Healthcare workers — particularly locum doctors, GP locums, agency nurses, physiotherapists, and other medical professionals — have some of the most complex tax situations of any group in the UK. Multiple sources of income, NHS pension implications, the risk of IR35, and large expense claims all interact in ways that require specialist knowledge to navigate correctly.
This guide covers the key tax issues for locum and agency healthcare workers in 2026/27.
Who This Guide Is For
This guide is relevant to you if you are:
- A locum GP or hospital doctor working through an agency or directly
- An agency nurse or allied health professional
- A dentist or dental contractor operating through their own company
- A physiotherapist, occupational therapist, or other healthcare professional working self-employed
- A healthcare professional with income from both employed and self-employed sources
Multiple Income Streams — Employed and Self-Employed Together
Most healthcare locums have at least two income streams:
1. PAYE employment income — from NHS trusts or agencies who deduct tax and NI before paying you 2. Self-employment income — from direct locum bookings, private work, or clinical services billed by your own company
Both must be declared on your Self-Assessment return. This is important because the interaction between the two affects:
- Which tax band your self-employment income falls into
- Whether you have exceeded any thresholds (personal allowance, higher rate)
- Your National Insurance liability
Example: Dr. Fatima earns £60,000 PAYE from an NHS trust and £40,000 from locum work through her own limited company. Her PAYE income has already pushed her into the higher rate band. Any additional income extracted from her company as dividends is taxed at 33.75% (higher rate dividend tax), not 8.75%.
IR35 for Locum Doctors — A Critical Issue
IR35 is highly relevant for locum doctors operating through a Personal Service Company (PSC). NHS trusts are medium to large organisations and are therefore responsible for making IR35 status determinations.
In many cases, NHS locum arrangements are deemed to be inside IR35 — particularly where:
- The doctor works set hours dictated by the trust
- They work under the supervision of the clinical structure of the trust
- There is ongoing expected availability (mutuality of obligation)
- They cannot provide a substitute
If the NHS trust determines inside IR35, they must deduct PAYE and NI before paying your company. The tax difference between inside and outside IR35 for a doctor earning £150,000 can exceed £20,000 per year.
However, locums who set their own hours, work across multiple trusts, maintain genuine control over their working practices, and have a genuine right to substitute may be legitimately outside IR35. Each engagement must be assessed on its own facts.
NHS Pension — The Annual Allowance Trap
This is the most significant tax issue for high-earning healthcare workers. The NHS Pension is a defined benefit scheme — one of the most valuable in the country. However, the annual growth in your pension “pension input amount” counts against your annual allowance.
Annual Allowance 2026/27: £60,000
If the growth in your NHS pension (calculated using a specific HMRC formula) exceeds £60,000 in a year, you face an Annual Allowance charge — effectively income tax on the excess. Senior consultants, GPs in later career, and locums with high earnings are particularly at risk.
The Tapered Annual Allowance: For very high earners, the annual allowance tapers down to as low as £10,000. If your “threshold income” (roughly, income before pension contributions) exceeds £200,000, and your “adjusted income” (including employer pension contributions) exceeds £260,000, your annual allowance reduces by £1 for every £2 of income above £260,000.
Some senior NHS doctors have faced pension tax bills of £30,000–£100,000 in a single year from the Annual Allowance charge.
What to do: If you are earning above £100,000 from NHS and locum work combined, you need a specialist to model your pension input amount against your available annual allowance before each tax year ends. Carry-forward rules allow you to use unused allowance from the previous three years — this can significantly reduce or eliminate the charge.
Allowable Expenses for Healthcare Locums
Professional fees and subscriptions:
- GMC/NMC/HCPC registration fees
- Royal College membership and examination fees
- Medical Defence Union (MDU) or Medical Protection Society (MPS) fees
- BMA membership (if engaged in relevant activities)
Training and CPD:
- Course fees and conference attendance
- Examination fees
- Medical journals and textbooks
Equipment:
- Stethoscope, diagnostic equipment, PPE purchased personally
- Laptop or tablet used for clinical work, e-learning, or administration
Travel:
- Travel between different clinical sites (not commuting to your regular base)
- Overnight accommodation for work at distant hospitals
- Keep a mileage log — 45p per mile for the first 10,000 miles, 25p thereafter
Home office:
- If you do clinical administration, report writing, or e-learning from home, you can claim a proportion of home running costs
Limited Company for Locums — Is It Worth It?
For locums earning above £50,000 net income per year (outside IR35), a limited company typically delivers significant tax savings. However, the NHS pension interaction is crucial:
- Employed doctors (including those caught by IR35) accrue NHS pension automatically
- Self-employed locums outside IR35 operating through a company typically do not accrue NHS pension — this is a significant benefit to give up
For senior doctors close to the Annual Allowance, losing NHS pension accrual through a limited company structure can actually save money on Annual Allowance charges. For junior doctors or those with lower earnings, giving up NHS pension accrual is rarely worthwhile.
Every situation is individual. This is a decision that requires a detailed calculation, not a generic answer.
Are you a locum doctor or healthcare professional with a complex tax situation? At Your Tax Help Accountants in Stanmore, we provide specialist tax advice for NHS locums, GP partners, and healthcare workers. Call Talha on 07478 645331 or email us info@yourtaxhelp.co.uk
