Income Tax and NI for NHS Locum Doctors UK

Last updated: 7 November 2026 · Current UK tax year: 2026/27

NHS locum doctors face a tax position that is more complex than most employed professionals. Whether you work through a staffing agency, pick up sessions directly with NHS trusts, or operate via a limited company, your income tax and national insurance obligations depend heavily on how you are engaged. This article explains the rules clearly, covers what you can claim, and helps you avoid the common mistakes that catch locum doctors out.

• How locum income is taxed
• Self-employed locums: Self Assessment and Class 4 NI
• Agency locums: PAYE and Class 1 NI
• Limited company locums: a different structure entirely
• IR35 and off-payroll working rules
• Allowable expenses for locum doctors
• The NHS pension and your tax bill
• Making Tax Digital for locum doctors
• Working with an accountant
• Frequently asked questions

How locum income is taxed

Locum doctors do not all pay tax the same way. The structure through which you work determines whether you are taxed under PAYE, through Self Assessment, or via a limited company. Getting this wrong from the outset creates problems with HMRC that can take years to resolve.

In 2026/27, the key income tax thresholds are:

• Personal Allowance: £12,570 (income below this is tax-free)
• Basic rate (20%) on income from £12,571 to £50,270
• Higher rate (40%) on income from £50,271 to £125,140
• Additional rate (45%) on income above £125,140

Many locum doctors earn well above £50,270 and will pay higher rate tax on a significant portion of their income. If your total income exceeds £100,000, your personal allowance is tapered by £1 for every £2 earned above that level, disappearing entirely at £125,140. This creates an effective 60% marginal tax rate on income between £100,000 and £125,140, which is something most locums do not plan for until it is too late.

Self-employed locums: Self Assessment and Class 4 NI

If you work directly for NHS trusts or GP practices without going through an agency or umbrella company, HMRC will typically treat you as self-employed. That means you are responsible for reporting and paying your own tax and national insurance through Self Assessment.

Class 2 and Class 4 national insurance

Self-employed locum doctors pay two types of national insurance. In 2026/27, Class 4 NI is charged at 8% on profits between £12,570 and £50,270, and at 2% on profits above £50,270. Class 2 contributions are a flat weekly rate. Check the latest HMRC guidance for the current Class 2 figure, as it is subject to review. Both types are reported on your Self Assessment tax return.

The Self Assessment deadline is 31 January following the end of the tax year. So for 2025/26 income, your return and any tax owed must reach HMRC by 31 January 2027. If you miss this, HMRC charges automatic penalties from day one. Many locum doctors also face a payment on account obligation, where HMRC asks for 50% of the prior year’s tax bill in advance each January and July. This can create a significant cash flow shock if you are not prepared for it.

Keeping your records straight

As a self-employed locum, you must keep accurate records of all income and expenses throughout the year. NDCA’s bookkeeping service takes that responsibility off your plate, so you can focus on clinical work and know that your numbers are accurate when your return is filed.

Agency locums: PAYE and Class 1 NI

If you work through a staffing agency or umbrella company, the agency or umbrella is typically your employer for tax purposes. That means you are on PAYE and national insurance is deducted at source before you are paid.

In 2026/27, employee NI runs at 8% on earnings between £12,570 and £50,270. Above £50,270 the rate drops to 2%. Your employer (the agency or umbrella) pays employer NI at 15% on your earnings above £5,000. You do not pay employer NI yourself, but it does affect what agencies can offer you as a day rate.

Being on PAYE does not always mean your tax affairs are simple. If you have multiple PAYE sources, receive income from other work, have rental income or any other untaxed income, you will still need to file a Self Assessment return. It is worth checking your tax code each year. Many locums on PAYE have incorrect codes, particularly when working across multiple trusts or agencies simultaneously.

Limited company locums: a different structure entirely

Some locum doctors choose to operate through a personal service company (PSC), typically a limited company they own and direct. The appeal is straightforward: Corporation Tax rates are lower than income tax rates, and the director can draw a combination of salary and dividends to reduce their overall tax bill.

