IR35 for Locum Doctors and Dentists: A Practical 2026 Guide

What IR35 actually is, and why locums get caught more than most

IR35 (its formal name is the off-payroll working rules) is a piece of UK tax legislation that asks one question: if the personal service company in the middle was stripped away, would the working relationship between the locum and the end client look like employment?

If the answer is yes, the engagement is inside IR35. Income tax and National Insurance get deducted at source as if the locum were a PAYE employee, and the dividend route from the limited company is no longer tax-efficient for that contract income. If the answer is no, the engagement is outside IR35 and the standard limited company structure works as designed.

Healthcare locums get pulled into this debate more than most because the working pattern naturally resembles employment. You turn up to a single NHS trust or dental group, follow their rota, use their equipment, treat their patients, and bill through an agency or a framework. To HMRC's eyes, that looks a lot like a normal employee with extra paperwork.

The numbers are not subtle. Google Search Console shows several hundred UK locums each month searching for phrases like "accountants for locum doctors" and "locum dentist tax" because the gap between an inside and an outside determination on the same contract changes annual take-home by five figures. We see this play out roughly twice a month with new clients moving across from generic firms. The full LOYALS view on the cluster sits on our healthcare accountants hub.

Inside IR35 vs outside IR35: the real take-home gap

The cleanest way to see the impact is a worked example. Take a locum doctor billing £450 per day, 200 days a year, through a personal service company. Gross contract income £90,000.

Outside IR35: the company pays corporation tax on profits, the locum takes a small director's salary up to the secondary NIC threshold (£5,000 in 2025/26) and the rest as dividends. After the £500 dividend allowance and 8.75 percent ordinary dividend rate (rising to 10.75 percent from 6 April 2026), the locum typically clears around £64,000 to £66,000 of take-home in 2025/26 once accountancy fees and minimal pension are factored.

Inside IR35: the deemed payment route applies. The fee payer (usually the agency, sometimes the trust directly) deducts PAYE income tax and Class 1 employee NIC at source on the gross fee minus the 5 percent allowable expenses deduction (which was removed for public-sector engagements from April 2017 and for all medium-large engagements from April 2021, but the principle still drives the maths). Net take-home on the same £90,000 contract typically lands around £52,000 to £55,000.

That is a swing of roughly £10,000 to £14,000 a year on a £90,000 contract. On a £130,000 senior locum dental engagement, the swing widens past £18,000. The number is significant enough that getting the status determination right (or successfully challenging a wrong one) is usually the single biggest tax decision a locum makes each year.

The three tests HMRC applies to decide your status

HMRC has consistently used three pillars (sometimes called the Ready Mixed Concrete tests after the 1968 case that codified them) to separate employment from genuine self-employment. The off-payroll rules sit on top of these.

1. Mutuality of obligation

Is there an ongoing obligation on the end client to offer work and on the locum to accept it? An employee has mutuality. A genuine contractor takes specific assignments, no future commitment expected. For locums, this is often the cleanest test to pass on the self-employed side as long as the engagement is genuinely shift-by-shift or short fixed-term, with no rolling expectation.

2. Personal service and right to substitute

Can the locum send a suitably qualified substitute, or must the named individual personally do the work? An unfettered right to substitute is a strong indicator of self-employment. In healthcare this gets thorny because the trust naturally wants to know which clinician is on the rota. A contractual right to substitute that has never been exercised, and would in practice be blocked by clinical governance, carries less weight than HMRC used to give it.

3. Control

Does the end client direct what, how, when and where the work is done? Clinicians have unavoidable autonomy over the "how" of clinical decisions, which sometimes leans towards self-employment. But the "when and where" (rota set by the trust, premises set by the trust, escalation policy set by the trust) typically leans the other way. This is the test most often used by HMRC to land a locum inside IR35.

Beyond the three pillars HMRC also weighs financial risk (does the locum bear any?), provision of equipment, integration into the team, exclusivity and the broader "in business on your own account" picture. The locum-doctor and locum-dentist long-tail keyword search variations almost all loop back to one of these tests. HMRC's official off-payroll working guidance sets out the framework in detail.

Who decides your IR35 status (and what changed in April 2021)

This is the single biggest practical shift locums need to understand. From 6 April 2021, for any engagement where the end client is a medium-sized or large business (broadly: turnover above £10.2 million, balance sheet above £5.1 million, or more than 50 employees, with two of three thresholds met), the end client decides the status, not the locum's own personal service company.

That covers every NHS trust, almost every NHS England integrated care board, every large independent hospital group, every large GP federation and most dental groups operating across multiple sites. The end client must issue a Status Determination Statement (SDS) to the locum, the agency in the chain and any other relevant party, with the conclusion (inside or outside) and the reasons for it.

For engagements with small end clients (a single private clinic that genuinely sits under the small-company thresholds, or a sole-practitioner private GP), the locum's own PSC still decides. This is the route that remains commercially attractive for locums building genuine private portfolios.

What "reasonable care" means for the end client

Under the rules, the end client must take "reasonable care" when arriving at a determination. A blanket determination across all locums, with no consideration of individual working patterns, is not reasonable care. Several large NHS trusts were caught doing exactly this in 2021 and 2022, and HMRC has confirmed that blanket determinations are non-compliant. That matters: if reasonable care is not taken, the end client is treated as the fee payer for tax purposes, and the dispute route opens up to the locum.

