Many doctors and consultants working on contracts or locum shifts often have to manage multiple income streams, pension contributions, and complex expenses. But if you are doing it without any proper planning, tax bills can quickly become overwhelming. This is exactly why tax planning for NHS contractors and locum consultants matters so much. This guide breaks down the essentials of tax planning for NHS contractors and locum consultants in the UK for the 2026/27 tax year! Before getting into the details, remember you do not have to figure this out alone. You can always lean on our dedicated NHS accountants to handle it for you. How Are NHS Contractors And Locum Consultants Taxed In 2026/27? The first step in tax planning for NHS contractors and locum consultants is to establish how your contracting or locum work is treated for tax purposes. There is no single tax arrangement that applies to every NHS contractor. Your position could depend on: How you are engaged Who pays you Whether you work through an agency Whether you are self-employed Whether you operate through a limited company Whether IR35 applies Whether you also have NHS employment Where you are resident for tax purposes For self-employed work, Income Tax is generally calculated on taxable profits. Yes, it is not calculated on total turnover. And the profit on which tax is calculated can be reduced by allowable business expenses. For 2026/27, self-employed people also need to consider Class 4 National Insurance. The rate is 6% on profits between £12,570 and £50,270. It is 2% on profits above £50,270. The Class 2 rate is £3.65 a week for those who choose to pay it, subject to the relevant rules. That means a locum consultant who earns substantial self-employed profits needs to consider Income Tax and National Insurance together, not just Income Tax. What Does IR35 Mean For NHS Contractors And Locum Consultants? IR35 is still one of the most important areas of tax planning for NHS contractors and locum consultants. It is especially relevant where services are supplied through a personal service company. IR35 is officially known as the off-payroll working rules. It basically determines whether an NHS contractor or locum consultant is treated as an employee or a genuine independent business for tax purposes If you’re inside IR35 for a particular engagement, tax and National Insurance are deducted before you’re paid. This is similar to being on the payroll. This way you lose the flexibility of drawing dividends from a company for that income. If you’re outside IR35, you can usually invoice through a limited company and manage your extraction more efficiently. However, here’s the thing to consider. Your status can differ from one engagement to the next. You might be inside IR35 for your NHS trust shifts and genuinely outside for a separate private consultancy contract. That’s completely normal. But it means that you need to look at each contract on its own terms. What Are The Most Effective Tax Strategies For Locum Consultants? If you work outside IR35 or balance an NHS contract with private work, there are several clear ways that can help you in tax planning for NHS contractors and locum consultants. 1. Balance Salary And Dividends For 2026/27, the personal allowance is £12,570. A director’s salary should be considered alongside Income Tax, employer and employee National Insurance, State Pension entitlement and the company’s wider remuneration position. In 2026/27, the Lower Earnings Limit is £6,708 a year, and the Primary Threshold is £12,570, so a salary does not need to reach £12,570 simply to build a qualifying National Insurance year. You can then extract remaining profit as dividends. Dividend tax rates are 10.75% for basic rate and 35.75% for higher rate taxpayers above the £500 dividend allowance. Check Out: Dividend vs Salary for Doctors Running a Limited Company 2. Watch Out For The 60% Tax Trap If your total income hits £100,000, you start losing your £12,570 personal allowance. For every £2 you earn over £100,000, you lose £1 of allowance. This creates an effective tax rate of 60% on income between £100,000 and £125,140. 3. Use Company Pension Contributions One of the cleanest tax moves is paying into a pension directly from your limited company. Company pension payments count as an allowable business expense. As a result, your Corporation Tax bill can be reduced. It also keeps money out of your personal income. This helps you dodge that brutal 60% tax trap. Should You Use Pension Contributions In Your Tax Planning? For many higher-earning clinicians, pensions are one of the most useful areas of tax planning for NHS contractors and locum consultants. They can help with retirement planning and may reduce taxable income. But NHS pension rules can make the position more complicated than it first looks. The standard pension annual allowance is £60,000 for 2026/27. This is the amount that you can generally build up across your pension arrangements in a tax year. This is before an annual allowance tax charge may arise. But remember that the rules can be more complex where you are in a defined-benefit scheme, such as the NHS Pension Scheme. For 2026/27, the Annual Allowance can be tapered where both threshold income exceeds £200,000 and adjusted income exceeds £260,000. The allowance is reduced by £1 for every £2 of adjusted income above £260,000, subject to a minimum tapered Annual Allowance of £10,000. In the worst-case scenarios, it can shrink all the way down to £10,000. Because the NHS pension is a defined benefit scheme, calculating your actual pension “growth” isn’t as simple as checking how much cash you put in. The calculation is based on a complex formula linked to your pensionable pay and inflation. If you take on a mountain of extra locum shifts, your pension value might jump significantly. You could easily trigger a massive tax bill just because you breached your annual allowance. If you find yourself in this boat, you might have to look into options like “Scheme Pays,” where the pension …

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