By Dr. Ndubuisi “Andy” Egwim — MBBS, former NHS Salaried GP, author of The Moneywise Doctor.
Disclaimer: Moneywise Doctor provides financial education, not regulated financial advice. Always consult an FCA-registered adviser or a specialist medical accountant before acting on this content.
A limited company for locum doctors can save thousands in tax or quietly cost you more than it saves. The short answer is that the structure works brilliantly for some locum doctors and badly for others.
The difference comes down to three things: the proportion of your work that genuinely falls outside IR35, the day rate you command, and how much value you place on the NHS pension you would give up.
A limited company is a separate legal entity, registered at Companies House, that signs contracts in its own name, pays you a salary and dividends, and pays corporation tax on its profits. Setting one up is straightforward; deciding whether you should is the harder part.
Prefer to watch? I unpack the decision step by step on the Moneywise Doctor YouTube channel:
Key Takeaways
- A limited company suits a specific kind of locum doctor. The best candidates earn substantial outside-IR35 income and do not rely on NHS pension growth.
- IR35 is the deal-breaker. NHS locum sessions almost always sit inside IR35, which strips out most of the tax advantage.
- The NHS pension cost is real. Income paid through the company cannot build NHS pension benefits, and you lose the 23.7% employer contribution on every pound.
- Pension contributions through the company become tax-deductible. For higher earners this can offset a large slice of the NHS pension cost.
- Running costs typically reach £1,200–£2,400 a year in specialist medical accountant fees plus modest admin time.
Why so many locums get this decision wrong
Most locum doctors I speak to either rush to set up a limited company, chasing tax savings they will not actually receive, or avoid one altogether and miss real opportunities. Often, the rush follows a single conversation in a doctors’ WhatsApp group. The decision deserves more care than that. Therefore, walk through the structure below and apply each test to your own work pattern before you spend a pound on company formation.
How a limited company for locum doctors actually works
A limited company is a separate legal entity. It signs contracts in its own name, invoices clients, holds its own bank account, and pays its own corporation tax. You hold two roles within it: director and shareholder. The company pays you a small salary, usually set at or just above the National Insurance threshold, and the rest of your income reaches you as dividends.
This structure works because dividends carry lower combined tax rates than salary, and because the company pays no employer National Insurance on dividends. The company can also pay pension contributions directly into your SIPP and treat them as a tax-deductible business expense. As a result, the headline tax position can look attractive, provided IR35 does not apply to your contracts.
IR35: the rule that makes or breaks the decision
IR35 is HMRC’s name for the rules that decide whether you are genuinely self-employed for a piece of work or whether you are effectively an employee in disguise. If a contract sits “inside IR35”, the tax advantages of a limited company largely disappear; you pay broadly the same income tax and National Insurance as a PAYE employee.
Crucially, since April 2021 your end client decides your IR35 status, not you. For NHS locum work, the trust or practice almost always classifies the contract as inside IR35. Therefore, NHS locum sessions paid through your limited company typically deliver no tax benefit at all.
The limited company makes its strongest case when a meaningful share of your work falls outside IR35: private practice, medicolegal reports, expert witness work, teaching, content production, or direct contracts that genuinely pass the IR35 tests. Mix matters more than total income.
The NHS pension cost most locums underestimate
The NHS pension is one of the most generous defined-benefit schemes available to any worker in the UK. Your employer contributes 23.7% of pensionable pay on top of your own contribution, and the scheme grows your benefits each year with inflation plus 1.5%. When you take locum work through a limited company, you cannot make NHS pension contributions on that income, and the 23.7% employer contribution disappears for every pound the company earns.
Therefore, before you incorporate, calculate the value of the NHS pension you would give up. For a high-earning locum, the lost employer contribution alone often runs into five figures a year. If you want a fuller picture of how the NHS pension fits into your wider plan, read Doctors NHS Pensions Explained.
When does a limited company genuinely make sense for locum doctors?
No universal answer exists, but a clear pattern repeats across the locums I have worked with. The structure earns its keep when several of these conditions apply together.
When it usually pays off
- You earn £80,000 or more from work that genuinely sits outside IR35.
- You hold significant private practice, medicolegal, expert witness, or teaching income.
- Your career circumstances are stable, and you are not actively chasing CCT exams.
- You want to make large pension contributions and prefer to channel them through the company.
- A spouse or civil partner can hold shares for legitimate income-splitting purposes.
- You are not planning a residential mortgage application within the next two to three years.
When it usually doesn’t
- Most of your work runs through NHS trusts as inside-IR35 locum sessions.
- You sit early in your career and still actively build NHS pensionable service.
- You plan a mortgage application soon and need clean PAYE payslips.
- Your annual outside-IR35 income sits below roughly £50,000.
- You expect your work pattern to change significantly in the next twelve months.
If your situation falls between these two lists, talk to a specialist medical accountant before incorporating. The cost of bad advice here regularly outweighs the cost of good advice tenfold. The Limited Company Ultimate Guide for Medics walks through the same tests in more depth before you commit.
