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How Locum Doctors Should Handle Their Tax Returns

If you work as a locum doctor in the UK — whether through an agency, your own limited company, or directly with NHS trusts — your tax position is more involved than it is for a salaried GP or hospital doctor. This article covers everything you need to know about filing your locum doctor tax return correctly: from registering for self assessment and claiming the right expenses, to understanding IR35 and managing your NHS pension annual allowance charge. It is written for locum GPs, hospital locums, and any doctor who earns income outside a standard PAYE contract.

Who needs to file a tax return as a locum doctor

Any locum doctor who earns income that is not fully taxed through PAYE must register for self assessment with HMRC. That includes doctors who:

  • Work through a locum agency but are paid gross (without PAYE deductions)
  • Invoice NHS trusts or GP practices directly as a sole trader
  • Operate through their own limited company
  • Have multiple sources of income — for example, a mix of salaried sessions and locum shifts
  • Earn over £100,000 in a tax year, because the personal allowance starts to taper off above that threshold
  • Receive a pension annual allowance charge from the NHS scheme

Even if some of your income is taxed through PAYE, a self assessment return is still required if the rest of your income takes your total earnings above the basic rate threshold of £50,270 in 2025/26, or if you have any untaxed income at all.

Register with HMRC by 5 October following the end of the tax year in which you first became self-employed. Miss this and HMRC can issue penalties before you have even filed your return.

Sole trader vs limited company: which structure suits you

Most locum doctors start out as sole traders. You report your locum income and expenses on the self-employment pages of your self assessment return, pay income tax at 20%, 40%, or 45% on profits, and pay Class 4 National Insurance on top. It is straightforward and has low administrative overhead.

Some locum doctors — particularly those with consistently high earnings — set up a limited company. The company invoices for locum work, pays corporation tax on its profits (19% on profits under £50,000 in 2025/26, rising to 25% on profits over £250,000), and the director-shareholder draws a salary and dividends. Done properly, this can reduce the overall tax bill. Done without proper planning, it can create IR35 exposure and unexpected costs.

There is no single right answer. The right structure depends on your income level, whether you have a working spouse or partner, your NHS pension contributions, and whether the engagements you take on fall inside or outside IR35. Speak to an accountant who works with healthcare professionals before deciding.

Points to consider before incorporating

  • Limited companies carry higher compliance costs — annual accounts, corporation tax returns, and confirmation statements all need filing at Companies House
  • NHS locum work often falls inside IR35, which can wipe out the tax advantage of operating through a company
  • Dividend income sits outside the NHS pension calculation, which may or may not suit your retirement planning
  • The dividend allowance is just £500 in 2025/26, so most dividend income will be taxed — at 8.75% (basic rate), 33.75% (higher rate), or 39.35% (additional rate)

Allowable expenses locum doctors can claim

Locum doctors can claim expenses that are incurred wholly and exclusively for the purpose of their self-employed work. The word ‘wholly’ matters — personal or dual-purpose costs generally cannot be deducted.

Travel and accommodation

Travel between different NHS sites where you work as a locum is allowable. Travel from home to a regular, fixed place of work is not. If you are a genuine itinerant worker with no single base — which is common for locums — then travel from home to each separate site may well be deductible. Keep a mileage log. In 2025/26, HMRC’s approved mileage rate is 45p per mile for the first 10,000 miles in a personal car — check the latest HMRC guidance for rates beyond that and for other vehicle types.

Accommodation costs when working away from home overnight are also deductible, provided you are not staying close to your permanent home.

Professional fees and subscriptions

  • GMC registration fee
  • Medical Defence Union or Medical Protection Society membership
  • Royal College membership and examination fees (where directly relevant to your current work)
  • BMA subscriptions
  • CPD courses and medical conferences

Equipment and home office

Medical equipment bought for your locum practice — a stethoscope, a portable blood pressure monitor, clinical bags — qualifies as a capital allowance and can usually be written off in full in the year of purchase through the Annual Investment Allowance. A proportion of your home broadband and phone costs is allowable if you use them for work. If you work from a dedicated home office space, a proportion of household running costs may also be claimable — but take advice before claiming the full cost of a room, as it can create a capital gains tax complication when you sell your home.

Accountancy and bookkeeping

The cost of your accountant’s fees and any bookkeeping service is fully deductible against your self-employed income.

IR35 and locum doctors: what you need to know

IR35 is the off-payroll working legislation that HMRC uses to determine whether a contractor is genuinely self-employed or is, in substance, an employee of the end client. If your engagement falls inside IR35, you pay income tax and National Insurance as though you were an employee — even if you invoice through a limited company.

For NHS work, the rules changed significantly in April 2021. Where the end client is a medium or large public sector body — which includes NHS trusts and most GP federations — the responsibility for assessing IR35 status shifted to the engager, not the contractor. In practice, many NHS bodies issue blanket inside-IR35 determinations for locum doctors. That means the agency or NHS trust must deduct PAYE and National Insurance before paying you.

If you are receiving income through your limited company that is already taxed as employment income under IR35, you still need to account for that correctly in your company’s accounts and your personal self assessment return. Getting this wrong leads to double taxation.

Locums working directly for private clinics or smaller GP practices may fall outside the off-payroll rules if those businesses are classified as small. In those cases, the responsibility for IR35 assessment remains with you. Document your working practices carefully — the right to substitution, lack of mutuality of obligation, and control over how you work are the key tests.

The NHS pension and your tax return

The NHS pension is one of the most generous defined benefit schemes in the UK, but it creates a real tax problem for many senior locum doctors: the annual allowance charge.

