Pharmacy · Tax
Locum pharmacist tax in 2026/27: the limited company strategy that keeps the most
Run properly, a limited company is still the most profitable way for an established locum pharmacist to work. Run badly, it can leave you worse off than a sole trader. Here is the exact strategy, with real 2026/27 figures for the rest of the UK and for Scotland.
Most locum pharmacists have heard that a limited company saves tax. Since April 2026, that is only true if you run it properly. Dividend tax rose by two percentage points and employer National Insurance now applies to a director’s salary above £5,000, so a company that simply pays out every pound as dividends barely keeps pace with a sole trader outside Scotland.
The locums who come out furthest ahead do something different. They draw what they need at the basic rate, and let the company put the rest to work in a pension or on its own balance sheet at corporation tax rates. Done that way, a limited company beats sole trader every year from around £70,000 of fees across the UK, and from around £55,000 in Scotland.
The short answer
Is a limited company best for a locum pharmacist?
Yes, for an established locum working outside IR35 with fees above about £70,000 (£55,000 in Scotland), provided the company uses the right profit extraction strategy. Below those levels, or if you need every pound as spending money each year, a sole trader keeps slightly more. An umbrella pays least of all and suits only inside-IR35 or one-off shifts.
| Sole trader | Limited company | Umbrella | |
|---|---|---|---|
| How you’re taxed | Income tax and Class 4 National Insurance on all your profit, every year | Corporation tax on profit, then tax only on what you choose to draw | PAYE as an employee of the umbrella |
| Profit extraction | None: all profit is taxed at your marginal rate | You choose the mix of salary, dividends, pension and retained profit | None |
| Admin in 2026/27 | Self Assessment, plus quarterly Making Tax Digital updates above £50,000 | Accounts, CT600, payroll and Companies House filings; no Making Tax Digital for Income Tax | Minimal: the umbrella runs payroll |
| Value at £80,000 of fees, rest of UK* | £46,270 to spend + £16,650 pension | £46,270 to spend + £17,250 pension | £50,590 to spend, no pension build-up |
| Value at £80,000 of fees, Scotland* | £46,270 to spend + £13,600 pension | £46,270 to spend + £17,250 pension | £48,660 to spend, no pension build-up |
| Tends to suit | Newer or part-time locums, fees below about £70,000 outside Scotland | Established locums outside IR35, Scottish taxpayers, future pharmacy owners | Inside-IR35 or one-off assignments |
*Both routes leave the same £46,270 to spend; the difference is what gets built up in your pension. 2026/27 rates, £2,500 of expenses, no other income. Full workings below.
The max-profit strategy
The limited company strategy that keeps the most
The most profitable way to run a locum limited company is to pay yourself a £12,570 salary, take dividends only up to the basic rate limit, and leave everything above that working in the company, either as employer pension contributions or as retained profit.
How to extract profit from a locum limited company
1. Pay a £12,570 salary. It uses your personal allowance, earns a qualifying year for your State Pension, and costs the company about £1,136 in employer National Insurance, which is itself deductible for corporation tax.
2. Take dividends up to the basic rate limit. With that salary, you can take £37,700 of dividends taxed at just 10.75% after the £500 allowance. Every pound above that point would be taxed at 35.75% on top of corporation tax.
3. Leave the rest working in the company. Profit above that point goes into employer pension contributions, which are deductible and escape both National Insurance and dividend tax, or stays in the company for a later year, an investment or the purchase of a pharmacy.
Here is the strategy at £80,000 of fees:
The value of the strategy grows with your fees. The table and chart below compare it with a sole trader who has exactly the same £46,270 to spend each year and pays the rest into a personal pension with full tax relief.
| Annual fees | Extra value each year, rest of UK | Extra value each year, Scotland |
|---|---|---|
| £70,000 | +£270 | +£3,300 |
| £80,000 | +£600 | +£3,650 |
| £90,000 | +£930 | +£3,990 |
| £100,000 | +£1,270 | +£4,340 |
| £120,000 | +£1,930 | +£5,030 |
Extra pension saving from a limited company compared with a sole trader with the same spending money, 2026/27.
