Working as a locum doctor gives you flexibility and often higher pay compared to permanent NHS roles. But with that freedom comes responsibility. One of the biggest challenges is how locum doctors manage their taxes. Unlike salaried employees, you don’t have tax deducted automatically through PAYE. Instead, you need to take charge of your own tax affairs. This article will walk you through the strategies that locum doctors should follow to manage their taxes effectively. Let’s break it down! How Locum Doctors Should Manage Their Taxes Here are 10 essential strategies to help locum doctors manage their taxes efficiently and avoid costly penalties. Strategy 1: Pick the Right Structure for Your Work The first big decision that affects how locum doctors manage their taxes is how they operate. Most locums fall into one of these categories, and picking the right one is your first big decision. 1. Sole Trader (Self-Employed): You invoice hospitals or GP practices in your own name. You’ll file a Self Assessment return once a year and pay Income Tax and Class 4 National Insurance on your profits. It’s the simplest way to start and gives you the most control over your pension. 2. Employed via Agency or Practice (PAYE): The “hands-off” approach. The agency treats you like an employee. Hence, it deducts tax and National Insurance before the money hits your account. It’s low-admin. But you have fewer opportunities to claim back professional expenses. 3. Umbrella Company: The umbrella company acts as an intermediary. They collect your pay, take a fee, and then pay you a net salary after taxes. It’s common for short-term agency roles. But be aware that you often end up covering the cost of Employer National Insurance out of your day rate. Also, be aware that this rose to 15% in 2025, and the threshold was lowered to £5,000. This means more of your pay is now subject to this tax. 4. Limited Company: You set up a separate legal entity. You pay yourself a small salary and take the rest in dividends. This can be tax-efficient if you earn over £60k. However, you must watch out for IR35. If HMRC decides your “company” is just a cover for a normal job, they will tax you at the full employment rate anyway. Strategy 2: Register Correctly and Understand When You Must File A basic part of how locum doctors manage their taxes is simply registering in the right way and on time. If your locum work is as a sole trader and your gross income is more than £1,000 in a tax year, you must register for Self Assessment with HMRC.  Key Filing Deadlines: 31 October: Deadline for submitting a paper tax return. 31 January: Deadline for submitting your return online and paying your full tax bill. If you have a salaried NHS post and your gross locum income (before expenses) exceeds £1,000 in a tax year, you must file a Self Assessment return to declare all your income in one place. Simply getting on top of these dates is a key part of how locum doctors manage their taxes sensibly. Strategy 3: Learn the Tax and NI Bands That Affect You To help locum doctors manage their taxes, you need to know how the “banded” system works. The more you earn, the higher the percentage HMRC takes from that “top slice” of your income. Income Tax Rates (2026/27): Personal Allowance: Up to £12,570 (Tax-free). Basic Rate (20%): £12,571 to £50,270. Higher Rate (40%): £50,271 to £125,140. Additional Rate (45%): Above £125,140. Note: Your Personal Allowance is gradually withdrawn once your income exceeds £100,000. National Insurance (NI) for the Self-Employed: Class 2: Mandatory payments are abolished for most. However, if your profits are below £7,105, you can still choose to pay this voluntarily at a rate of £3.65 a week to protect your State Pension record. Class 4: This is 6% on profits between £12,570 and £50,270, and 2% on anything above that. Because these layers add up quickly, most advisors suggest that locum doctors manage their taxes by putting aside 30% to 35% of every invoice into a separate savings account. By doing so, they won’t be caught short in January. Strategy 4: Use a Clear System for Records and Bank Accounts Good bookkeeping is one of the easiest ways for locum doctors to manage their taxes without stress. It saves time and also ensures you do not miss out on deductions that lower your bill. Open a separate bank account: Even as a sole trader, you should keep your locum income away from your personal spending. If you mix your NHS salary with locum payments, it will be difficult to track your true profit. Log every invoice and payment: Use a basic spreadsheet or software to track your work. Record the location, the amount invoiced, and also the date the money hit your account. Store digital receipts: Keep copies of every work-related receipt in a cloud folder. This is important when you calculate which costs can reduce your taxable profit at the end of the year. By turning these actions into a weekly habit, you will find that the admin side of how locum doctors manage their taxes becomes much more manageable. Strategy 5: Know Which Expenses You Can Claim A massive part of how locum doctors manage their taxes is making sure they aren’t paying tax on money they’ve already spent on their career (allowable expenses). You only pay tax on your profit, so you must deduct your costs. Professional Fees: Your GMC, BMA, and MDU/MPS subscriptions are all deductible. Training and CPD: As long as it is related to your current role, the course fees and travel to get there count. Equipment: From that new stethoscope to the laptop you use for admin. Home Office: If you do your paperwork at home, you may claim a portion of your utility bills. Mileage: Keep a log of every mile driven to a temporary hospital or surgery. It adds up to thousands over a year. You can usually claim for travel to various hospitals or surgeries if they aren’t your permanent place of work. Strategy 6: Plan for Payments on Account and Cash Flow One thing that catches many people out is payments on account. This is a major …

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