Locum Doctor IR35: What You Need to Know

If you take locum work as a doctor and run it through your own limited company, the off-payroll working rules (better known as IR35) decide whether HMRC treats that income as if you were an employee. Getting it wrong can mean unexpected tax, lost National Insurance and avoidable penalties, so it is worth understanding exactly how the rules apply to medical locum work in 2026/27.

This guide is the pillar reference for locum doctor IR35: who decides your status, what a Status Determination Statement is, the April 2024 PAYE offset, and why a sole-trader locum sits outside the rules entirely. It is general information, not personal advice. We are accountants who specialise in medical and GP finances, and a quick review of your own contracts is usually the fastest way to be sure.

What IR35 means for a locum doctor

IR35, formally the off-payroll working rules, applies when you provide your services through an intermediary, normally your own personal service company (PSC), rather than working directly as an employee. The rules ask a simple underlying question: if you stripped away the company and looked at the day-to-day reality, would you look like an employee of the hospital or Trust you are working for?

If the answer is yes, the engagement is inside IR35 and the income is taxed broadly as employment income through PAYE. If the answer is no, the engagement is outside IR35 and your company is paid gross, leaving you free to extract income in the usual way. The original intermediaries legislation is Chapter 8 of Part 2 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003); the client-led rules that now do most of the work for NHS and large private engagements are in Chapter 10 of the same Part.

One point trips up many doctors: IR35 only bites if there is an intermediary. A locum who works as a plain sole trader has no company in the middle, so IR35 simply does not apply. Their status is judged the ordinary way instead, on the employed-versus-self-employed factors. If you are weighing up whether to incorporate at all, our guide to the pros and cons of a locum doctor limited company works through that decision in detail.

Who decides your IR35 status

This is the single most important thing to get right, because who carries the responsibility (and the risk) depends entirely on the type of hirer.

NHS Trusts and other public bodies (from 6 April 2017)

Since 6 April 2017, the public-sector hirer decides your status, not you. For most locum doctors that means the NHS Trust or NHS body you work for. Where there is an agency in the chain, the agency usually acts as the fee-payer and operates PAYE and National Insurance on any engagement assessed as inside IR35. The determination, and the obligation to operate payroll deductions, sits with the Trust and fee-payer, not with you.

Medium and large private hospitals and clinics (from 6 April 2021)

From 6 April 2021, the same client-led approach was extended to medium and large private-sector hirers, such as larger private hospital groups and clinics. The hirer must assess your status, issue a Status Determination Statement (SDS) setting out the decision and the reasons for it, and pass that statement down the contractual chain. The fee-payer then deducts tax and National Insurance on inside-IR35 engagements.

Small private clients (the old rule still applies)

Only where a private client is genuinely small (within the Companies Act 2006 small-company thresholds) does the original IR35 rule survive. In that narrow case your own PSC decides its status and accounts for any deemed employment payment itself. This rarely covers NHS work, which is almost always public-sector or large-hirer territory.

Because a busy locum often works across several hirers, you can hold a mix of inside and outside determinations at the same time: an inside-IR35 Trust contract running alongside an outside-IR35 private engagement. Each contract is assessed on its own facts.

The Status Determination Statement and how to challenge it

The SDS is the written decision the hirer must give you (and the next party in the chain) explaining whether you are inside or outside IR35 and why. If you disagree, you do not simply ignore it: there is a formal client-led disagreement process. You set out, in writing, the evidence that contradicts the determination, and the client must consider your representations and respond, either confirming or changing the decision.

Useful evidence to keep includes your contracts and statements of work, the SDS itself, any correspondence about how the work is actually carried out, and notes on substitution rights, control and obligations. HMRC's own Check Employment Status for Tax (CEST) tool and Employment Status Manual are the framework both sides tend to work from.

The tests behind an inside-or-outside decision

There is no single statutory test for status. It rests on long-standing case-law factors, and no one factor is decisive. Three carry most weight in practice for locum doctors.

Control

Who decides what work you do, when, where and how. NHS Trusts typically set rotas, clinical protocols and patient-care standards, which looks employment-like and tends to point inside IR35. A genuinely autonomous engagement, where you control how the work is delivered, points the other way.

Personal service and substitution

A true contractor can usually send a suitably qualified substitute. In medicine that is heavily constrained by GMC registration, the NHS England Performers List for primary medical care, indemnity arrangements and clinical governance, so a genuine right of substitution is often hard to evidence. That tends to push medical work towards inside IR35.

Mutuality of obligation

Whether the client must keep offering work and you must keep accepting it. Short, discrete shifts with no ongoing commitment can support outside-IR35 status. A long, rolling arrangement that behaves like a salaried post points inside.

As a rough pattern: short-term shift cover with genuine autonomy is more likely to be outside; an extended secondment integrated into the Trust's normal staffing is more likely to be inside. But these are tendencies, not rules, and the SDS turns on the specific contract and working reality.

