If you’re considering becoming a locum doctor in the UK, you may already have been employed directly by the NHS or through an agency. Working through this sort of setup can be relatively straightforward – at least in terms of tax – because income tax and National Insurance are deducted from your pay.

Moving into self-employment means you’re responsible for declaring and paying tax on these earnings yourself. The way you do this depends on how you register with HMRC, so choosing the right business structure as a self-employed locum doctor is crucial. In this guide, we’ll explain your options.

Ways to work as a locum doctor

Locum doctors can provide their services through:

• NHS or locum agencies
• Their own limited company
• As a sole trader
• An umbrella company

Making the right decision on how you operate and structure your business is vital, because it shapes the way you run your business. For instance, the tax you pay, the expenses you can claim, and even things like pension contributions.
 

Should I work as a locum doctor through an agency?

Many locum doctors in the UK choose to work through the NHS or locum agencies because it’s typically the most straightforward way to find work quickly. If you sign up to an agency, you’ll have an ‘agent’ who’ll act as an intermediary between you and healthcare providers (such as GP surgeries, hospitals and clinics).

It’s an ideal choice if you’re just starting out because the agency will find you the work and handle the payroll side of things.

Like everything, there are downsides. For example, it can be less tax-efficient, you don’t get to set your own rates (and the agency will take a cut), as well as fewer opportunities to build a personal relationship with healthcare providers.

Working through an agency can be a starting point, but if you want more control over how you work then you might want to branch out into freelancing, or setting up your own business.

Is a limited company the best option for a locum doctor?

It can be! The most common reason for this is due to tax-efficiency. When you set up a limited company, you can appoint yourself as both a director and a shareholder. This gives you more control over how you pay yourself – usually by taking a salary from the business and then paying out dividends.

Operating through a limited company also means the business is a separate entity to you as an individual. It protects your personal assets if the company ever runs into financial difficulties.

Being self-employed also allows you to claim business expenses which you might’ve been unable to claim through agency work. It also removes the middleman, or your agent so to speak. This means you choose your hours and clients, set your own rates, and manage your own tax planning.

It’s important to weigh up the pros and cons of setting up a limited company, because whilst it can be tax-efficient there are also other considerations. For instance, how much you earn and any other income you get will affect tax efficiency, and the additional admin duties you’ll need to deal with are all worth thinking about.

There’s also the question of no longer receiving an NHS pension, so you might decide to pay into a pension through your limited company.

We have a tax calculator that can help you decide whether setting up a limited company is cost-effective or not.

Will IR35 affect me if I set up a limited company for locum work?

It might! IR35 is tax legislation designed to stop ‘disguised employment’. Locum doctors can ‘fall into IR35’ very easily – especially if you have the same clients and work similar shifts to employees also on site. If a contract is inside IR35:

• Your client will deduct tax as if you’re an employee (but without the employee benefits)
• That income will be treated as employment income and processed through PAYE, so you won’t be able to take it as a dividend (and dividends are good because you don’t need to pay National Insurance on them)
• The tax advantages you did have as a limited company are significantly reduced

This won’t affect the income you get from any contracts which are outside IR35 though, and many locum doctors will have both.

Operating as a sole trader for locum work

Becoming a sole trader is usually considered the most straight-forward way of setting up your own business. HMRC doesn’t differentiate between you and your business, so tax returns are (or can be!) much more straightforward – you also get to keep all your profits after tax.

Another huge benefit to operating as a sole trader locum doctor is your NHS pension – unlike a limited company you can still contribute to one. You’ll also be able to claim expenses and won’t have to worry about things like IR35.

You do need to take into consideration how much you’re earning though. If you’re a higher earner and also have other sources of income, it might not be as tax-efficient as setting up a limited company. This comes back to the way HMRC doesn’t separate you from the business, so you’ll pay personal income tax on everything, even if you don’t actually ‘withdraw’ it from the business.

A director of a limited company might have more control over how they pay themselves. For example, by taking a salary, paying dividends, a combination of the two, or just leaving the money in the company.

Working under an umbrella company as a locum doctor

Another way locum doctors can operate is through an umbrella company. In this instance, you’re technically employed by the third-party company. They’ll then handle things like tax and reporting at a fee – which is why many locums find them convenient. They do offer some of the benefits of a limited company but with the simplicity of being an employee.

When choosing an umbrella company, check their fees, how they pay you, and how quickly you’ll receive your money. It’s also very important to check their reputation! Some umbrella companies have a bad rep for promising all sorts of wonderful payment arrangements when what they really mean is tax evasion. Speak to an accountant if you’re not sure.

 
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