Locum doctors, nurses, dentists and allied health professionals face a decision that most other contractors do not have to think about in quite the same way, because the answer is not purely a tax question. Whether you work through PAYE, as a sole trader, or through your own limited company affects whether you can keep contributing to the NHS Pension Scheme, something that rarely comes up in general contractor advice but matters enormously in healthcare.
Disclaimer: This article is for general information only and reflects HMRC and NHS Pension Scheme guidance current at the time of writing. Pension scheme rules in particular are detailed and specific to individual circumstances. Always seek specific advice, including from NHS Pensions directly where relevant, before deciding how to structure your locum work.
This article sets out the practical differences between PAYE, sole trader status and a limited company for locum and freelance clinical work, why the public sector status of NHS engagements changes the calculation, and what tends to work best in practice.
Why This Decision Is Different for Healthcare Professionals
For most contractors, the PAYE versus limited company decision comes down largely to tax efficiency and IR35 status. For clinicians, a third factor sits alongside those two, pension access. Company arrangements generally cannot participate in the NHS Pension Scheme, while genuinely self employed and PAYE arrangements often can, subject to the specific terms of the engagement and the scheme rules in force at the time. For a doctor, dentist or senior nurse with many years of NHS service already built up, giving up further pension accrual to save a comparatively modest amount of tax is frequently the wrong trade, even where a limited company would look more tax efficient on paper.
Public Sector Engagements Are Treated Differently From Day One
Off payroll working rules, commonly known as IR35, have applied to public sector engagers since 2017, several years before the same rules extended to the private sector. This matters because, unlike the private sector, there is no small organisation exemption for public sector bodies. Every NHS trust, regardless of its size, must determine the IR35 status of anyone it engages through a personal service company, and in practice most NHS trusts take a cautious approach, treating locum consultants, junior doctors and most clinical roles as inside IR35 by default, particularly where the work involves fixed shifts, direct supervision and no realistic right of substitution.
This is a meaningful contrast with our general guide to IR35 and off payroll working, which explains how the small company exemption threshold changed for private sector engagers in April 2026. That change has no bearing on NHS trusts, since public sector bodies were never within scope of the small company exemption in the first place.
Where an engagement is inside IR35, income is taxed broadly as employment income regardless of whether it is paid to an individual directly or to their limited company, and the tax advantages that normally come from operating through a company largely disappear, while the costs and administrative burden of running the company remain.
Where a Limited Company Can Still Make Sense
Not every clinical engagement sits inside IR35. Private sector work, such as sessions for private hospitals, medico legal reporting, aesthetic clinics, or independent consultancy work that genuinely involves control over how and when the work is carried out, along with a realistic right to send a suitably qualified substitute, can properly be assessed as outside IR35. Where that is the case, a limited company can offer the same profit extraction flexibility available to any other contractor, combining a modest salary with dividends.
The trade off remains the same, however. Income paid to a limited company, rather than as an individual's self employed earnings or salary, is generally not pensionable under the NHS Pension Scheme. For clinicians who are still actively building pension benefits, this needs to be weighed against any tax saving before deciding a limited company is the right structure, even for genuinely outside IR35 work.
Worked Example 1: An Inside IR35 Hospital Locum
Dr Adeyemi takes a series of locum shifts at an NHS trust, working set hours under the direct supervision of a consultant with no right of substitution. The trust determines the engagement as inside IR35. Whether Dr Adeyemi is paid directly through the trust's payroll, through an agency operating PAYE, or through his own limited company, the income for these shifts is taxed under PAYE with Income Tax and National Insurance deducted at source, and a personal service company brings no tax advantage at all, only extra accountancy costs and administration. Because the arrangement is treated as employment income, Dr Adeyemi may also be eligible to continue building NHS Pension Scheme benefits on this income, depending on the exact engagement route, which is a further reason a limited company offers no benefit here.
Worked Example 2: An Outside IR35 Private Sector Engagement
Dr Whitfield provides independent medico legal reporting work for several private clients, setting her own hours, using her own equipment, and genuinely able to send a suitably qualified colleague in her place if unavailable. This work is properly assessed as outside IR35. Operating through her limited company, Dr Whitfield takes a salary of £12,570 and extracts the remaining profit as dividends, in line with the approach set out in our guide to paying yourself as a director. This income is not pensionable under the NHS Pension Scheme, but since this work sits entirely outside her substantive NHS employment, she continues building pension benefits through her main NHS role separately, and the company structure genuinely reduces her overall tax on this additional income.
Worked Example 3: A Sole Trader GP Locum
Dr Osei works as a GP locum across several practices, invoicing each practice directly for sessions worked, without operating through a limited company. Because GP locum work of this kind has traditionally been treated as self employment for tax purposes, and depending on the specific NHS Pension Scheme arrangements in place at the time, self employed GP locums have historically been able to continue pension contributions through a specific locum pension form process. Dr Osei's accountant confirms his eligibility directly with NHS Pensions before relying on this, since the exact rules and forms involved can change and depend closely on individual circumstances. Operating as a sole trader here avoids both the administrative cost of a limited company and the pension complications that would arise from routing this income through one.
