Tax can already be confusing enough but if you locum there are some extra things to think about to ensure you pay the correct amount of tax. In this blog Ed (a salaried GP, Chartered Accountant and Chartered Tax Advisor) details some of the important things you should be looking out for as a locum hospital doctor.
Before we start, we assume that if you locum you will be paid via Pay As You Earn (“PAYE”) through direct engagement with a trust or through an agency. If you are locuming at a hospital through an agency, you will still usually be paid by the Trust on their payroll – the agencies call this “direct engagement”. Payments through umbrella companies and personal limited companies are unlikely these days.
Before you do anything, you need to set up a Personal Tax Account if you have not set one up already. You can do so here if you need to: https://www.gov.uk/personal-tax-account
The Personal Tax Account contains a wealth of information that HMRC holds on you from your estimated income tax bill and tax code (see below) to your National Insurance Contribution record which is important for your state pension. It is often here where you will find and correct errors made by HMRC regarding your tax affairs.
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Here are five things you need to think about, or do, if you decide to locum:
1. Check your Tax code!
Every employee will have a tax code which is calculated by HM Revenue and Customs or “HMRC” and is used by your employer’s payroll to determine how much income tax you should pay. HMRC use it to give you monthly tax relief, e.g. because of your tax-free personal allowance, and also to recover tax you may owe e.g. if you owe tax from a previous tax year.
The tax code is made up of a number followed by a letter and, at its most basic, is simply the personal allowance divided by ten followed by the letter “L”. Note it only applies to employees (and not if you are self-employed or take dividends from a company.) Taxpayers in Scotland will often see an “S” at the start of their tax codes and those in Wales a “C”.
The personal allowance for the tax year ended 5 April 2027 is £12,570. This means that the first £12,570 of your income in the tax year is tax free. Note this has currently been frozen until 6 April 2030.
If you have one job and no extra income or allowances altering the code, the current tax code for the tax year ended 5 April 2027 (also referred to as “2026/27”) should be 1257L, given that the current personal allowance is £12,570. Your tax code can be found on your payslip – you should see a box saying “tax code” with the relevant number and letter.
You can also find this in your Personal Tax Account and here you can also find out what the tax code is made up of – it will contain your personal allowance but if the number is not 1257 you can find out why.
A big problem for Doctors is that it is not uncommon for HMRC to tell your payroll to apply the wrong tax code. A classic time when this happens is when we switch jobs in, say, August. We usually then receive a payslip from our old trust employer and our new trust employer, confusing HMRC into thinking that we are working 2 jobs. If they suspect this, they will apply an “Emergency Tax Code” in September which usually results in the tax-free personal allowance being taken away. Doctors may see, as examples:
- BR NONCUM which will automatically tax all income at the basic rate of tax, currently 20%
- D0 which does the same thing but taxes all income at the higher rate of 40%
- 0T NONCUM which takes away your personal allowance but unlike the above does not apply a flat rate
There are other codes, but these are the common ones.
There is even more potential for this problem to arise as locums because there is a chance that you will have multiple employers. The more employers you have the more potential for chaos and we recommend you keep a close eye on this.
If your tax code is wrong this could be a costly error: losing your tax-free personal allowance will inevitably result in higher tax bills until the tax code is corrected. We would thoroughly recommend keeping an eye on your tax code to ensure you are paying the right amount of tax.
It is not always incorrect to see these tax codes, but you should not expect to see one on your main payslip. If you have a main employer and locum for a different trust and you see a D0 tax code on your locum payslip, this may not be incorrect – it would mean you pay a straight 40% amount of income tax on your locum pay which is correct if you are a 40% taxpayer. But a D0 tax code on your main employer payslip is almost certainly incorrect.
If it is wrong, you can let HMRC know through your personal tax account or you can phone them to let them know you are locuming and provide the correct working details. Some argue that the latter is easier as you can explain much better than via an online form – but others would much prefer not to spend ages on the phone waiting to speak to HMRC. The choice is yours!
