Locum GP: Ltd Company vs Sole Trader — Which Is Better for Tax in 2025?
A detailed comparison of Ltd company and sole trader structures for UK locum GPs. When does incorporating save money? What are the risks? Here is the honest analysis.
The question every busy locum eventually asks: should I set up a Ltd company? The answer depends on your income level, how many sessions you do, your NHS pension situation, and your appetite for administration.
The Core Tax Argument for Ltd Company
As a sole trader, all your profits are subject to both Income Tax and Class 4 National Insurance. At £80,000 of locum income, that means roughly:
- Income tax: ~£21,432
- Class 4 NI: ~£3,512
- Class 2 NI: ~£180
- Total: ~£25,124
A Ltd company director earning the same £80,000 through the company could instead pay themselves:
- Salary of £12,570 (within the NI Primary Threshold — no NI due)
- Dividends of ~£67,430 (taxed at 8.75% up to £50,270 basic rate band, then 33.75% above)
This can save £3,000–£6,000 per year at the £80,000 level depending on dividend tax rates and other income. The saving grows significantly above £100,000.
The Costs and Risks of Ltd Company
Extra administration:
- Annual accounts filed with Companies House
- Corporation Tax return (company pays 19–25% on profits)
- PAYE payroll for your salary
- Higher accountancy costs (typically £1,500–£3,000/year vs £500–£1,000 for sole trader)
IR35 risk: IR35 is anti-avoidance legislation that can reclassify Ltd company contracts as deemed employment — meaning the client/agency deducts PAYE taxes as if you were an employee. IR35 is assessed per engagement. Most NHS direct contracts and bank shifts are outside IR35, but agency locum work can be inside. If your main engagements are inside IR35, a Ltd company loses most of its tax advantage.
NHS Pension complications: As a Ltd company director, you may not be eligible to contribute to the NHS Pension Scheme for locum work. This can be a significant disadvantage — the NHS Pension is exceptionally valuable (defined benefit, employer contribution equivalent). Sole traders working as locums can sometimes contribute to the NHS Pension via certain GP contracts. Get specific advice before incorporating if pension membership matters to you.
When Does Incorporating Make Sense?
A rough breakeven guide:
| Annual Locum Income | Sole Trader Better | Ltd Company Better |
|---|---|---|
| Under £40,000 | Yes — admin costs outweigh savings | No |
| £40,000–£60,000 | Usually yes | Marginal — depends on IR35 and pension |
| £60,000–£100,000 | No | Generally yes |
| Over £100,000 | No | Yes — savings compound significantly |
These are rough estimates. Your exact situation depends on other income, dividend allowance, and how you structure the company.
The Practical Setup
If you decide to incorporate, you will need:
- Register a limited company at Companies House (~£13 online, same-day registration)
- Open a business bank account
- Register the company for Corporation Tax with HMRC
- Set up PAYE if taking a salary
- Hire a specialist accountant who understands locum doctor structures
Most locums who incorporate do so in April (start of the tax year) to simplify the first year’s accounting.
Our Recommendation
Under £50,000: Stay sole trader. The admin overhead is not worth it yet, and if you have any NHS Pension access, protecting that is more valuable than the NI saving.
£50,000–£70,000: Get a tailored consultation with a locum-specialist accountant. The math may work in your favour, but IR35 exposure and pension implications need individual assessment.
Over £70,000: A Ltd company structure almost certainly saves meaningful tax. The break-even on accountancy costs happens quickly. Make sure your accountant does a proper IR35 review of each engagement.
This article is for general information only. Tax rules change and individual circumstances vary widely. Always consult a qualified accountant before making incorporation decisions.