Locum Doctor: Limited Company vs Umbrella vs Sole Trader

• ›Sole trader (self-employed): You work as an individual, invoice practices or agencies directly, and report income on self-assessment. You pay income tax at your marginal rate plus Class 4 NI (6% on profits between £12,570 and £50,270, 2% above). You can claim all allowable business expenses. This is the simplest structure and suits most locums earning below £70,000-£80,000 from outside-IR35 engagements.

Limited company: You incorporate a company, which receives the locum fees. The company pays corporation tax (19% up to £50,000 profit; 25% above £250,000; marginal relief applies between). You draw a salary (usually set at the NI primary threshold to minimise NI) and dividends. Dividends are taxed at lower rates than employment income (8.75% basic, 33.75% higher rate for 2025/26), creating a tax saving over sole trader status.

Umbrella company: An umbrella employs you on an employment contract, processes your income through PAYE, and charges a margin (typically £15-£30 per week). You have employment rights but pay income tax and NI as an employee. Umbrellas are often used for inside-IR35 engagements where working through your own company is not tax-efficient.

IR35 is the legislation that treats certain self-employed workers as employees for tax purposes if their working arrangements resemble employment. For locum doctors, the IR35 assessment depends on the nature of each engagement:

Direct GP locum work (sessional, not through an agency): HMRC has historically viewed most direct GP locum engagements as outside IR35, primarily because of the lack of substitution restrictions and the way NHS practices engage sessional GPs. However, this is a factual assessment: the actual working arrangements must support outside-IR35 status.

Agency-introduced NHS work: Where you work through an NHS staffing agency and the agency has issued a Status Determination Statement (SDS) saying you are inside IR35, you cannot run the income through a limited company tax-efficiently. The agency must deduct income tax and NI at source.

Private hospital or independent sector work: Status depends on the contract and working arrangements. We review each engagement separately.

If most of your engagements are outside IR35, a limited company may significantly improve your take-home. If most are inside IR35, a limited company adds compliance cost without tax benefit, and the umbrella or sole trader route may be more practical.

The following comparison illustrates the approximate net take-home under each structure for a locum doctor with £100,000 of outside-IR35 income in 2025/26, single person, no other income:

• ›Sole trader: After income tax (including the 60% effective rate on income between £100,000-£125,140 due to personal allowance withdrawal), Class 4 NI, and pension contributions, net take-home is approximately £55,000-£60,000 depending on pension contributions and allowable expenses.

Limited company (optimised extraction): Salary of £12,570 (below NI threshold), remainder as dividends across director and spouse shareholders (if applicable). Corporation tax plus dividend tax combined is typically lower than sole trader income tax plus NI, giving net take-home of approximately £65,000-£70,000 on the same gross income.

Umbrella: Treated as employment, so income tax, employee NI, and employer NI all apply. Umbrella fee also deducted. Net take-home is typically the lowest of the three structures, often £50,000-£55,000.

These figures are illustrative. The actual difference depends on your spouse's income, pension contributions, allowable expenses, and whether you have a mixed inside/outside-IR35 portfolio. We model the exact numbers for your specific situation.

• ›Sole trader GP locums: Can join the NHS Pension Scheme as a type 2 medical practitioner for direct sessional work with GP practices. The practice deducts your employee contribution from the sessional fee; you pay the employer contribution (currently 23.7% of pensionable earnings) via self-assessment.

Limited company directors: NHS pension access depends on the nature of your engagement. If working through a limited company on outside-IR35 basis directly with GP practices, access to the type 2 scheme may still be possible but requires careful structuring. For most limited company locums, NHS pension access is lost, making a separate personal pension (SIPP or personal pension) the alternative.

Umbrella employees: Where the umbrella is engaged on an NHS contract, you may retain access to the NHS Pension Scheme as a type 1 member (employee), depending on the umbrella's NHSBSA registration.

The NHS Pension Scheme is one of the most valuable employer pension schemes in the UK. Losing access to it is a significant cost that must be included in any take-home comparison.

The right time to incorporate is when all of the following broadly apply:

• ›Your sustained locum income from outside-IR35 engagements is consistently above £80,000-£100,000.
• ›You have a shareholder structure that allows income splitting (spouse or adult child with lower income).
• ›You can afford to leave some income inside the company, building reserves over time rather than extracting everything annually.
• ›You have either accepted that NHS pension access may be restricted, or you have a plan for alternative pension provision.

Below £80,000 in outside-IR35 income, the tax saving from a limited company typically does not justify the additional accounting fees, company compliance requirements, director duties, and loss of NHS pension access. We review the threshold annually and advise proactively when the case for incorporation becomes clear.