CEST and why locums get ambiguous answers

HMRC's Check Employment Status for Tax (CEST) tool is the official online questionnaire the agency, end client or locum can run to get a status indication. It is free, fast and produces a printable output. It is also genuinely flawed for healthcare engagements.

The two structural problems with CEST for locums are well documented. First, the tool does not properly weigh mutuality of obligation, which is one of the most decisive tests for short-term clinical work. Second, it scores binary answers to questions that have nuanced practical answers in healthcare (right to substitute being the obvious one). The result is that CEST returns "unable to determine" on around a fifth of clinical engagements according to NHS Employers data, and produces an "inside IR35" answer on many engagements that would survive a tribunal review on the outside side.

This is not a reason to ignore CEST. The end client is required to consider it, and a CEST output supporting an outside determination is helpful evidence. But it should never be the only evidence. The substance of the working pattern, the contract wording, the locum's wider portfolio and the right-to-substitute reality together carry more weight than a CEST printout in any genuine dispute.

Common locum scenarios and where they typically land

Looking at the locum doctors and dentists we have onboarded in the last 18 months, the patterns are reasonably consistent.

• Single-trust NHS locum, fixed rota, framework agency, no other clients: almost always inside IR35. The substance is identical to a fixed-term employee. There is no real argument here.
• Multi-trust NHS locum, three or more trusts in a tax year, mixed shift patterns, supplies own indemnity: arguable outside IR35 on each engagement individually, but blanket-classed inside by many agencies. This is the most common reclassification dispute we run.
• Private cosmetic dentist working across two or three small private clinics, no NHS work: typically outside IR35 because the end clients usually meet the small-company definition and the working pattern is genuinely portfolio.
• Locum GP working through one large GP federation on a long-term contract: usually inside IR35. The federation is the end client and the working pattern is consistent with employment.
• Telemedicine GP working through an app-based platform from home, sets own hours, chooses which shifts to accept: commonly outside IR35, but the determination is the platform's responsibility from April 2021 onwards.

Notice that the substance, not the contract wording, drives the answer. Several locums we onboard arrive with an "outside IR35" clause in the contract template, only for the trust's actual working pattern to push the engagement firmly inside. A clause cannot rescue a working reality that looks like employment.

What to do if a Status Determination looks wrong

There is a statutory client-led dispute process built into the off-payroll rules, and locums use it less often than they should. If a Status Determination Statement classifies your engagement as inside IR35 and you believe the working reality supports outside, you have a clear sequence.

1. Request the SDS in writing if you have not been issued one. The end client must provide it.
2. Submit a written representation to the end client setting out why you disagree. Reference the specific tests (mutuality, substitution, control) and the working evidence.
3. The end client must consider your representation and respond in writing within 45 days. They must either confirm the original determination with reasons or issue a new one.
4. If the response confirms inside but does not address your evidence, that is non-compliance with reasonable care. The next step is HMRC referral or, for material amounts, professional support to escalate.

The evidence pack that makes the difference is rarely a contract reading. It is a working-pattern file: rota records showing variable trusts, substitution offers (even unaccepted ones), indemnity documents, equipment ownership records, evidence of other clients and a clear picture of the locum genuinely operating as a business. We build this file with healthcare clients when the dispute is worth running. It rarely needs to leave the desk if it is robust.

The 2026 picture: dividend rises and what they mean for locum PSCs

Two changes meaningfully shift the locum maths from April 2026 onwards.

Dividend rates rise by 2 percentage points at the ordinary and upper rates from 6 April 2026 (Budget 2025 confirmation). The dividend ordinary rate moves from 8.75 percent to 10.75 percent, and the upper rate from 33.75 percent to 35.75 percent. The additional rate stays at 39.35 percent. For a typical outside-IR35 locum drawing around £45,000 to £55,000 of dividends in addition to the secondary-threshold director's salary, this costs roughly £700 to £1,100 a year of additional dividend tax.

MTD for Income Tax becomes mandatory from April 2026 for sole traders and landlords with gross income above £50,000. Locum doctors and dentists trading through a limited company are technically outside MTD ITSA (it applies to self-assessment, not corporation tax filings), but locums with a side personal practice income above £50,000 a year on top of their PSC are squarely inside it. We see this pattern with consultants splitting between NHS PAYE, a PSC and private patient self-employment.

Despite the dividend rate rise, the outside-IR35 limited company structure still wins on a contract above roughly £45,000 a year by enough margin to be worth defending. The breakeven point has narrowed, not closed. The honest framing for 2026/27 onwards is that the dividend route remains the cleanest take-home route for genuinely outside-IR35 work, but the case for fighting a borderline inside determination has strengthened, not weakened.

What this means for you right now

Three actions usually make the difference between a locum who is overpaying tax and one who is not.

1. Pull every Status Determination Statement you have been issued in the last 12 months. Read the reasons given, not the conclusion. If the reasoning relies on "all locums at this trust are inside" type wording, that is not reasonable care.
2. Document your working pattern. Number of clients per year, indemnity ownership, substitution offers, equipment, scheduling autonomy. The evidence file is what wins disputes.
3. Model the impact in pounds for the 2026/27 tax year using the new dividend rates. Our dividend vs salary UK calculator handles the maths, or run it through the personal tax return walkthrough at self employment tax calculator.

For consultants with NHS Pension exposure, the IR35 question intersects with the annual allowance taper in a way that often costs another £8,000 to £15,000 of unmanaged tax. For a deeper read on that, see our guide on NHS Pension Annual Allowance Taper.