Employer pension contributions need to be commercially justifiable as part of your pay for the work you do, which HMRC generally accepts for a working director, and they sit within the £60,000 annual allowance, with unused allowance from the previous three years available to carry forward. If you want access before pension age, which rises from 55 to 57 in April 2028, retaining the profit in the company gives the same basic-rate discipline with more flexibility: at £80,000 of fees, the retained £12,940 drawn in a later year at the basic rate brings the total to about £57,820, around £1,560 more than a sole trader keeps in the rest of the UK and £3,730 more in Scotland.
Aberdeen and all Scottish taxpayers
Locum pharmacist tax in Scotland: where a company shines
Scottish income tax applies to salary and sole-trader profits, but dividends are taxed at the same UK-wide rates as everywhere else. Once taxable income passes £43,662, a Scottish sole trader pays 42% where the rest of the UK pays 20%, so a company is the stronger structure from around £55,000 of fees even before you use the max-profit strategy.
At £60,000 of fees, a Scottish sole trader keeps about £42,960 against £44,280 through a limited company drawing every pound, around £1,320 a year in the company’s favour. From £70,000 of fees, the full strategy adds between £3,300 and £5,000 of value every year.
The costly mistake
Why some locums find a company doesn’t pay
Almost always, it is because the company pays out every pound as dividends each year. Since April 2026, that approach leaves most locums outside Scotland slightly worse off than a sole trader, which is where the idea that a company is no longer worth it comes from.
The 2026/27 numbers that matter for locums
| 2026/27 | Rate or threshold |
|---|---|
| Personal allowance | £12,570, tapered away above £100,000 of income |
| Income tax, rest of UK | 20% to £50,270, 40% to £125,140, 45% above |
| Income tax, Scotland | 19% to 48% across six bands, with 42% from £43,663 |
| Class 4 National Insurance | 6% on profits from £12,570 to £50,270, 2% above |
| Dividend tax (UK-wide) | 10.75%, 35.75% and 39.35%, after a £500 allowance |
| Corporation tax | 19% to £50,000, 25% from £250,000, marginal relief between |
| Employer National Insurance | 15% on salary above £5,000 |
| Making Tax Digital for Income Tax | Qualifying income over £50,000 from April 2026, £30,000 from 2027, £20,000 from 2028 |
| VAT registration threshold | £90,000 of taxable (not exempt) income |
| Business mileage | 45p a mile for the first 10,000 miles, 25p after |
| Pension annual allowance | £60,000, tapered for the highest earners |
Take a locum with £60,000 of fees, £2,500 of business expenses and a company that draws everything out:
| Structure | Approx. take-home |
|---|---|
| Umbrella company | £40,540 |
| Limited company, outside IR35, all profit drawn | £44,280 |
| Sole trader | £44,660 |
The sole trader figure is £57,500 of profit less £10,432 of income tax and £2,407 of Class 4 National Insurance. The umbrella figure assumes a £20 weekly margin, the Apprenticeship Levy passed on and no pension deductions. Drawn this way, the gap widens as income rises:
| Annual fees | Sole trader, rest of UK | Sole trader, Scotland | Limited company, all profit drawn |
|---|---|---|---|
| £40,000 | £31,020 | £30,980 | £29,830 |
| £60,000 | £44,660 | £42,960 | £44,280 |
| £80,000 | £56,260 | £54,090 | £54,580 |
| £100,000 | £67,860 | £64,690 | £64,030 |
Limited company column: £12,570 salary and all remaining profit paid as dividends, UK-wide dividend rates.
Same company, same £80,000 of fees. Drawn badly, it keeps £1,680 less than a sole trader. Run properly, it builds £600 more every year, and £3,650 more in Scotland.
Let us set up your max-profit strategy.We model your fees, engagements and tax residence, then set the salary, dividend and pension levels that keep you the most.
The one condition
How IR35 really applies to locum pharmacists
IR35 only applies when you provide your services through an intermediary, normally your own limited company. It asks whether, without that company, you would be the pharmacy’s employee. Sole traders aren’t caught by IR35, but they face the same underlying question: if a shift is really employment, the pharmacy should be running PAYE on it.
