's limited company?
If your engagement is inside IR35 or the off-payroll working rules, the client or agency deducts Income Tax and National Insurance from your fee as though you were employed. That removes most of the tax benefit of a company while leaving you with all its admin. Many NHS and large private clients fall under these rules, so always check your contracts before incorporating.
When is staying a sole trader the better choice for a locum?
Staying a sole trader is usually better when you want to keep building your NHS pension, when your work falls inside IR35, when your profits are modest, or when you draw most of what you earn to live on. It's also simpler: one Self Assessment return instead of company accounts, a CT600, payroll and a confirmation statement.
How much does it cost to set up a limited company in the UK?
Registering a company online with Companies House costs £100. The larger cost is ongoing: annual statutory accounts, a Company Tax Return, a confirmation statement, payroll if you take a salary, and higher accountancy fees every year compared with a sole trader.
