Accountant for Locum Doctors: Tax, IR35, and Limited Company Guidance

If you are a locum doctor working in the NHS or private sector, your tax situation is more complex than a standard salaried GP or hospital doctor. You are self-employed, or you may have set up a limited company. Either way, HMRC treats you differently from a permanent employee. And the wrong tax structure can cost you thousands.

This guide explains what you actually need from an accountant for locum doctors. We cover IR35, limited company vs sole trader, NHS contract rules, and the specific tax planning that makes a real difference to your take-home pay.

Why Locum Doctors Need a Specialist Accountant

Locum doctors sit in an unusual position. You are medically qualified, but you are also running a business. HMRC sees you as a contractor, not an employee. That means you are responsible for your own tax returns, your own National Insurance, and your own pension contributions.

A general high street accountant might handle a standard self-assessment. But locum work brings specific complications that most accountants never deal with. IR35 status, NHS framework agreements, the impact of the Off-Payroll Working rules on your contracts, and the question of whether you should operate through a limited company or as a sole trader.

You need an accountant who understands these factors. Not just in theory, but in practice with real NHS and private locum contracts.

IR35 and Locum Doctors

IR35 is the single biggest tax risk for locum doctors working through a limited company. It applies when you are effectively an employee in all but name, but you are invoicing through your own company. If HMRC determines you are inside IR35, you pay roughly the same tax and NI as a permanent employee. The tax advantage of your limited company disappears.

For locum doctors, the key question is whether your contract gives you enough control and independence to fall outside IR35. NHS framework agreements vary by trust and by region. Some trusts impose strict working patterns, supervision, and equipment rules that push you inside IR35. Others give genuine flexibility and autonomy.

An experienced accountant for locum doctors will review your actual contracts and working practices. They will tell you whether HMRC would view you as inside or outside IR35. And they will help you structure your work to stay on the right side of the rules if that is possible.

If you are caught inside IR35, your limited company still pays you a salary and dividends, but the company pays employer NI and apprenticeship levy on the deemed employment payment. That eats into your profit significantly.

Limited Company vs Sole Trader for Locum Doctors

Most locum doctors operate through a limited company. The tax advantages are well known: you pay corporation tax at 19% to 25% on retained profits, then dividend tax at 8.75%, 33.75%, or 39.35% depending on your total income. Compare that to a sole trader paying 20%, 40%, or 45% income tax plus Class 2 and Class 4 National Insurance on all profits above the thresholds.

But a limited company is not automatically the right choice. If your locum income is below £50,000 per year, the additional costs of running a company (accountancy fees, Companies House filings, payroll, corporation tax returns) may outweigh the tax savings. And if you are inside IR35 for most of your contracts, the limited company advantage shrinks further.

A good accountant will run the numbers for your specific situation. They will show you the net take-home difference between sole trader and limited company, factoring in your actual contract rates, IR35 status, and pension contributions.

NHS Pension and Tax Planning

The NHS Pension Scheme creates a specific complication for locum doctors. Your pension contributions are based on your NHS pensionable earnings, which for locums means your gross locum fees. If you operate through a limited company, the pension contribution is calculated on the salary you draw from the company, not the company's gross income. That can reduce your pensionable earnings significantly if you take most of your income as dividends.

Some locum doctors choose to take a higher salary to maintain NHS pension contributions. Others accept lower pensionable earnings and invest the surplus elsewhere. There is no single right answer. It depends on your age, your career stage, and your retirement goals.

Your accountant should understand the NHS Pension Scheme rules and help you model the impact of different salary and dividend mixes on your pension entitlement.

What to Look for in an Accountant for Locum Doctors

Not every accountant can handle locum doctor work. Here are the specific things to check before you appoint someone.

