Locum Doctors – what is your employment status? Image of doctor listening to a patient

A fundamental question for everyone who works - and one that can become incredibly confusing for those with complex arrangements - is how to determine your employment status. This governs what employment rights you have and what financial considerations you’ll have in terms of National Insurance Contributions, tax, benefits and your relationship with HMRC.

It's also crucial that your employer knows your correct status so they are aware of their obligations to you.

There are, basically, three different types of working individuals:

These, however, get broken down into further elements and can have different types of contracts.

Locum Doctors and Dentists and their employment status

As a Locum, you’ll generally be employed in the following ways:

  • A Casual worker providing your services directly to the employer on a PAYE basis (for Doctors sometimes through the NHS Professionals Doctors Direct ‘bank’)
  • A Casual worker providing your services to an employer through an agency (and/or an umbrella company) on a PAYE basis. You may be permanent workers of the agency or the umbrella company
  • Employees providing their services directly to the employer on a PAYE fixed-term contract
  • Self-employed individuals have a Schedule D sole-trader ‘contract for services’ directly with the employer and are independent contractors, or
  • Self-employed individuals who set up their own limited company to sell their own services through – either directly to the employer or through an agency.

Locums can be appointed on a variety of different contracts for a fixed period to carry out a specific task or project.

Doctors but should not be appointed for more than six months, which can be extended to 12 months if appropriate. These contracts include:

  • Service appointments for up to three months in hospitals
  • Training appointments in hospitals
  • Single session appointment, regular retainer sessions etc. in a general practice
  • Longer appointments to cover maternity leave, illness or sabbaticals.

Dentists can work for an NHS or private dental practice, at hospitals, clinics or at private corporations as a locum.

If you prefer to be self-employed, you must demonstrate the following:

  • You decide where/when/how you work, and
  • You have no obligation to work for the employer, and the employer has no obligation to offer you work (mutual obligation), and
  • You have control over how you work, but aren’t involved in the day to day management/running of where you work
  • You probably provide own equipment
  • You negotiate your own fees (and are not entitled to benefits such as holiday or sick pay from the client)
  • You will provide another individual to do work if you are unable/choose not to (substitution) and can also hire other staff to support you (at your own expense)
  • You ideally work for more than one employer
  • You must pay own Tax and National Insurance contributions, and do an annual Self Assessment (but you are entitled to claim certain expenses against your income).

Calling yourself self-employed and issuing invoices doesn’t automatically make you self-employed in HMRC’s eyes – it's not a matter of personal preference but dependant on how the ‘reality’ of your relationship with the employer is seen by the HMRC and the Courts.

Longer-term appointments or regular appointments for specified sessions each week may be regarded as salaried employment and therefore liable for PAYE – and gain the employment rights that a worker or an employee has.

Those Locums who work for short periods and for a wide range of employers will usually be self-employed.

It’s essential that you, the Locum, and the employer who’s hiring you, are satisfied with your status.


To complicate matters further for Locum Doctors, in August 2012, HM Treasury published their review of tax arrangements for public sector appointees. From this date, Locum NHS Doctors engagements of more than six months in duration on more than a daily rate of £220, which are not on the payroll and so not subject to PAYE, should include contractual provisions that allow the employer to seek assurance that the individual is meeting their own income tax and National Insurance contribution obligations and are genuinely self-employed.

If the worker is engaged through a limited company and on the payroll of that company, the worker must provide evidence that all of the money paid by the employer is being received with PAYE/NICs deducted at source; where all the income is not being withdrawn from their payroll under PAYE, the worker must be able to show that their service company is at low risk of IR35 or that they’re operating the contract within the scope of IR35.

So, how do you decide how you operate as a Locum?

Being a sole-trader is relatively straightforward

You must provide a service directly to the client and not through a third-party. You own the business yourself and take all the decisions, responsibilities, profits and losses. You must register as self-employed with the HMRC but do not have the administration or legal responsibilities of a limited company (described below).

You need to do an annual Self Assessment and can offset certain business expenses and losses against this.  You cannot work through an agency, and this isn't as tax-efficient an option as working through a limited company.

IR35 does not apply to locums who are sole traders contracting directly with the client.

The benefits of your own limited company

For most long-term Contractors, forming a limited company is the most tax efficient way of working if you’re outside of IR35 legislation and you’re a high earner. While it can involve a significant initial investment in time, there are potential benefits.

As a Director of a limited company, you will have complete control over the day-to-day affairs of your business, but you also have legal responsibilities. You will need to complete annual company accounts, as well as your own Self Assessment. You can offset the cost of business expenses and losses against your tax liabilities, further lowering your annual tax bill. You can control how you combine salary and dividends to pay yourself (as long as you are outside IR35).

Assuming that you can negotiate (and genuinely work under) IR35-compliant contracts, you'll pay considerably less tax than you would under an umbrella company. Check our take home pay calculator to see what the difference could be.

However, a Locum Doctor or Dentist can still be ‘deemed’ employed under IR35 legislation if your relationship with your client resembles that of an employee/employer (see below).

