Sole Trader or Limited Company? The Locum GP's Answer

1. The short answer

For NHS locum work, stay a sole trader. Through a limited company you lose the NHS pension on that income, and in 2026/27 the tax saving does not come close to paying for it.

On £100,000 of fees:

• As a sole trader you take home £59,661, and £24,192 goes into the NHS pension, £12,942 of it paid by practices on top of your fees.
• Through a company that pays the same £11,250 into a private pension, you take home £56,827, £2,834 less, with £12,942 less going into your pension.
• Through a company paying nothing into a pension, you take home £62,140, just £2,479 more than the sole trader, while £24,192 a year stops going into your pension at all.

A company can still earn its place for private work that was never NHS-pensionable. Section 6 covers when.

2. Why a company loses the NHS pension

The NHS Pension Scheme lets a GP pension locum work as a locum practitioner: a GP on the performers list, engaged personally and self-employed, deputising or temporarily helping in a practice. The Form A that records the work is only for surgery work done under a contract for services as a sole trader.

A limited company breaks that at the first step. The practice contracts with the company, not with you, and the company invoices for the session. That is not locum practitioner work, so:

• It cannot go on a Form A, so there is nothing to pension
• The practice pays no employer contribution, the 14.38% of 90% of the fee that a sole trader invoices on top
• The year builds no NHS pension, however many sessions you work

This is absolute: there is no election or form that pensions company income. Nor is it the same as a chambers, where you remain a self-employed GP and can still pension the work.

It also hands the practice a job it does not have with a sole trader: deciding whether the booking is inside IR35 (section 7).

3. What the NHS pension on that income is worth

A sole trader pensioning £100,000 of locum fees puts three things into their retirement each year:

Four things make that pension worth more than the cash going in suggests:

• The employer contribution is extra money. Practices pay it on top of your fee. Through a company, nobody pays it.
• It is a defined benefit. The 2015 scheme promises 1/54 of each year's pensionable pay as pension, whatever markets do.
• It grows above inflation. Each year's slice is revalued by CPI plus 1.5% until you leave the scheme, then rises with inflation once it is paid.
• The 14.38% is not the full cost. The overall employer rate is 23.78%, with HM Treasury paying the other 9.4%. A private pension gets none of that.

Both routes give tax relief on the money you put in yourself: the sole trader through the tax return, the company as a deductible cost. What only the NHS route has is the employer money and a guaranteed, inflation-linked income.

To see what a private pension would have to return to match the NHS one, try the NHS pension vs SIPP calculator and the NHS pension vs SIPP guide.

4. How a locum's company is taxed in 2026/27

The case for incorporating rests on taking money out of a company more cheaply than a sole trader's profit is taxed. In 2026/27 that gap is small, because dividend tax went up in April.

Corporation tax

Salary

Most single-director companies pay the director £12,570, the personal allowance. It is free of income tax and employee National Insurance, and deductible for corporation tax, but the company pays 15% employer National Insurance above £5,000, £1,136 a year. A company whose only employee is its director cannot claim the Employment Allowance to cover it.

Dividends

Everything else comes out as dividends, after corporation tax:

Two other costs are easy to miss:

• Running costs. A company needs annual accounts, a corporation tax return, payroll and a Companies House confirmation statement. Expect accountancy to cost more than a sole trader's, often by £1,000 or more a year.
• Student loans. Dividends over £2,000 count towards student loan repayments through Self Assessment, so a company does not dodge them.

5. Worked through at three fee levels

All three assume NHS locum fees, £5,000 of expenses, the 12.5% contribution tier, a £12,570 director's salary, £1,500 a year of extra company running costs, every penny of company profit paid out as dividends, and no student loan. Sole trader figures match the GP locum tax guide.

Take-home pay

Paid into a pension

"Matching pension" means the company pays into a private pension what you would have paid into the NHS scheme as a sole trader, so both routes put the same share of your own money towards retirement.

Read across a row and the pattern holds at every level:

• Matching the pension, the company leaves you with less to spend, by £2,245 to £2,834 a year, and the employer contribution is still gone.
• Paying no pension, the company leaves you with more, but only £2,479 to £3,006 a year, for giving up £14,515 to £36,288 a year of pension contributions and all the NHS pension that work would have built.

The sole trader vs limited company calculator runs the same comparison on your own fees, expenses, salary and pension choices.

6. When a company can still make sense

For income that could never be NHS-pensionable. Private medicals, medico-legal reports, aesthetics, teaching, media and consultancy lose nothing by going through a company, because there was no NHS pension to lose. Many GPs run both side by side:

• NHS locum sessions invoiced as a sole trader, pensioned on Form A and Form B
• Private work through the company, with its own bank account, invoices and accounts

Keep the line clean. An NHS session invoiced through the company is not pensionable, whatever the company later does with the money.

If you would leave profit in the company. This guide and the calculator assume every penny is paid out. A company that keeps profit back pays only corporation tax on it until it is drawn, which can smooth tax across years of uneven income or a planned career break. It is deferral, not a saving, and it only helps with money you genuinely do not need to spend.

If the NHS pension is already a problem. A GP with very large pension growth may face annual allowance charges, or have decided the scheme no longer suits them. That is a pension decision to take with a specialist adviser first, not a reason to incorporate on its own.

7. What IR35 actually is

IR35 is talked about constantly and explained rarely. Stripped down, it is one question: if the company were not there, would you be an employee?

The problem it was written for

Pay someone as an employee and PAYE takes income tax, employee National Insurance and employer National Insurance. Pay the same person's limited company for the same work and, without IR35, none of that happens: the company pays corporation tax and the worker takes dividends, which is cheaper for both sides.