Working through agencies and umbrella companies

Many locums are engaged through recruitment agencies. The off-payroll rules still apply; only the mechanics shift. On an inside-IR35 engagement the agency is usually the fee-payer, so it operates PAYE and deducts income tax and National Insurance before paying your company, and it carries the employer's National Insurance cost (often reflected in the assignment rate).

Some agencies route you through an umbrella company instead, which employs you and runs PAYE on your behalf. That removes the IR35 question for that work because you are an employee of the umbrella, but it also means you are taxed as an employee with no company tax advantages. If an umbrella is on the table, read our guide to locum doctor umbrella companies and the 2026 reforms before signing, because the rules on umbrella compliance are tightening.

The April 2024 PAYE offset

A change worth understanding, and one that is often misread. From 6 April 2024, where an engagement is later found to have been wrongly treated as outside IR35, HMRC can set off the income tax and National Insurance the worker and their company have already paid against the deemed employer's PAYE liability. Before this, the deemed employer could in effect be charged the full PAYE bill while the worker had already paid tax on the same income, double-counting the liability in settlements.

The offset is purely a settlement mechanic: it makes the eventual bill fairer by reflecting tax genuinely still owed. It does not change who decides status, who operates PAYE, or which engagements are caught. It is not a relaxation of IR35.

A note on the "IR35 abolished" myth

You may still see claims that IR35 was scrapped. It was not. There was a short-lived announcement in 2022 to repeal the 2017 and 2021 off-payroll reforms, but it was reversed within weeks and never came into force. The client-led rules remain fully in effect for NHS Trust work and for medium and large private hirers. Treat any source telling you that the off-payroll rules were repealed, or that IR35 does not apply to NHS work, as out of date.

What inside IR35 actually costs you

Inside IR35, the fee-payer pays your company net of PAYE income tax and National Insurance. The point of a PSC, taking a modest salary and topping up with dividends, largely disappears, because there is little post-tax profit left in the company to distribute. For context, dividends drawn from genuinely outside-IR35 (or private) income are taxed in 2026/27 at 10.75% (ordinary rate), 35.75% (upper rate) and 39.35% (additional rate), after the £500 dividend allowance (the ordinary and upper rates rose from 8.75% and 33.75% from 6 April 2026; the additional rate is unchanged). On an inside-IR35 engagement you do not reach that distribution stage on that income in any tax-efficient way.

Self-employed locums, by contrast, pay Class 4 National Insurance at 6% on profits between £12,570 and £50,270 and 2% above £50,270 (the main rate fell from 9% from 6 April 2024), and Class 2 is no longer a payment they have to make from 6 April 2024 (it is treated as paid where profits are at or above the Small Profits Threshold). For a comparison of the routes side by side, see our complete locum doctor tax guide.

The NHS pension point that often settles it

For many locum doctors, pension matters more than the headline tax rate. Income routed through a limited company is never NHS-pensionable, inside or outside IR35, because a company cannot pension into the NHS scheme and dividends are not pensionable pay. So every pound you take as company dividends is a pound that builds no NHS pension.

A freelance GP locum who wants to keep accruing NHS pension generally works as a sole trader and pensions the income through GP Locum forms A and B via PCSE. That is a genuine medical-specific reason the PSC route, and therefore the whole IR35 question, may not be worth taking on in the first place. Our guide to the NHS pension for locums (Form A and Form B) covers how that works, and the NHS pension annual allowance guide explains the £60,000 allowance and taper that high-earning locums need to watch. Whenever incorporation is on the table, weigh any tax saving against this pension-accrual loss, never look at the tax in isolation.

Records, self-assessment and Making Tax Digital

Whatever your status, keep clear records: contracts and statements of work, every SDS you receive, correspondence about how the work is run, and evidence on control, substitution and obligation. These are what you fall back on if HMRC reviews an engagement or you challenge a determination. For allowable costs against self-employed locum income, including the approved mileage rate of 55p per mile for the first 10,000 business miles in 2026/27 and 25p thereafter, see our list of locum doctor expenses you can claim.

If you are a self-employed locum (sole trader), remember Making Tax Digital for Income Tax is now arriving: it applies where qualifying income exceeds £50,000 from 6 April 2026 (then £30,000 from April 2027 and £20,000 from April 2028), and most full-time locums clear that threshold. A locum trading through a limited company is outside MTD for Income Tax (it is an income-tax regime, not corporation tax). When it is time to file, our locum doctor self-assessment filing guide walks through the return.

How we can help

IR35 is fact-specific, and the cost of getting it wrong falls on real take-home pay. As specialist medical accountants we review locum contracts and SDS decisions, model the inside-versus-outside and sole-trader-versus-company outcomes (including the NHS pension impact), and support you through the disagreement process where a determination looks wrong. Get in touch for a review of your own arrangements.