Who makes the call depends on who engages you. Public bodies, including NHS trusts and health boards, have made the determination since April 2017. Medium and large private businesses, including the bigger pharmacy chains, have done so since April 2021 and must give you a Status Determination Statement explaining their reasons. Small private businesses are exempt, and from 6 April 2026 the small company limits rose to £15 million turnover and a £7.5 million balance sheet, with 50 employees unchanged and any two of the three enough. Many independents and small groups sit well inside those limits, so for a large share of locum work the assessment rests with your own company, and so does the liability if it’s wrong.
Four factors decide most locum cases
Control. The pharmacy sets opening hours and expects you to follow its standard operating procedures, but much of what governs your work comes from the Responsible Pharmacist regulations and your GPhC standards, not from the engager. Tribunals distinguish regulatory control from an employer’s control over how you do the job.
Substitution. A genuine right to send another registered pharmacist in your place points strongly outside IR35, even where the pharmacy can insist the substitute is suitably qualified. A right that exists on paper but would never be accepted in practice carries little weight.
Mutuality of obligation. Booking individual shifts with no promise of more helps, but since the Supreme Court’s 2024 decision in the PGMOL referees case, the focus has moved to the obligations within each engagement. On its own, this factor rarely settles anything.
Business on your own account. Working for many pharmacies, carrying your own indemnity, setting your own rates and bearing the cost of cancelled shifts all point towards running a genuine business.
How each route works
What each structure means for a locum pharmacist
As a sole trader, you invoice in your own name, keep the profit and pay income tax and Class 4 National Insurance on it through Self Assessment. The admin has grown, though. Making Tax Digital for Income Tax applies from 6 April 2026 to sole traders whose gross income exceeded £50,000 in 2024/25, which means digital records and quarterly updates to HMRC. The threshold drops to £30,000 from April 2027 and £20,000 from April 2028, so within two years almost every full-time locum will be in scope. Payments on account catch many first-year locums out too: your first bill can arrive with half of next year’s tax added on top.
A limited company is a separate legal person. It invoices the pharmacy or agency, pays corporation tax at 19% on profits up to £50,000 (with marginal relief taking the rate on profits between £50,000 and £250,000 to an effective 26.5%), and you draw money out as a modest salary plus dividends. What you gain is control over timing: profit you don’t need this year can stay in the company and be drawn later. Limited liability is often oversold here: it protects you from the company’s business debts, but it won’t generally shield you from claims about your own clinical work, which is why personal indemnity cover still matters. A company is also outside Making Tax Digital for Income Tax, so there are no quarterly updates on the trading income. The costs are real: annual accounts, a corporation tax return, payroll, dividend paperwork, a confirmation statement and, since November 2025, identity verification for directors at Companies House.
An umbrella company employs you and pays you through PAYE for each assignment. Employer National Insurance, the Apprenticeship Levy and the umbrella’s margin all come out of the assignment rate before your gross pay is worked out, which is why take-home is lowest. In return you get employment rights such as holiday pay and statutory sick pay, and no IR35 exposure. Since April 2026, recruitment agencies (or the end client, where there is no agency) have been jointly liable for an umbrella’s PAYE failures, but any umbrella promising take-home well above what PAYE allows still deserves real suspicion.
More reasons a company pays off
More advantages of a limited company for locums
Beyond the tax figures, a company gives established locums control and options a sole trader simply doesn’t have.
You control when income is taxed
Profit can stay in the company in a busy year and be drawn in a quieter one, around a career break, parental leave or a move to part-time work, keeping more of it in the basic rate band.
You can build towards owning a pharmacy
Many locums go on to buy into or acquire a pharmacy. Profits accumulated inside a company, taxed at corporation tax rates rather than your marginal rate, can fund the deposit or equity, and the company can act as the acquiring vehicle. This is far easier to structure well years ahead than at the point of purchase.
No quarterly Making Tax Digital reporting
Sole traders above £50,000 of fees now send quarterly updates to HMRC, with the threshold falling to £20,000 by 2028. A company’s trading income sits outside Making Tax Digital for Income Tax.