IR35 stops that saving where the working relationship is really employment in all but name. Its name comes from the number of the 1999 Inland Revenue press release that announced it, and it has applied since April 2000. The current version is usually called the off-payroll working rules.

Who it applies to

• Only people working through an intermediary, usually their own limited company. A sole trader is never inside IR35, because there is nothing in between to look through.
• It is decided engagement by engagement, not once for the company. The same locum can be inside IR35 at one practice and outside at another.

Who decides, and why that matters for GPs

The rules put the decision on the client if it is a public authority or a medium or large private business. Only small private clients leave it to the worker's own company.

GP practices providing NHS services count as public authorities for IR35, alongside NHS trusts, ICBs and NHS England. However small the practice, it is the practice that decides, not your company. Before paying you it must:

1. Decide the status of the engagement, inside or outside, taking reasonable care
2. Give you a status determination statement explaining the decision and why
3. If it is inside, run the fee through payroll: deduct income tax and employee National Insurance from your fee, and pay employer National Insurance on top

That is payroll work, and employer National Insurance a practice never pays for a sole trader. Expect some practices to decline company bookings, and others to reduce the rate to cover the cost.

How status is judged

There is no single test. HMRC and the courts weigh the whole picture, and these carry the most weight:

• Control. Who decides how, when and where the work is done. A booked surgery run to the practice's appointment list and protocols points towards employment.
• Substitution. Whether you could genuinely send someone else in your place. For a GP it is rarely real: the practice has booked you, and a substitute would need their own performers list entry and indemnity.
• Mutuality of obligation. Whether the practice must offer work and you must accept it. Session-by-session bookings you can turn down point away from employment; a standing weekly commitment points towards it.
• Being in business on your own account. Several clients, your own risk, your own equipment and terms.

HMRC's free Check Employment Status for Tax tool asks these questions and gives a result many clients rely on.

What inside IR35 means for your company

• The fee is taxed like a salary. Income tax and employee National Insurance come off before the money reaches your company, and the practice pays employer National Insurance on top.
• The company's tax saving on that work is gone. The fee reaches your company already taxed as employment income. It can be passed on to you without being taxed again, but there is no corporation tax and dividend route to save anything on it.
• It still builds no NHS pension. Being treated as an employee for tax does not make you a member of the NHS scheme for that work.

Inside IR35, then, a locum's company gives up the NHS pension and most of the tax saving together. The calculator assumes every engagement is outside IR35, which is the company's best case.

8. Other practicalities

• Limited liability protects less than it sounds. Clinical negligence on NHS work is covered by the state scheme, and professional liability follows you personally whatever structure you use. Keep your defence organisation membership either way.
• Unwinding is harder than setting up. Closing a company means final accounts and, if there is money left in it, a decision about how to take it out.
• Mortgages. Lenders assess company directors on salary and dividends, usually over two years of accounts, which a new company does not have.

Frequently asked questions

Can a locum GP pension work done through a limited company?

No. Locum work can only be pensioned in the NHS scheme when the GP is engaged personally as a self-employed practitioner. Work invoiced through a limited company cannot go on a Form A, the practice pays no employer contribution, and the income builds no NHS pension.

Should a locum GP set up a limited company?

Not for NHS locum work, for most GPs. On £100,000 of fees in 2026/27, a company that pays into a private pension what you would have paid into the NHS scheme leaves you £2,834 a year less to spend than working as a sole trader, and £12,942 a year less going into your pension. A company can make sense for private work that could never be NHS-pensionable.

How much NHS pension does a locum GP lose through a limited company?

All of it on that income. Each year of locum work as a sole trader builds 1/54 of 90% of your fees as pension, so £100,000 of fees builds £1,667 a year of pension for life, revalued above inflation until you draw it. Through a company that year builds nothing, and the practices keep the £12,942 of employer contributions they would have paid on top of your fees.

Does IR35 apply to locum GPs with a limited company?

Yes, it can. For IR35, GP practices providing NHS services count as public authorities, like NHS trusts, so the practice decides whether each engagement is inside or outside IR35 and must give you a status determination statement. If it decides inside, it deducts income tax and National Insurance from your fee as if you were an employee, and pays employer National Insurance on top. Sole traders are not affected by IR35.

Can I have a limited company and still pension my NHS locum work?

Yes, if the two are kept apart. Invoice your NHS locum sessions yourself, as a sole trader, and pension them on Form A and Form B. Put genuinely separate private work, such as medico-legal reports or private clinics, through the company.

Sources

Checked 15 September 2026, against 2026/27 rates. The primary source wins if it disagrees with anything here.

• GP locum Form A and Form B and the GP Member Pension Guide, NHSBSA: who can pension locum work, the 90% rule and the 14.38% employer rate
• Corporation Tax marginal relief, GOV.UK: the 19% and 25% rates and the £50,000 and £250,000 limits
• Rates and thresholds for employers 2026 to 2027, GOV.UK: employer National Insurance and the Employment Allowance
• Tax on dividends, GOV.UK: the dividend allowance and rates
• Off-payroll working for clients, GOV.UK: public authorities including GP surgeries, status determination statements and who deducts tax
• Check Employment Status for Tax, HMRC: the status tool
• Repaying your student loan, GOV.UK: unearned income and Self Assessment
• NHS Pension Scheme member contributions, NHS Employers: the contribution tiers

A note on advice

This guide is general information about how the UK tax system and the NHS Pension Scheme apply to locum GPs. It is not personal tax, pension, legal or financial advice. Figures are estimates for illustration, using 2026/27 rates and the assumptions stated. Take advice from a specialist medical accountant before changing how you work.