Locum doctors are typically paid through PAYE (Pay As You Earn), limited companies, or as sole traders. Payroll is the gold standard for safety and compliance. However, it can increase Employer National Insurance costs.
By contrast, the contractor route may offer greater flexibility and lower administrative costs. But it puts the IR35 risk squarely on your shoulders. This guide covers everything you need to know about how to pay locum doctors UK.
Let’s break it down!
Why This Even Matters
We all know that locum doctors do not fit right into one employment box. This is because they might work two days at one trust. Or three shifts at a GP practice. And then invoice a private clinic all in the same week.
The important point here is that each of those arrangements can have a different tax treatment. As a result, if you pay locum doctors UK incorrectly, you can face the consequences. The consequences can range from wrong tax codes to HMRC investigations.
It may also result in backdated National Insurance liabilities. Therefore, an employer needs to understand how to pay locum doctors in the UK.
Let’s go through the options properly!
How Do You Actually Pay Locum Doctors UK
Option 1: Using Payroll (PAYE for Locums)
When you pay locum doctors UK through payroll, you are operating PAYE (Pay As You Earn). Basically, under this method, you need to deduct Income tax. And you also need to deduct National Insurance contributions from the locum’s pay. Yes, before it even reaches them. And then you, as the employer, must pay those deductions over to HMRC. You do it on the employees’ behalf.
This is the most straightforward arrangement. Particularly because there is no ambiguity about who is responsible for the tax.
PAYE for locums also means the doctor can contribute to the NHS Pension Scheme. And it is definitely a significant benefit of PAYE. Many locums value it highly.
When PAYE Is the Right Route
PAYE for locums usually applies when:
- The locum is filling a rota slot. And the working hours are set by the practice or trust
- You decide what they do, when they do it, and how they do it
- They cannot send someone else in their place if they cannot attend
- They are working regularly at the same site over a sustained period
- The arrangement looks, in practice, like employment. Even if it is temporary
PAYE can be the safest way to pay locum doctors UK. Especially when the role is supervised.
What It Costs You as the Employer
So this is where practices or clinics need to pay close attention. For the 2026/27 tax year, the Employer’s National Insurance rate has increased. It is 15% now. And the threshold at which it applies is £5,000 per year. So when you pay locum doctors UK through PAYE, you are now responsible for:
| Cost | Rate (2026/27) |
| Employer’s National Insurance | 15% above £5,000 |
| Employee’s National Insurance (deducted from pay) | 8% on earnings £12,570 to £50,270 |
| Income Tax (deducted from pay) | 20%, 40% or 45% depending on earnings |
| Apprenticeship Levy (if total payroll over £3m) | 0.5% of the total pay bill |
These costs should be factored into workforce budgeting. Because it is expensive to pay locum doctors UK this way.
Check Out: How to Handle Payroll for Healthcare Staff?
Option 2: The Contractor Route (Self-Employed Locum Doctors)
Then there is the contractor route. When a locum operates as a contractor, they are responsible for their own tax. Yes, they invoice you for their services. And you pay the gross amount. And they declare that income to HMRC themselves.
But remember that self-employed locum doctors are not all the same. There are two common structures you need to know about:
Sole Trader
The locum is an individual who invoices you directly. They are registered as self-employed with HMRC. And they file a Self Assessment tax return. They also pay their own income tax and National Insurance. It means there is no PAYE and also employer NI for you to worry about.
Therefore, it’s also a simple method to pay locum doctors UK.
However, the practice must still ensure the engagement qualifies as self-employment. This is because of HMRC’s standard employment status rules.
Remember that this route does not involve IR35 at all. IR35 only applies when there is a limited company. Or another intermediary involved.
Limited Company
Some locum doctors operate through their own limited company. It is sometimes called a Personal Service Company or PSC. They invoice you through the company. Yes, rather than personally. Then the company pays corporation tax on profits. And the locum pays themselves. They do it through a combination of salary and dividends.