VAT Is Rarely the Deciding Factor, But Check It Anyway
Most services provided by registered healthcare professionals in the course of medical care are exempt from VAT, which means many locums never need to consider VAT registration even where their income comfortably exceeds the usual £90,000 threshold. This exemption does not automatically extend to every activity a clinician might undertake, however. Work such as some occupational health assessments, cosmetic procedures without a therapeutic purpose, expert witness work, or medico legal reporting can fall outside the medical exemption depending on the exact nature of the service, and a locum with a mix of exempt clinical work and non exempt consultancy style work may need to consider VAT registration on the non exempt portion specifically. This is worth reviewing with your accountant if your work extends beyond direct clinical care.
The New Umbrella Company Rules Affect Healthcare Staffing Too
Many locums, particularly in nursing and allied health professions, are paid through umbrella companies engaged by staffing agencies. From 6 April 2026, new joint and several liability rules mean that agencies, or end clients where no UK agency is involved, can become liable for PAYE and National Insurance that an umbrella company fails to account for correctly. This is covered in detail in our IR35 and off payroll working guide. For locums using umbrella arrangements, this change is generally protective, since it gives HMRC a stronger route to recover unpaid tax from the agency or client rather than pursuing the individual worker, but it is still worth using an umbrella company with a clear, checkable compliance record.
Frequently Asked Questions
Is locum GP work automatically treated as outside IR35?
No, there is no blanket rule. Each engagement needs to be assessed on its own facts, including how much control the practice has over how and when the work is done, whether a genuine right of substitution exists, and whether the arrangement looks more like ad hoc self employment or a regular recurring role. GP practices are also public sector bodies for IR35 purposes, so where a limited company is used, the practice, not the GP's company, is responsible for making the determination.
Can I have both PAYE income from a substantive NHS post and self employed or limited company income from locum work?
Yes, this is very common. Many clinicians hold a substantive NHS post taxed through PAYE alongside separate locum or private work taxed differently. Each income stream is assessed on its own terms, and your accountant will bring them together correctly on your Self Assessment return each year.
Does the small company exemption for IR35 apply to NHS trusts?
No. Public sector bodies, including all NHS trusts regardless of size, have never benefited from the small company exemption that applies to private sector engagers. The April 2026 threshold change discussed in our general IR35 guide has no effect on how NHS trusts assess locum engagements.
Will using a limited company stop me building up NHS Pension Scheme benefits on that income?
Generally, yes, income paid to a limited company rather than to you personally is not typically pensionable under the NHS Pension Scheme. This is one of the most important factors to weigh before choosing a company structure for any work you would otherwise want to remain pensionable, and it is worth confirming your specific position with NHS Pensions before deciding.
Do I need to register for VAT on my locum income?
Most direct clinical care provided by registered health professionals is VAT exempt, so many locums never need to register regardless of how much they earn from that work. Certain other activities, such as some medico legal or expert witness work, can fall outside the exemption, so it is worth reviewing your full range of work with your accountant rather than assuming everything is automatically exempt.
Should I use an umbrella company for hospital locum work?
This depends on the agency and trust involved, and on your own preference for administrative simplicity. Since the engagement is very likely to be inside IR35 in any case, a limited company offers little benefit, so the practical choice is usually between direct PAYE through the trust or agency, or an umbrella company, based on convenience and which route best supports continued pension contributions.
What happens if HMRC decides my outside IR35 assessment was wrong?
If HMRC successfully challenges an outside IR35 determination for a private sector engagement where you or your company made the assessment, additional Income Tax and National Insurance can become due, along with possible penalties and interest. Keeping clear records of the actual working arrangements, not just the written contract, is important evidence if a determination is ever questioned.
What CoreAcc Accountants Can Help You With
CoreAcc Accountants works with locum doctors, dentists, nurses and allied health professionals to structure their income in the way that genuinely suits their circumstances, taking pension continuity into account alongside tax efficiency, not instead of it. We review whether specific engagements are likely to be inside or outside IR35, advise on VAT exposure where clinical and non clinical work are mixed, and handle the accounting for sole trader, PAYE and limited company income side by side where clients hold more than one type of engagement at once.
Get in Touch
If you are weighing up how to structure your locum or freelance clinical work, contact CoreAcc Accountants and we will look at your specific engagements, including the pension implications, before recommending a structure.
CoreAcc Accountants is an ACCA accredited firm of Chartered Certified Accountants based in Borehamwood, Hertfordshire. This article was published in September 2026 and reflects HMRC and NHS Pension Scheme guidance current at the time of writing. It does not constitute professional or legal advice. Always seek specific advice tailored to your individual circumstances.