Room for more than locum shifts
Training, clinical services, writing or consultancy can all run through the same company, with expenses and profits managed together.
Allowable expenses
Expenses a locum pharmacist can claim
The test is whether a cost is incurred wholly and exclusively for your locum work. The usual claims are below. Travel is the one that depends most on your structure.
| Expense | How it works |
|---|---|
| GPhC registration | Your annual fee to stay on the register. Fully allowable. |
| Indemnity cover | Professional indemnity insurance, or membership of a body that provides it for your locum work. |
| Professional bodies | Royal Pharmaceutical Society membership and similar professional subscriptions. |
| CPD and training | Courses that maintain or update your existing skills. A new qualification such as independent prescribing is usually not deductible for a sole trader, but can often be funded by your company as work-related training. |
| Travel and mileage | 45p a mile for the first 10,000 business miles, 25p after that. Whether a journey qualifies depends on your structure (see below). |
| Clinical references and kit | BNF and clinical reference subscriptions, plus the business share of a phone or laptop used for work. |
| Clothing | Uniforms, tunics and protective items the role requires. Ordinary clothing never qualifies, even if you only wear it to work. |
| Working from home | Sole traders can use HMRC’s flat rates of £10 to £26 a month, depending on hours worked at home, or a reasoned share of actual costs. |
| Accountancy fees | The cost of preparing your accounts and returns. |
Pensions
Superannuation: why pharmacists can’t copy the GP locum route
Community pharmacy locum work isn’t NHS pensionable
Locum GPs have a dedicated route for pensioning self-employed NHS work. There is no equivalent for pharmacists. Community pharmacies are independent contractors, not NHS employing authorities, so locum shifts there aren’t pensionable in the NHS schemes in England, Wales or Scotland, whether you invoice as a sole trader, through a company or via an agency. Work becomes pensionable only when you are directly employed by an NHS body, such as hospital bank shifts, or employed in an NHS pensionable post such as a GP practice pharmacist role.
Choosing your route
Which route suits your locum work?
| Your situation | Usually the best fit |
|---|---|
| Established locum outside IR35, fees above about £70,000 (£55,000 in Scotland) | Limited company with the max-profit strategy |
| Planning to buy, open or buy into a pharmacy | Limited company, set up with the acquisition in mind |
| Newer or part-time locum, fees below those levels, needing every pound each year | Sole trader, with a plan to incorporate as fees grow |
| Mostly shifts deemed inside IR35, or occasional one-off assignments | Umbrella, or PAYE directly with the engager |
You don’t have to pick one route for life. Plenty of locums run a company for outside-IR35 work and take inside-IR35 shifts through PAYE or an umbrella. What matters is that each engagement is assessed on its own facts, and that the structure is reviewed as your income, location and plans change.
A2Z is a strong fit if you
We’re probably not the right fit if you
A simpler filing service will serve you well, and that’s absolutely fine.
Sources
Sources and further reading
| Source | What it covers |
|---|---|
| GOV.UK: off-payroll working (IR35) | Who decides status, and the small company exemption |
| GOV.UK: tax on dividends | 2026/27 dividend rates and allowance |
| GOV.UK: Scottish income tax | 2026/27 Scottish rates and bands |
| GOV.UK: Making Tax Digital for Income Tax | Who must join, and when |
| HMRC: VAT Notice 701/57 | VAT on health professionals’ services and supplies of staff |
| L Rowlands & Co (Retail) Ltd v HMRC [2024] UKFTT 513 (TC) | The locum pharmacist employment status dispute |
| PDA: HMRC withdraws locum pharmacist guidance | HMRC’s June 2023 change to its Employment Status Manual |
Your questions
Frequently asked questions
Do locum pharmacists pay less tax through a limited company?
Yes, if the company is run with the right strategy and your work is outside IR35. Taking a £12,570 salary, dividends up to the basic rate limit and putting the rest into employer pension contributions or retained profit beats a sole trader every year from around £70,000 of fees in the rest of the UK and around £55,000 in Scotland. Drawing everything out as dividends each year, by contrast, leaves most locums outside Scotland slightly worse off since the April 2026 dividend tax rise.