This is where IR35 comes in. And this is also where it gets a bit complicated.
Check Out: Dividend vs Salary for Doctors Running a Limited Company
IR35: The Rule That Sits Between Payroll and Contractor
IR35 is technically known as the off-payroll working rules. It is a UK tax legislation. And it is designed to stop contractors from using a limited company structure. This is when their actual working relationship is employment.
Who Decides?
In many cases, the practice, clinic, NHS trust, or agency engaging the locum is responsible for determining IR35 status. Or whether the locum falls inside or outside IR35.
- Inside IR35: If you determine the role is inside IR35, the locum is paid net of tax and NI. This is effectively the same as PAYE.
- Outside IR35: The doctor is treated as a business. They can be paid a gross fee by a limited company and manage their own taxes.
You can use the HMRC’s CEST tool (Check Employment Status for Tax) in order to make this assessment. Practices should retain copies of the assessment results for compliance purposes. Also, document how you reached your conclusion. To pay locum doctors UK legally, you need that paper trail.
Side-by-Side Comparison: Payroll vs Contractor
| Description | PAYE (Payroll) | Sole Trader Contractor | Ltd Company (Outside IR35) | Ltd Company (Inside IR35) |
| Who deducts tax | Employer | Locum via Self Assessment | Locum via Self Assessment | Employer/agency deducts |
| Employer NI cost | Yes (15%) | No | No | Yes (15%) |
| NHS Pension access | Yes | Yes (via Form A/B) | No | No |
| IR35 relevant | No | No | Yes | Yes |
| Admin for employer | Payroll setup required | Invoice only | Invoice only (+ SDS) | SDS required + deductions |
| Locum’s flexibility | Lower | Higher | Higher | Restricted |
The Umbrella Company Option
An umbrella company acts as an intermediary. They “employ” the doctor. And then you (the practice) pay the umbrella company.
As of 6 April 2026, HMRC’s “Joint and Several Liability” rules for umbrella companies are in effect. This means if an umbrella company disappears without paying your tax, the agency or even the hospital could be held responsible.
Yes, because of this, you must be very careful about which umbrella companies your locums use. If you pay locum doctors UK via this route, check their credentials.
What Happens If You Get This Wrong
What if you misclassify a locum doctor as a contractor but HMRC views the arrangement as employment? Well, the consequences are real:
You will be liable for all backdated Income Tax. And National Insurance too. On top of that, you will face high interest rates and “careless” penalties. That can hit 30% of the total bill. And deliberate penalties are a lot higher than this.
The mistake also goes the other way. It means putting someone mistakenly on PAYE. It costs the practice more in employer NI than it needs to. And that adds up over time. Plus, the doctor loses their ability to claim expenses. Therefore, you must pay locum doctors in the UK the right way.
The Bottom Line
Knowing how to pay locum doctors UK is not as simple as writing a cheque or setting up a payroll.
Payroll is generally considered the safest option from a compliance perspective. But it carries a higher cost in National Insurance. The contractor route is leaner and faster. But it puts the IR35 risk squarely on your shoulders.
If you are not confident which route applies to your current locum arrangements, CruseBurke is here to assist.
From NHS pension charges to private practice expenses, there’s a lot that general accountants miss. See exactly what we can save you — get a quote and find out in minutes.
How CruseBurke Can Help
At CruseBurke, we have made it our mission to protect the finances of those who spend their lives protecting others. Our team of specialist healthcare accountants understands the complexities of healthcare finances.
If you need help with any accounting service, such as bookkeeping for healthcare, payroll for healthcare, or year-end accounts for healthcare, reach out to us today. We would love to discuss how we can make life easier for your healthcare clinic!
Disclaimer: The information about “How to Pay Locum Doctors UK: Payroll vs Contractor (2026/27 Guide)” is provided in this article including text and graphics. It does not intend to disregard any of the professional advice.
