PAYE vs self-employed locum pharmacist

Most locum pharmacists work as self-employed sole traders, invoicing each pharmacy. Some are paid through an agency's payroll or an umbrella company, and a few work through their own limited company. Each is taxed differently, and which one applies is not simply a matter of choice.

Self-employed

You invoice for each shift, receive the full fee with nothing deducted, and pay income tax and Class 4 National Insurance through Self Assessment. You can claim business expenses, including mileage in the right circumstances. You get no holiday pay or sick pay, and you need your own indemnity cover.

PAYE through an agency or umbrella company

Tax and employee National Insurance are taken before you are paid, as with a job. Holiday pay may be built into the rate or paid separately. You cannot claim most business expenses, and travel to a workplace may be treated as commuting. An umbrella company employs you and pays you after taking its fee and, in effect, the employer's National Insurance and apprenticeship levy, so compare take-home, not headline rates.

Your own limited company

The company invoices for your work and pays you a salary and dividends. It brings extra costs and admin (accounts, a corporation tax return, a confirmation statement), and the off-payroll working rules (IR35) can mean the work is taxed much like employment anyway. Take advice from an accountant before setting one up.

Who decides your status?

Employment status for tax depends on the facts of each engagement, not on what the contract calls it. HMRC used to have guidance specifically about locum pharmacists, which said that locums engaged by the session or day, doing only the statutory role, were likely to be self-employed. HMRC removed it from 30 June 2023, saying the change did not alter anyone's status; locums are now assessed under the general rules like everyone else.

The factors that matter include:

• Substitution. Can you send another suitably qualified pharmacist in your place?
• Control. Who decides how, when and where the work is done, beyond what the law and professional standards require?
• Mutuality of obligation. Is the pharmacy obliged to offer work and you to accept it, or is each shift a separate booking?
• Being in business on your own account: working for several pharmacies, setting your own rates, bearing your own costs and risks.

HMRC's Check Employment Status for Tax (CEST) tool gives a view on a particular engagement. A long run of regular shifts at one pharmacy looks more like employment than a mix of short bookings at several.

To compare take-home as self-employed at a given income, use the tax calculator.