For a guide to checking your tax code and changing it if it is wrong you can check out this Medics’ Money blog giving you the information you need.
https://medicsmoney.co.uk/is-your-doctors-tax-code-correct/
2. What expenses are tax deductible?
No matter whether you are employed, self-employed or invoice via a company many of your typical expenses as a doctor should be tax deductible. These include your professional indemnity fees, your GMC fees, your Royal College Fees and fees paid to the BMA. You should also be able to claim for any exam fees (and resits) if you had to take these as part of a training contract (which may not apply if you’re currently locuming.) In England the Government have agreed that exam fees (for the first two attempts) and Royal College fees will be reimbursed for Resident Doctors. If this happens you won’t get a tax deduction but you will be better off than if you paid yourself and then did receive a tax rebate.
Aside from professional expenses you can also claim mileage allowance for any journeys for work. This does not include travelling to and from work. Also don’t forget that payments to the NHS pension scheme are also tax deductible (this should happen automatically if you are an employee.)
Other than these expenses, employees have a much tougher time claiming other things as they must be “wholly, exclusively and necessarily for the purposes of employment”. It is slightly easier for self-employed individuals as the rules are slightly less strict (“wholly and exclusively”) and tax-deductible expenses may include running a car, any work-related telephone charges, printing, stationery, and accountancy fees.
If you are employed and have not claimed back tax on your employment expenses you can find a handy guide to making a claim here.
3. National Insurance
For employees, keep an eye on your National Insurance Contributions (NIC) as a locum because it may be that you are overpaying if you work for multiple different trusts.
There are different types of NIC but employees pay “Class 1 Primary National Insurance Contributions. Putting it simply, in a tax year, the first £12,570 of salaried income should not have any National Insurance applied, then between £12,570 and £50,270 an NIC rate of 8% is applied and finally above £50,270 a rate of 2% NIC is applied.
So Class 1 NIC is applied to salaries but, importantly, and unlike for income tax, there are separate thresholds available for each job as long as it is with a different employer (with a few caveats.) So if you locum for a completely different trust and earn less than the minimum for paying National Insurance – the primary threshold of £1,048 a month (£12,570 a year) – you should not owe National Insurance for those jobs.
There is also something called the “annual maxima” which is also important. Only £37,700 of salary (ie the amount between £50,270 and £12,570) should be chargeable at 8% and salary above £50,270 chargeable to 2%.
For more information on National Insurance check out our blog here.
Companies do not pay NIC but note that if a salary is paid out of the company in order to extract the money in the company, Employer’s NIC will need to be paid.
4. Your Pension
For those hospital locums who are paid via the hospital payroll, pension contributions will be deducted at source and dealt with by the Trust you are working for. You can opt-out of the NHS pension scheme and not pension your earnings if you wish but you should think about this very carefully as it may have a detrimental impact on your final pensions benefits (e.g from losing your employer contribution) and other benefits such as Death in Service benefits. The link below describes the details of the NHS pension scheme for 2015 – see page 26 for the other benefits of the NHS Pension Scheme.
You may also like to take a look at our NHS Pension Guide that’s coming soon.
If you operate via an agency they should deal with the relevant pension contributions and let you know your pension position and your contributions. In the very unlikely situation that you trade through an umbrella company or trade through your own limited company the income is unlikely to be pensionable.
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5. Mandatory Agency Fees
If you sign up for a locum agency, they may ask you do to mandatory training for a fee – if you have already done said training through your trust then you should be able to download the relevant certificate(s) and send them over to the agency to save money.
Summary / Key Tips
- Keep an eye on your tax code and tell HMRC if you think there are any issues
- Make sure you claim a tax deduction on your professional expenses
- If you have more than one employer, check your NI contributions to make sure you’re not paying too much
- You should be able to provide locum agencies with mandatory training certificates from your trust if you have them
