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: no company filings, no director duties, and no separate set of accounts.

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 or near the £5,000 secondary threshold to minimise employer NI) and dividends. Dividends are taxed at 10.75%, 35.75% or 39.35% for 2026/27 after a £500 dividend allowance, which is where any saving over sole trader status has to come from.

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, so each engagement has to be assessed 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.

Structure does change take-home, but by an amount specific to your own figures, so the useful version of this comparison is the mechanism rather than a headline number.

• ›Sole trader: profit is taxed at your marginal income tax rate, 20%, then 40%, then 45% above £125,140, plus Class 4 National Insurance at 6% between £12,570 and £50,270 and 2% above that. Income between £100,000 and £125,140 carries a 60% effective rate as the personal allowance is withdrawn.

Limited company: the company pays corporation tax at 19% on profits up to £50,000 and 25% above £250,000, with marginal relief between, and getting the profit out then costs dividend tax at 10.75%, 35.75% or 39.35% for 2026/27 after a £500 allowance. The dividend rise on 6 April 2026 narrowed the gap against the sole trader route.

Umbrella: treated as employment, so income tax and employee National Insurance apply, the umbrella's margin is deducted, and the cost of employer National Insurance comes out of the assignment rate. Take-home is usually the lowest of the three.

What decides the comparison is the balance of inside and outside-IR35 work, how much profit you leave in the company rather than drawing, a spouse's income where shares are split, pension contributions, allowable expenses, and the NHS pension accrual given up. The private practice incorporation calculator at /calculators/private-practice-incorporation runs both routes on your own figures.

• ›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 share yourself. Take care with the headline rate here: 23.7% of pensionable pay is the total credited on a member's behalf, but NHS Employers states that employers are responsible for paying 14.38 per cent of contributions with the remaining 9.4 per cent funded centrally, so confirm the amount actually collected from you with PCSE before you budget for it.

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.

There is no income level at which incorporating becomes automatically right. Four things move the answer:

• ›How much of your work sits outside IR35, because inside-IR35 income is taxed at employment rates before it reaches the company and gains nothing from being routed through it.
• ›Whether you have a shareholder structure that allows income splitting (a spouse or adult child with lower income).
• ›Whether you can leave profit inside the company rather than extracting everything annually, since the saving is largest on profit retained and smallest on profit drawn straight out as dividends.
• ›Whether you accept the loss of NHS pension access on that income, or have alternative pension provision in place.

The arithmetic underneath is corporation tax at 19% on profits up to £50,000 and 25% above £250,000 with marginal relief between, plus dividend tax at 10.75%, 35.75% or 39.35% for 2026/27 after a £500 allowance, set against income tax at 20%, 40% or 45% above £125,140 plus Class 4 at 6% and 2% on the same profit taken personally. Against any saving sit company accounting and filing costs, director duties, and the pension accrual forgone. The 6 April 2026 dividend rise narrowed the gap, which is why this is worth running on your own numbers at /calculators/private-practice-incorporation rather than against a rule of thumb.