If you’re a Limited Company Contractor (LCC), you’re often called a Personal Services Company (PSC) – which means you ‘sell’ the work and services of an individual (you) or a group of individuals to an agency or client, where the PSC is owned by that individual or group of individuals. It’s essential to avoid HMRC’s attention if you are a PSC, which you can do by ensuring each of your contracts is not subject to IR35 legislation (i.e. there’s no ‘employment’ relationship with the client).

Simply, what is IR35?

IR35 came into force in April 2000 and affects any self-employed contract that doesn’t meet HMRC’s definition of self-employment. It’s legislation that effectively allows HMRC to treat some contractors ) who supply their services through an intermediary as employees, and tax them accordingly, when they judge that they are employees in all but name.


Three criteria must be fulfilled for IR35 to apply (i.e. this is what you should avoid to ensure you’re not caught by IR35):

  • The freelancer must personally perform the relevant work
  • An intermediary company is used to provide the services of an individual to the client, rather than the freelancer contracting Schedule D directly with the client
  • The terms of the arrangement must be such that the freelancer would’ve been treated as an employee of the client for NIC purposes, were they to have been contracted directly.

The implications of IR35 for self-employed individuals (and the reasons IR35 is to be avoided) are:

  • If the contract would otherwise be treated as one of employment under the current Employment Status rules, any fees paid by the client to the freelancer will be treated as employment income for Schedule E Income Tax and NIC purposes, following deductions for expenses. Income will be in the form of a ‘deemed payment’. This results in a reduction in take home pay for many freelancers, and may mean you pay more tax than a permanent employee.
  • ‘Administration’ expense claims on the part of the contractor are limited to 5% of gross fees (which includes premises costs, admin support, accountancy advice, costs of seeking contracts, insurance, training costs, computer equipment etc). However, certain expenses for pension payments, business travel, subsistence (meals and accommodation when away from home), Professional Indemnity cover and benefits in kind (e.g. private medical insurance) can be claimed in addition to the 5% allowance.
  • Offsetting the costs of sickness, holiday pay, training and so on aren’t allowable under IR35.

Since 2017, the public sector body (NHS Board, Health Trust, or practice) employing the PSC, has responsibility for determining the employment status of the Contractor (working via the PSC), and if the Contractor is found to be in affect an employee, the public sector body is responsible for operating PAYE on the Contractors fee, to deduct the appropriate tax and NIC’s.

And from April 2021, these same rules apply to ‘medium and large’ businesses in the private sector (i.e. private medical or dental practices). The original IR35 rules continue to apply to Contractors working for ‘small’ businesses in the private sector after this date - i.e. the Contractor/PSC (intermediary) is still responsible, along with the HMRC, in determining if the IR35 rules apply to their engagement.

If the IR35 rules do apply (they are ‘deemed’ an employee) the PSC must deduct the appropriate tax and NIC from any payments received from the client for the Contractors services.

The British Dental Association believe that the 2021 “IR35 rules pose little risk as regard associate dentists” if they are contracted on a standard BDA contract, although there may be IR35 risks for dental hygienists.

Why use an agency?

Some time ago, the most common way of operating as a Contractor was as a sole trader. However, the Income Tax (Earnings and Pensions) Act 2003 bought in a rule that made Recruitment Agencies liable for unpaid tax if they engaged self-employed workers and paid them gross. This stopped Recruitment Agencies using the sole traders, so Contractors were forced to get paid through the Agency’s PAYE system (net of tax and NICs) or set themselves up as their own Limited Company.

Recruitment Agencies are governed by the Conduct of Employment Agencies and Employment Business Regulations 2003.

Recruitment agencies can be a great way to secure work. However, a ‘bad’ agency may give you problems and you need to carefully identify what your employment status will be.

You may, however, find you get paid quicker and have fewer payment problems working through an Agency.

Why use an Umbrella Company?

An umbrella company offers many of the benefits available through a limited company but without the administrative ‘burden’. The Umbrella company employs you and does the following (for a fee, obviously):

  • Invoices your agency/client for the hours you have worked
  • Calculates and deducts PAYE/NICs from your pay
  • Pays you
  • Complies with all the company and statutory requirements on your behalf (including annual tax assessments)
  • Provides business insurance (Employers Liability Insurance, Professional Indemnity Insurance and Public Liability Insurance)

You can offset certain expenses if you use an Umbrella Company, but not as many as through a limited company.

If you work through an Umbrella Company your contracts will be treated for tax purposes as if they are all inside IR35 (see above).

The contractor will have an employment contract with the Umbrella Company and the umbrella holds the assignment contract with the agency or the end client. Usually Umbrella Companies offer contributory pension schemes, medical cover and other benefits. You should receive statutory minimum workers entitlements, such as holiday entitlement, national minimum wage, rest breaks, maternity pay and so on, while employed by an Umbrella Company.

We recommend you seek professional advice from an accountant or the BMA before making such an important decision as to the correct way to structure your life as a Locum.

If you are an Employer and need ongoing professional help with any staff/freelance issues then talk to us at The HR Kiosk (click here) - a Human Resources Consultancy for small businesses – you can hire us for as much time as you need.

Please note that the advice given on this website and by our Advisors is guidance only and cannot be taken as an authoritative or current interpretation of the law. It can also not be seen as specific advice for individual cases. Please also note that there are differences in legislation in Northern Ireland.

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Lesley Furber
HR Consultant
Updated on
March 22, 2021

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