• IR35 knowledge. They must understand the off-payroll working rules and how they apply to NHS contracts. They should be able to review your contracts and give a view on your IR35 status.
• Limited company experience. They need to know how to run payroll for a director, file corporation tax returns (CT600), and manage dividend planning. They should also understand the director's loan account rules and the S455 tax implications.
• NHS pension expertise. They should be able to explain how your company structure affects your NHS pension contributions and help you optimise your salary for pension purposes.
• Making Tax Digital readiness. From April 2026, self-employed locum doctors with income over £50,000 must file quarterly updates through MTD-compatible software. Your accountant should already be using MTD-ready software like Xero, FreeAgent, or QuickBooks.
• Proactive tax planning. They should not just file your return. They should advise on pension contributions, capital allowances for equipment, and timing of dividends to minimise your tax bill.

Our ICAEW qualified team at Holloway Davies works with locum doctors across the UK. We review IR35 contracts, set up and run limited companies, and handle the full compliance cycle from payroll to corporation tax to self assessment.

How We Work with Locum Doctors

When you engage us as your accountant for locum doctors, we start with a full review of your current situation. We look at your existing contracts, your income levels, your pension position, and your business structure. Then we give you a written recommendation on whether your current setup is optimal.

If you are already operating through a limited company, we take over the bookkeeping, payroll, VAT (if registered), corporation tax, and personal tax returns. We use Xero and FreeAgent to keep everything digital and accessible. You upload your receipts and invoices through Dext or directly into the software. We do the rest.

If you are a sole trader considering incorporation, we run the numbers. We show you the net benefit of a limited company after accounting for all costs. And if it makes sense, we handle the incorporation process and register the company with HMRC and Companies House.

Costs and Fees

Accountancy fees for locum doctors vary depending on the complexity of your work. A straightforward sole trader with one or two NHS contracts and no limited company might pay £100 to £200 per month. A limited company director with multiple contracts, VAT registration, and pension planning needs typically pays £150 to £300 per month.

We give fixed fees with no hidden charges. You know what you pay from the start. And we include all the core services: bookkeeping, payroll, VAT returns, corporation tax, self assessment, and year-end accounts.

Common Mistakes Locum Doctors Make with Their Tax

Even experienced locum doctors make errors that cost them money. Here are the most common ones we see.

• Assuming a limited company is always better. It is not. If your income is below £50,000 or you are inside IR35 for most contracts, the costs may outweigh the benefits.
• Ignoring IR35 until HMRC asks questions. HMRC has increased IR35 enforcement activity. If they decide you are inside IR35, they will demand back taxes, interest, and penalties. A proactive review of your contracts is far cheaper than a retrospective HMRC settlement.
• Taking all income as dividends. Dividends are not pensionable for the NHS Pension Scheme. If you take minimal salary and large dividends, your NHS pension contributions drop significantly. That can reduce your retirement income by tens of thousands of pounds over your career.
• Failing to register for VAT on time. If your turnover exceeds £90,000 in any rolling 12-month period, you must register for VAT. Many locum doctors hit this threshold without realising. Late registration means paying VAT out of your own pocket plus penalties.
• Not keeping proper records. HMRC can ask for receipts and invoices going back six years. If you cannot provide them, you may face penalties. Use accounting software from day one.

Making Tax Digital for Locum Doctors

Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) becomes mandatory from April 2026 for self-employed individuals and landlords with qualifying income over £50,000. From April 2027 it drops to £30,000. From April 2028 it drops to £20,000.

If you are a locum doctor earning over £50,000, you must file quarterly updates through MTD-compatible software from April 2026. You cannot simply file one annual return. You need to keep digital records and submit summaries every three months.

This is not optional. If you are not ready, you face penalties. Your accountant should already be using MTD-compatible software and should be planning the transition with you now.

At Holloway Davies, we use Xero and FreeAgent, both fully MTD-compliant. We set up your digital records, manage the quarterly submissions, and handle the final declaration at year-end.

Getting Started

If you are a locum doctor looking for an accountant who understands your work, contact us. We will arrange a free initial consultation to discuss your situation. No obligation, no sales pitch. Just a straight conversation about your tax and business structure.

We are based in Manchester but work with locum doctors across the UK. Our team is ICAEW qualified and experienced in NHS and private sector locum contracts.

You can also read more about our accounting services or check our limited company tax guide for more detail on how we structure director pay and dividends.