In 2026/27, Corporation Tax is charged at 19% on profits up to £50,000. Above £250,000 the main rate is 25%, with marginal relief applying on profits between £50,000 and £250,000. By contrast, a self-employed doctor paying income tax at 40% plus Class 4 NI on the same profit will pay considerably more from the company.

The dividend allowance in 2026/27 is £500. Dividends above that are taxed at 10.75% (basic rate), 35.75% (higher rate) or 39.35% (additional rate). The tax saving over drawing a pure salary can still be meaningful, but the gap has narrowed significantly over recent years and must be weighed against the administrative cost of running a company.

If you are considering forming a limited company, NDCA can handle company formation, Corporation Tax and annual accounts as part of a fixed monthly package. Our healthcare clients get a named accountant who understands the NHS locum market.

IR35 and off-payroll working rules

IR35 is the single biggest tax risk for locum doctors operating through a limited company. The off-payroll working rules, which were extended to the public sector in 2017 and to large and medium private sector clients in 2021, place the responsibility for determining your employment status with the NHS trust or agency that engages you, not with you.

If the trust decides your engagement falls inside IR35, your company’s income from that engagement is treated as employment income. That means you pay income tax and national insurance as if you were an employee, eliminating most of the tax advantage of working through a company. The trust or agency must deduct PAYE and NI at source before paying your company.

Many NHS trusts issue blanket inside-IR35 determinations for all locum doctors. If that is the case for your engagement, working through a limited company may offer little benefit and may actually cost you more in administration. You can challenge an incorrect determination using HMRC’s Check Employment Status for Tax (CEST) tool, but NHS trusts are not always responsive to individual challenges.

The key factors HMRC looks at when assessing IR35 status are:

• Control: does the NHS trust control how, when and where you work?
• Substitution: can you send a substitute in your place?
• Mutuality of obligation: is the trust obliged to offer work and are you obliged to accept it?
• Financial risk: do you bear any real financial risk in the engagement?
• Integration: are you integrated into the trust’s workforce and management structure?

Most locum doctor engagements score poorly on substitution and financial risk, which is why NHS trusts tend to treat them as inside IR35. Getting proper advice before you set up a company structure is essential.

Allowable expenses for locum doctors

Whether you are self-employed or operating through a limited company, claiming every allowable expense reduces your taxable profit and your tax bill. Many locum doctors under-claim because they are not sure what qualifies.

Expenses self-employed locums can claim

• Professional indemnity insurance premiums
• GMC registration fees and medical defence organisation subscriptions
• BMA membership where it relates to your work
• CPD courses and medical conference fees
• Travel costs to and from temporary workplaces (not regular commuting)
• Accountancy and bookkeeping fees
• Medical equipment and supplies used in your work
• A proportion of home office costs if you work from home on administrative tasks
• Telephone and broadband costs attributable to work use

Travel is a common area of confusion. If you have a regular workplace, travel to and from it is not deductible. But locum doctors who move between different hospitals and surgeries may be able to claim travel to temporary workplaces as a business expense. Keep mileage logs or records of public transport costs throughout the year, not just at year-end.

Expenses through a limited company

A limited company can claim a broader range of expenses, but the same principle applies: they must be wholly and exclusively for business purposes. The company can also claim capital allowances on equipment purchases, which may be more tax-efficient than a sole trader claiming the same costs.

The NHS pension and your tax bill

The NHS pension is one of the most valuable parts of working for the NHS, but it creates tax complications for high-earning locums.

Annual allowance

In 2026/27, the pension annual allowance is £60,000. For higher earners, the tapered annual allowance reduces this figure. If your adjusted income exceeds £260,000, your annual allowance is reduced. If your pension input (the increase in the value of your NHS pension benefits in a year) exceeds your available annual allowance, you face an annual allowance charge, taxed at your marginal rate. Many senior locum doctors breach the annual allowance without realising it, leading to unexpected tax bills.

