Three questions, in order
Most locums arrive with one question — should I set up a company — when the more urgent two are whether your working arrangements actually support self-employment, and whether Making Tax Digital reaches you and when.
Making Tax Digital for Income Tax
Qualifying income is total income from self-employment and property before expenses. Employment income through PAYE, your share of partnership profit, dividends including from your own company, the State Pension and private pensions are all excluded. HMRC writes to those in scope, but states plainly that checking remains your responsibility.
Company or sole trader?
Corporation tax is 19% on profits to £50,000, 25% from £250,000, with marginal relief of 3/200ths between — an effective 26.5% on the middle band. That comparison only means something once dividend tax, the cost of running the company and how much you need to draw are in it. Below a certain profit the administration outweighs the saving, and we will tell you where that line falls for you.
Common questions
Am I employed or self-employed?
It depends on the working arrangement rather than on what your invoice says. The questions are control over how and when the work is done, whether there is a genuine right of substitution, who carries the financial risk, and whether there is any mutuality of obligation beyond the individual booking. A locum moving between pharmacies on their own terms looks very different from someone covering the same branch every Tuesday for two years. If your pattern has drifted towards the second, it is worth reviewing before HMRC does.
Do I need to worry about Making Tax Digital?
If you are a sole trader, probably yes, and the timing depends on your turnover rather than your profit. Qualifying income is total income from self-employment and property before expenses. The thresholds are £50,000 for the 2024-25 tax year (MTD from 6 April 2026), £30,000 for 2025-26 (from April 2027) and £20,000 for 2026-27 (from April 2028). The test year is two years before the start year. HMRC writes to those in scope but says explicitly that checking remains your responsibility.
What counts towards the MTD threshold?
Self-employment and property income before expenses. Expressly excluded: employment income through PAYE, your share of partnership profit as an individual partner, dividends including from your own company, the State Pension and private pensions. So a locum with £45,000 of locum income and £10,000 of rent is at £55,000 and in scope, while one with £45,000 of locum income and £30,000 of dividends from their own company is at £45,000 and is not. The trap is that it is measured before expenses, so a locum who thinks of themselves as earning their profit figure can be well over a threshold they believed they were under.
Is it worth setting up a limited company?
Sometimes, and the honest answer is that it depends on your level of income, whether you need to draw everything you earn, and how much administration you are willing to carry. Corporation tax is 19% to £50,000 with marginal relief above it, but the comparison has to include dividend tax, the cost of running the company and the loss of simplicity. Below a certain level of profit the admin outweighs the saving. We will tell you where that line falls for you rather than selling you a structure.
Do I still pay Class 2 National Insurance?
Compulsory Class 2 was abolished for the self-employed from 6 April 2024, so it is no longer a mandatory charge on your profits. This is one of the details a surprising number of documents still get wrong, and it matters because it changes the comparison between operating as a sole trader and through a company. Voluntary contributions remain relevant to some people's National Insurance record — worth checking if you have gaps, because a qualifying year is cheap to buy at the time and expensive to be missing at state pension age. If you have had years out of work or below the threshold, that check is worth doing once rather than assuming it is handled.