It’s only natural for medical professionals working in a locum capacity to have plenty of questions about tax when it comes to their finances. All those years of study and work experience don’t leave much time to explore how you should be reporting your earnings and paying tax!

In this article we’ll answer common questions (including the ones you might not think to ask!) about paying tax and the tax relief available for locum doctors. We also have a separate guide available for bank nurse staff.

What is a locum doctor?

A locum doctor will normally work in temporary vacancies, as and when they’re required. This might be to cover sickness absences and holidays, or to provide extra support during particularly busy periods such as flu season.

How are locum doctors paid?

This largely depends on how you operate as a locum. Some doctors choose to work through an agency which handles the payment side of things for them. Others will register a business to carry out locum work, and then pay themselves through that depending on what sort of business structure they decide to use.

It’s worth keeping in mind that locum work normally means you’ll only be paid for the hours that you do. You won’t be entitled to annual leave or sick pay as a result of it!

Should I work for someone else or be self-employed?

This is entirely down to a matter of personal choice! There are pros and cons to doing employed or self-employed which we go over in more detail in a separate article, but to give you a rough idea you might consider:

• You won’t have an employer to make National Insurance or pension contributions if you work for yourself. You’ll also need to make your own pensions and savings arrangements.
• Being self-employed allows you to claim tax relief on expenses (which you might not normally be able to do through an employer) as long as they relate solely to the work
• Working through an agency or for an employer usually means they’ll take care of payroll and tax reporting. A self-employed locum will need to keep income and expense records, and use these to complete their tax return.

How do locum doctors pay tax?

Working as a locum doctor can be particularly confusing from a tax point-of-view. It’s not a legal structure as far as paying tax is concerned, so you’ll need to decide how you want to operate, and then understand what this means for tax compliance.

Locum work essentially means you’re working as a contractor, and there are lots of options available in this respect, such as:

• Working through an agency
• Operating as a sole trader
• Setting up a limited company

Each option will have a different impact on how and when you pay tax, so we’ll go over them in more detail below.

Paying tax when you do locum work through an agency

Lots of locums work via an agency or even directly for the NHS, so their pay and taxes are taken care of in much the same way that they would be if you worked for an employer. They’ll work out your wages each time, make any deductions for things like tax and National Insurance ‘at source’, and then pay these deductions on to HMRC for you.

It makes tax very easy because you won’t need to do anything (beyond checking your payslips and shouting at someone if they get it wrong). You’ll also get the benefit of employer contributions, such as towards your National Insurance and pension.

Sole trader

Being a locum and setting up as a sole trader means there’s no legal separation between your personal and business finances. All the business’s assets and liabilities are directly attached to you, but you also get to keep all the profits for yourself.

Working as a sole trader locum has its pros and cons. The tax and reporting side of things is simple to navigate and operate. A potential negative is that you’re personally and wholly responsible for any trouble the business might find itself in.

Limited company

One of the main benefits of setting up as a limited company for locum work is that you can appoint yourself as a director. This means you can pay yourself through dividends or salary, or a tax-efficient combination of the two.

Do locum doctors need to worry about IR35?

Contracting as a locum doctor through your own limited company does mean that you’ll need to have IR35 on your radar. This legislation sets out to deal with ‘off payroll working’, where someone is essentially an employee in all but name, whilst taking advantage of the tax efficiency offered by your own limited company.

In a nutshell, being ‘inside IR35′ means your client(s) treat you the same way they treat their full-time employees. Applying this to locum doctors specifically: if you regularly work within the same practice and under the same hours, for extended periods of time, HMRC may deem your business as ‘inside IR35’.

If this is the case, the practice you’re working for will only pay your invoices after making the necessary deductions, in the same way they would a PAYE employee. It’s then down to you to ensure you don’t end up being taxed twice.
 

IR35 considerations for locums with a limited company

• Are you working for a specific practice on a significantly regular basis?
• Don’t accept anything that might be considered an employment benefit from any of the practices you work for. This includes things like sick pay or holiday pay.
• If you must take time off work and therefore need somebody to fill your place temporarily, make sure you’re the one who enlists your replacement. Your substitute should offer the same exact services you were delivering and shouldn’t be somebody who already works on a long-term basis for that practice. You should then also be responsible for issuing their pay.

Does a locum GP need to do a tax return?

Yes, a locum doctor will need to submit a tax return in the same way any other self-employed professional would. How and when this needs to happen depends on how your business is legally structured.

For instance, if you register as a sole trader, you will need to make submissions for Self Assessment, and pay Income Tax and National Insurance on your profits.

If you register as a limited company, you will need to submit Company Tax Returns and pay Corporation Tax. As a director of a limited company, you are also required to submit your own separate Self Assessment, as your earnings are separate to that of the company’s.

Deducting allowable expenses will help lower your tax bill, however your business is set up.

 
Falling behind with these regulations not only risks you missing deadlines and receiving penalties from HMRC, but it also puts you at risk of overpaying tax and giving away money that could still be in your business bank account.

What expenses can locum doctors claim?
A self-employed locum, such as a doctor who works as a sole trader or through their own limited company, can usually claim tax relief on any expenses “wholly and exclusively” related to the work they do. This can be really varied, but could include things like:

• Travel between hospitals or patients (but not to a ‘usual place of work’ if you spend more than 40% of your time there, and expect to do so for longer than 24 months)
• Medical kit such as stethoscopes, otoscopes, and beyond
• Professional subscriptions and fees such as for the GMC and BMA
• CPD and medical journals to keep up with best practice
• Admin costs, such as a proportion of your household bills if you use a home office to sort out invoicing, and other things like stationery

 
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