The NHS pension scheme allows you to use the scheme pays facility to settle an annual allowance charge directly from your pension, which avoids an immediate cash outflow but reduces your eventual benefit. This is a complex area and you should seek specialist pension tax advice in addition to working with your accountant.

Pension contributions as a tax planning tool

If you are self-employed or working through a limited company, making additional pension contributions (into a SIPP or other personal pension) can reduce your taxable income. Contributions up to the annual allowance attract tax relief at your marginal rate. For a higher rate taxpayer, every £1,000 contributed effectively costs £600 after tax relief. This is one of the most effective tax planning tools available to locum doctors.

Making Tax Digital for locum doctors

From April 2026, Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) becomes mandatory for self-employed people and landlords with total income above £50,000. Most locum doctors will be caught by this from day one.

Under MTD for ITSA, you can no longer file a single annual Self Assessment return. Instead, you must submit quarterly updates to HMRC using MTD-compatible software, followed by a final declaration at the end of the tax year. The quarterly updates do not replace your year-end return, they are in addition to it.

The practical implication is that you need your financial records to be accurate and up to date every quarter, not just once a year. NDCA’s bookkeeping service is built around MTD-compatible software and handles quarterly submissions as part of the service, so you are not scrambling to gather records four times a year.

Working with an accountant

Locum doctors typically have more complex tax affairs than most self-employed people. You may have multiple income sources, an NHS pension, IR35 considerations, significant expenses to claim and potentially a limited company to manage on top of clinical commitments. Getting all of this right takes time you probably do not have.

NDCA is an ACCA-regulated accountancy practice that works with healthcare professionals across the UK, including NHS locum doctors, GP partners, hospital consultants and allied health professionals. We offer fixed monthly fees so you know exactly what you are paying, and you get a named accountant who handles everything from Self Assessment and bookkeeping to Corporation Tax and management accounts.

If you are currently with an accountant who does not specialise in healthcare or who you rarely hear from, it may be time to consider switching accountants. The process is straightforward and NDCA manages the transfer for you. We normally reply the same day.

Frequently asked questions

Do NHS locum doctors have to do a Self Assessment tax return?

Yes, in most cases. If you are self-employed and earning income without PAYE deductions, you must register for Self Assessment and file a tax return each year. Even if you are on PAYE through an agency, you will need to file a return if you have additional untaxed income, multiple employments or income above £100,000.

Is it worth setting up a limited company as a locum doctor?

It depends on your situation. If the NHS trust or agency that engages you applies an inside-IR35 determination, the tax advantage of a limited company largely disappears. If you have genuine outside-IR35 engagements, a company can reduce your tax bill, but the administrative costs and complexity must be weighed against the savings. Take advice before setting one up.

What national insurance do self-employed locum doctors pay?

Self-employed locums pay Class 4 NI at 8% on profits between £12,570 and £50,270 and at 2% on profits above £50,270 in 2026/27. They also pay Class 2 NI at a flat weekly rate. Check the latest HMRC guidance for the current Class 2 amount.

Can locum doctors claim travel expenses?

Yes, provided the workplace is temporary rather than a regular base. Travel to a hospital or surgery where you work regularly is not deductible. Travel to different locations on a session-by-session basis can normally be claimed. Keep detailed mileage logs or transport receipts throughout the year.

What is the annual allowance charge and how does it affect NHS locum doctors?

The annual allowance is the maximum amount your pension can grow in a year without triggering a tax charge. In 2026/27 it stands at £60,000, but it tapers down for very high earners. Senior locum doctors can breach this limit through their NHS pension alone, resulting in a tax charge at their marginal rate. You can pay the charge via the NHS scheme pays facility to avoid an immediate cash payment.

When does Making Tax Digital apply to locum doctors?

From April 2026, any self-employed person or landlord with income above £50,000 must comply with Making Tax Digital for Income Tax. Most NHS locum doctors will be within scope from the start. Quarterly digital submissions to HMRC will replace the single annual Self Assessment return. NDCA handles all quarterly submissions as part of its bookkeeping service.