A Practical Guide to Accounting for Locum Doctors
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When you leave salaried NHS employment and start locuming, your tax situation changes immediately and significantly. This guide explains the key decisions, obligations, and genuine risks every locum doctor needs to understand.
Why accounting for locum doctors is different
Most locum doctors are not employed in the traditional sense. They pick up shifts through agencies, work directly with NHS Trusts, or operate through their own limited company. Each of those arrangements carries a different set of tax obligations, and HMRC does not treat them the same way.
The IR35 off-payroll working rules, introduced for public sector bodies in April 2017, changed the landscape considerably for locums working through a Personal Service Company (PSC). HMRC’s own internal guidance confirms that these rules have made it less common for locums to operate through PSCs in the NHS, because the responsibility for determining employment status shifted to the Trust, not the doctor. Getting this wrong does not just cost money at year-end; it can result in back-dated PAYE and National Insurance contributions.
From 6 April 2017, NHS Trusts acting as public sector clients became responsible for assessing whether IR35 applies to locum arrangements. If a Trust determines that IR35 applies to your engagement, PAYE and NICs are deducted before you are paid. You cannot override this determination by choosing a different company structure on your side.
Where locum doctors most often go wrong
The most expensive mistakes in locum doctor accounting tend to be quiet ones. They build up unnoticed over one or two tax years before HMRC opens an enquiry. Two areas account for the majority of problems.
Overclaiming travel and subsistence expenses
A recent First Tier Tribunal case is instructive here. A full-time locum doctor claimed travel and subsistence of over £160,000 across three tax years, with one year’s claim representing more than 50% of income. The Tribunal found the evidence impossible, because the doctor claimed to travel nine days per week. Separately, the Tribunal found that where the same NHS hospital site was attended repeatedly under an intermediary arrangement, it qualified as a permanent workplace, meaning travel from home was ordinary commuting and could not be deducted at all. The rule is straightforward: allowable travel must be to a temporary workplace, not a regular base.
Assuming IR35 does not apply without checking each engagement
IR35 is not a blanket rule that applies or does not apply to your entire locum career. In one notable case involving an NHS locum urologist operating through a PSC, the First Tier Tribunal found that IR35 applied to his engagement with one hospital but not to another, based on the specific terms and working practices at each site. Each engagement needs its own assessment. Locums who receive blanket determinations from Trusts that apply IR35 across the board may have grounds to challenge those decisions, but this requires proper documentation of actual working practices.
“Most locum doctors I speak to have been filing their own returns and assuming they are doing it correctly. The usual problem is not fraud; it is that nobody told them the rules for travel expenses or IR35 are genuinely different from what a salaried employee experiences.”
What to get in order, step by step
Whether you have just started locuming or you have been doing it for a couple of years and are not sure if your setup is right, the same three steps apply.
- Step 1: Confirm your working structure. Are you a sole trader taking locum income directly, a director of your own limited company, or being paid via an umbrella? Each structure has a different tax treatment, different filing obligations, and different exposure to IR35. If you are unsure which you are, check your contracts and how you are currently paid. If you are receiving payment with PAYE deductions already applied by an umbrella or Trust, that is relevant to what you still need to file personally.
- Step 2: Register with HMRC for the correct obligations. Sole traders earning above the personal allowance must register for Self Assessment by 5 October in the tax year following their first self-employed income. Limited company directors must file both a personal Self Assessment return and a Corporation Tax return for the company, plus a Confirmation Statement at Companies House. Missing these registration deadlines creates fines before you have filed a single return.
- Step 3: Set up a clean record of income and expenses from the start. Keep a mileage log for every journey to a temporary workplace. Retain receipts for GMC registration fees, medical indemnity insurance, relevant CPD costs, and any equipment purchased for clinical use. Do not guess at figures or round up. HMRC pays close attention to expense claims that are disproportionately large relative to locum income, as the £160,000 tribunal case above demonstrates clearly.
If you are a higher earner, your NHS pension annual allowance position also needs attention. NHS Pensions allows members to ask the scheme to pay 100% of an annual allowance charge directly to HMRC via mandatory scheme pays, rather than meeting it personally. This is a legitimate mechanism but it needs to be factored into your overall tax planning, not dealt with reactively.
Costs and what to expect
The cost of professional accountancy support for a locum doctor varies depending on your structure and activity. A sole trader with straightforward locum income who needs a Self Assessment return prepared will typically pay less than a limited company director who also needs company accounts, Corporation Tax, payroll, and confirmation statements handled each year. What matters is whether the fee reflects all the obligations you actually have. A fixed annual or monthly fee that covers everything you need is easier to plan around than hourly billing that can escalate when HMRC correspondence arrives or your circumstances change mid-year.
| Option | Pros | Cons |
|---|---|---|
| DIY via software | Low upfront cost | High risk of errors, no one checking IR35 exposure or expense eligibility |
| General high street accountant | Familiar with Self Assessment | May not understand locum-specific rules around IR35, temporary workplaces or NHS pension |
How to get started today
If you are already locuming and have not had your setup reviewed by someone who understands the IR35 rules, the NHS pension annual allowance position, and the travel expense rules specific to temporary workplaces, that is the first practical step. The earlier you act, the more options you have. HMRC can enquire into returns up to four years after filing in most cases, and longer if they identify an error.
- Gather your contracts for each current locum engagement and note whether you are paid directly by the Trust, via an agency, or through an umbrella. This determines your IR35 exposure and what you still need to file personally.
- Book a free call to go through your current structure and what you are filing. I will tell you clearly whether anything needs to change and what it would cost to handle it properly going forward.
Ready to sort your locum accounting?
I handle Self Assessment, company accounts, Corporation Tax, IR35 checks, and expense reviews personally for locum doctors across the UK, on a fixed fee with no tie-in. Book a free call and I will tell you exactly what your setup requires.
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AAT qualified accountant based in Uttoxeter. Personal, one-to-one accounting for small businesses and sole traders across the UK.