The tax saving: a worked example
Numbers help. Picture a locum doctor earning £100,000 a year, entirely from work that genuinely sits outside IR35 (the most favourable possible case for a limited company).
| Position | PAYE / sole trader | Limited company |
|---|---|---|
| Headline annual income | £100,000 | £100,000 |
| Income tax | ~£27,400 | Lower (mix of salary + dividends) |
| National Insurance | ~£5,300 | Minimal personal NI |
| Corporation tax | N/A | 19–25% on retained profits |
| Dividend tax | N/A | 8.75% basic / 33.75% higher rate |
| Typical net annual gain vs PAYE | — | ~£8,000–£12,000 |
That improvement of around £8,000–£12,000 a year sounds compelling, and for the right locum it is. However, the same doctor working inside-IR35 NHS sessions would see almost none of that benefit, and would also lose NHS pension growth worth several thousand pounds more.
Therefore, run the numbers on your actual mix of work, not the headline figure. Figures here are illustrative for the 2025/26 tax year and depend on your specific salary level, dividend strategy, pension contributions, and allowable expenses.
Set-up costs and ongoing admin
Forming a limited company is cheap and quick. Registering at Companies House costs around £50 and takes a single afternoon. The real cost lies in the ongoing administration.
Expect £100–£200 per month for a specialist medical accountant who handles your annual accounts, confirmation statement, corporation tax return, payroll, and self-assessment. You still need to register for VAT if your turnover passes £90,000. You will spend a few hours each month on record-keeping, even with a good accountant. Some doctors enjoy the structure and the control it gives them. Others find it eats more time than they expected.
Common mistakes locum doctors make
Across the doctors I have worked with, the same errors recur. The five worst offenders are these.
First, incorporating before honestly checking IR35 status across the bulk of work.
Second, underestimating the loss of the NHS pension employer contribution.
Third, mixing personal and business expenses, then untangling them at year-end.
Fourth, choosing a generalist accountant rather than a specialist who understands medical work.
Fifth, treating the company as a “tax shelter” rather than a long-term structure with its own discipline. Money inside the company is not your money until you draw it, and drawing it carries dividend tax.
If you also want to make sure you are not leaving money behind on your PAYE income while you decide, the Tax Relief Guide for NHS Medics covers the basic claims most locum doctors miss before they ever consider a company.
Where the limited company decision fits in the bigger picture
A limited company is one tool in a wider financial structure, not a strategy in itself. The locum doctors who do best combine the right working arrangement, the right tax structure for their income mix, and a long-term plan for pensions, ISAs, and protection. If higher earnings have already pulled you into the 60% tax trap, the limited company conversation often opens larger questions about pension contributions and SIPP strategy that matter more than the company itself.
Frequently Asked Questions
Do all locum doctors benefit from a limited company?
No. A limited company suits locums whose work mainly sits outside IR35 and who earn above roughly £80,000 from that work. NHS locum sessions almost always fall inside IR35, which removes most of the tax advantage.
Can I keep contributing to the NHS pension if I locum through a limited company?
Not on the income paid through the company. You can only contribute to the NHS pension on work paid directly to you under PAYE, such as a substantive NHS post or pensionable bank work.
How much does it cost to run a limited company as a locum doctor?
Expect £1,200 to £2,400 a year in specialist medical accountant fees, plus your own time for record-keeping and a small Companies House filing fee. Setup itself costs around £50 plus initial accountant advice.
What is IR35 and why does it matter so much?
IR35 is HMRC’s rule that decides whether a contract counts as genuine self-employment or “disguised employment”. Since April 2021, your end client decides your IR35 status. Inside-IR35 contracts strip out most of the tax advantage of a limited company.
Will a limited company affect my mortgage application?
Often, yes. Many lenders prefer two to three years of company accounts before lending to a company director. If you plan to buy a home in the next two years, weigh that timing carefully and read the Unlock Your First Mortgage guide before you incorporate.
Can my spouse own shares in my locum limited company?
Yes, provided the arrangement is genuine and properly documented. Adding a shareholding spouse can enable legitimate income splitting, but HMRC scrutinizes arrangements that lack commercial substance. Take specialist advice before setting up share structures.
Related Reading
- Doctors NHS Pensions Explained
- How NHS Doctors Can Avoid the 60% Tax Trap
- NHS Pension Problems Doctors Face: The Hidden Barrier
- IMG Financial Freedom: Beyond the Paycheque for Doctors
Decide With Clarity, Not With Guesswork
If you are weighing up whether a limited company is the right move for your locum career, the free Limited Company Ultimate Guide for Medics walks through every test before you spend a pound on company formation.
It helps you:
- ✅ Check your IR35 status across all your contracts
- ✅ Calculate the real tax saving for your actual income mix
- ✅ Avoid the NHS pension and mortgage traps that catch most locums
Get the free guide here:
👉 https://moneywisedoctor.com/limited-company