What is the annual allowance charge

The pension annual allowance in 2025/26 is £60,000. For NHS pension members, this is measured not just by the contributions you make, but by the increase in the value of your pension benefit over the year — known as the ‘pension input amount’. For doctors who have seen significant pay increases or who hold large accrued benefits, this can easily exceed £60,000 even with modest earnings growth.

Where your pension input amount exceeds the annual allowance (after using any unused allowance carried forward from the previous three years), the excess is taxed as income on your self assessment return. This charge can run into thousands of pounds and comes as a shock to doctors who were not expecting it.

Scheme pays

If your annual allowance charge exceeds £2,000 and your pension input amount exceeds the standard annual allowance, you can ask the NHS pension scheme to pay the charge on your behalf, in exchange for a reduction in your future pension. This is called ‘scheme pays’. You must elect for this by 31 July following the tax year. It does not remove the charge — it defers payment into your pension.

NHS pension statements arrive later than most pension statements, which means doctors often need to file their self assessment return before they have confirmed figures. If that applies to you, file using your best estimate and amend the return once the figures are confirmed.

VAT registration for locum doctors

Most locum medical services provided by registered doctors are exempt from VAT under the health and welfare exemption. This means that if all your income comes from providing medical care — GP locum sessions, hospital shifts, private consultations — you do not need to charge VAT and cannot usually register for VAT voluntarily on those services.

However, if you provide services that fall outside the VAT exemption — such as medico-legal reports, occupational health assessments that are not primarily for the treatment of the individual, or expert witness work — those services may be standard-rated or reduced-rated. If your taxable turnover from these non-exempt activities exceeds £90,000 in a rolling twelve-month period in 2025/26, you must register for VAT returns.

If you provide a mix of exempt and taxable services, partial exemption rules apply. This is an area where errors are common and the cost of getting it wrong can be significant. Take specific advice if your income comes from a varied range of activities.

Making Tax Digital and locum doctors

Making Tax Digital for Income Tax Self Assessment (MTD ITSA) will affect self-employed people and landlords with income over £50,000 from April 2026. Most locum doctors who work regularly will have income above this threshold.

Under MTD ITSA, you will no longer file a single annual self assessment return. Instead, you will need to keep digital records and submit quarterly updates to HMRC through MTD-compatible software, followed by a final end-of-period submission. Xero is one of the main software options — Xero training is available if you want to get set up ahead of the April 2026 start date.

If you currently keep paper records or use spreadsheets, now is the time to move to a digital system. The quarterly reporting requirement is not optional once you are above the threshold, and HMRC has made clear that penalties will apply for non-compliance.

Key deadlines and penalties

Missing HMRC deadlines costs money. Here are the dates that matter for locum doctors in 2025/26:

  • 5 October 2025 — deadline to register for self assessment if you became self-employed in the 2024/25 tax year
  • 31 October 2025 — deadline for paper self assessment returns for 2024/25
  • 31 January 2026 — deadline for online self assessment returns for 2024/25, and payment of any tax owed plus your first payment on account for 2025/26
  • 31 July 2026 — second payment on account for 2025/26
  • 31 July 2025 — deadline to elect for NHS scheme pays for the 2024/25 annual allowance charge

The late filing penalty starts at £100 immediately after 31 January. Daily penalties of £10 begin after three months, and further fixed and percentage-based penalties apply at six and twelve months. Interest also runs on unpaid tax from 31 January.

If you are new to self assessment, payments on account can catch you out. HMRC requires you to pay 50% of your estimated tax bill for the current year in January and another 50% in July. This means your first self assessment payment will often cover one and a half years of tax at once. Plan your cash flow accordingly.

Locum doctors who stay on top of their records throughout the year — logging income, categorising expenses, and keeping receipts — find the self assessment process far less painful than those who pull everything together in January. If the paperwork is not something you want to spend time on, a specialist accountant who works with healthcare professionals can handle it for you.

Frequently asked questions

Do locum doctors pay National Insurance?

Yes. Self-employed locum doctors pay Class 4 National Insurance on their profits — check the latest HMRC guidance for current Class 4 rates and thresholds, as these can change. Class 2 NI was effectively abolished from April 2024, but your entitlement to the State Pension is now protected through Class 3 credits if your profits exceed the small profits threshold — check the latest HMRC guidance on this point.

Can a locum doctor claim mileage to and from NHS sites?

It depends on your working pattern. If you work at multiple different sites with no single fixed base, travel from home to each site is generally allowable. If you have a regular, fixed workplace, ordinary commuting costs are not deductible. Keep a mileage log for every journey and note the purpose of each trip.

Is locum income subject to VAT?

Medical care provided by a registered doctor is generally exempt from VAT. However, some activities — such as medico-legal work or certain occupational health reports — may be taxable. If your taxable (non-exempt) turnover exceeds £90,000 in 2025/26, you must register for VAT on those activities.

What happens if the NHS charges me an annual allowance tax charge?

You must declare any annual allowance charge on your self assessment return. If the charge exceeds £2,000 and your pension input exceeds the annual allowance, you can apply for scheme pays, which allows the NHS pension scheme to settle the charge by reducing your future pension benefit. The election deadline is 31 July after the end of the relevant tax year.

Should a locum doctor set up a limited company?

It depends on your income level, the nature of your engagements, and your broader financial plans. A limited company can reduce tax for some locums, but it also brings greater compliance costs and IR35 risk — particularly for NHS work. Take advice from an accountant with experience in healthcare before incorporating.

When do locum doctors need to start using Making Tax Digital?

If your self-employment income is over £50,000, MTD ITSA applies from April 2026. You will need to keep digital records and submit quarterly updates through MTD-compatible software instead of filing a single annual return. If your income is between £30,000 and £50,000, the start date is expected to be April 2027 — check the latest HMRC guidance for confirmation.