What is the most tax-efficient way to pay yourself as a locum pharmacist director?
For 2026/27, pay a £12,570 salary, take dividends up to the basic rate limit (£37,700 with that salary), and leave any further profit in the company as employer pension contributions or retained earnings. The salary uses your personal allowance and earns a State Pension qualifying year, the dividends are taxed at 10.75%, and employer pension contributions avoid National Insurance and dividend tax altogether.
Does IR35 apply to sole trader locum pharmacists?
No. IR35 only applies when you work through an intermediary such as your own limited company. Sole traders face the underlying employment status question instead: if a shift is really employment, the pharmacy should be operating PAYE on it.
Who decides whether a locum shift is inside IR35?
It depends on the engager. NHS trusts, health boards and other public bodies decide, as do medium and large private pharmacy businesses, which must give you a Status Determination Statement. Small private businesses, now those meeting two of £15 million turnover, a £7.5 million balance sheet and 50 employees, are exempt, so your own company makes the assessment and carries the risk.
Can I use different structures for different shifts?
Yes. Many locums work through a limited company for outside-IR35 engagements and through an umbrella or PAYE for shifts deemed inside. The important thing is that each engagement is assessed on its own facts and taxed correctly.
Can locum pharmacists pay into the NHS Pension Scheme?
Generally not. Community pharmacy locum work is not NHS pensionable, whatever structure you use. Only work where you are directly employed by an NHS body, such as hospital bank shifts, or employed in an NHS pensionable post is pensionable. Most locums use a personal pension or SIPP instead.
Do locum pharmacists need to register for VAT?
Often not, but it depends on how you are engaged. A registered pharmacist’s own professional services are generally exempt from VAT, and exempt income does not count towards the £90,000 registration threshold. Where your company or an agency supplies you to a pharmacy that directs your work, HMRC can treat that as a standard-rated supply of staff instead. HMRC changed its position for locum doctors in 2026, but that change does not cover pharmacists, so if your company’s fees are near the threshold, get the liability checked before assuming exemption. Non-clinical income such as training or consultancy is usually standard-rated.
What do I need to do when I start locum work?
As a sole trader, register for Self Assessment by 5 October after the end of the tax year in which you started, so a locum who starts in September 2026 must register by 5 October 2027. If you use a limited company, it must be incorporated before you invoice through it, each director must verify their identity with Companies House, and the company needs its own bank account and payroll. Set aside tax from every payment from day one, because your first bill can include a payment on account for the following year.
Does Making Tax Digital apply to locum pharmacists?
It applies to sole traders. If your gross self-employed and property income was over £50,000 in 2024/25, Making Tax Digital for Income Tax applies from 6 April 2026, with quarterly updates to HMRC. The threshold falls to £30,000 from April 2027 and £20,000 from April 2028. Limited companies and umbrella employees are not affected.
Can I claim mileage as a locum pharmacist?
Usually, if the journey counts as business travel. HMRC’s approved rates are 45p a mile for the first 10,000 business miles in a tax year and 25p after that. Sole traders with no fixed workplace can normally claim travel to each pharmacy, and a limited company outside IR35 can reimburse travel to temporary workplaces tax-free. Inside IR35 or under an umbrella, the journey is normally treated as ordinary commuting.
What happens if HMRC decides an engagement should have been inside IR35?
Where the pharmacy was small and your company made the call, your company is liable for the underpaid tax and National Insurance, plus interest and possibly penalties. Where a medium or large engager or a public body made the determination, the fee-payer is usually liable, and liability can pass up the chain if the engager failed to take reasonable care. Reviewing contracts and working practices before you start is far cheaper than defending a determination afterwards.
Find out which structure really pays you more
We review your contracts, IR35 position, fees and tax residence, then show you side by side what each route leaves you with. To make the first conversation count, have three things ready: your expected annual fees, how your shifts are booked, and whether you live in Scotland.
No obligation, same-day response. Or call us on 01224 042961.
