Doctors often have complex tax affairs. While a salaried NHS or GP role might see Income Tax and NIC handled in a straightforward way via the familiar PAYE route, not all doctors are in salaried positions. And many have more than one source of income.
Whether it’s locum work, private practice income, teaching and consultancy positions or, in the case of GP partners, taking a share of a practice’s profits, doctors and other medical professionals can earn money in many different ways. Each income stream can be taxed differently. Each can also affect personal and pension allowances, and the timing of tax payments, in different ways.
That makes managing your tax affairs tricky. It’s easy to end up paying more tax than you have to, or else making errors in your filings and falling foul of HMRC penalties.
As part of the healthcare accountancy services we provide in Sutton, Surrey and across Greater London, Xeinadin helps medical professional get to grips with the tax rules relating to their personal modes of income, keep clear records and make the right decisions to stay as tax efficient as possible.
Here are seven strategies we recommend.
1. Keep income streams clearly separated
When your income comes from multiple sources, it’s essential that you keep clear, accurate records. As mentioned, tax for salaried positions is straightforward through the PAYE system. But locum work, partnership profits and consultancy need to be reported through Self Assessment.
It’s not just a case of keeping note of how much income comes from each source. You also need to keep separate records of invoices, bank transactions and expenses for each stream, so it’s easier to identify what is taxable, what can be claimed and when tax will be due. HMRC’s Self Assessment guidance for doctors includes specific notes on calculating business profits for GP partners.
2. Review NHS pension annual allowance exposure
Pension savings are one of the best ways to reduce taxable income, with the added benefit that you are putting money aside for later life. But like most pension schemes, the NHS pension has an annual allowance which limits the amount of money you can put into the pot tax-free each year. If you exceed the annual allowance, you can be liable to pay a fee to HMRC.
It’s particularly important for higher-earning doctors, consultants and GP partners to keep an eye on this, as their pension growth may not be obvious from their payslip. Reviewing pension savings statements, income levels and possible tax charges before filing a return can help avoid unwelcome surprises.
3. Claim all allowable expenses
Medical professionals can incur expenses in many different ways. The list of tax-deductible expenses includes professional subscriptions, indemnity insurance, training costs, purchasing specialist equipment, accountancy fees, business travel and certain home office costs.
The rules on what you can claim against tax versus what you can’t differ depending on whether a doctor is employed, self-employed or operating through a partnership or company. For example, employees are more limited in what they can claim, while GP partners and self-employed locum doctors can claim a much wider range of business-related expenses.
Again, if you have multiple income streams, it’s important to track expenses incurred in each role separately and accurately. The key is evidence. Keep receipts, invoices and a clear explanation of how each expense relates to the work.
4. Treat locum income correctly
Many medical professionals rely on locum work as supplementary income or to provide them with temporary and flexible working options. It can be highly lucrative, but the tax implications can be complicated.
Much locum work is carried out on a freelance basis, and is taxed via self-assessment. But some arrangements may be treated as employment, depending on the contract and working pattern. This affects how tax is paid, which expenses can be claimed and whether National Insurance is deducted at source.
Any professional taking on locum work should check whether they need to register for Self Assessment. For any self-employed work, it’s important to anticipate in advance how much tax you’re likely to owe and make sure you set enough money aside. Locum earnings can also push you into higher tax brackets, or in cases where you are being paid from multiple sources, result in emergency tax codes and surprise charges. Again, careful tracking and forecasting can help you avoid unwanted surprises.
5. Consider incorporation carefully
Some GP practice partners choose to incorporate their business as a limited liability partnership (LLP), while other doctors with private practices or significant consultancy income consider setting up a limited company. Incorporation can offer flexibility, including control over salary and dividend extraction.
There are generally tax benefits to incorporation. Companies pay Corporation Tax on profits. Where profits are £50,000 or less, the small profits rate is 19%, with a main rate of 25% on profits above £250,000, and marginal relief applying between those limits. Dividends may then be taxed personally when profits are extracted from the company. The basic dividend tax rate of 10.75% is significantly lower than Income Tax (20%), and the Higher and Additional Rates are lower, too.
However, there are other considerations around incorporation. For GPs, the biggest one is that LLPs are not permitted under current NHS rules to hold core General Medical Service (GMS) and Personal Medical Service (PMS) contracts. Setting up an LLP also carries a significant legal administration and cost burden.
For locums and self-employed consultants, setting up a limited company carries clear tax benefits. But you also have to be aware of IR35 ‘disguised employment’ rules, which are designed to prevent self-employed workers using limited companies to lower their tax liabilities in situations that could count as employment.
6. Check travel and mileage claims
Doctors often travel between hospitals, practices, clinics, care homes and patients’ homes. You can count the cost of some but not all travel as expenses to offset against taxable earnings. So it is important to be clear about exactly what the rules are.
Permissible expenses include insurance, breakdown and repair & service costs for vehicles used for business purposes, and fuel costs for work journeys, but not for travelling between home and work. You may be able to use simplified mileage expenses in some cases, using flat rates rather than actual running costs.
The best way to manage this is to keep a simple mileage log. It should record the date, destination, purpose of the journey and miles travelled. This will help you make accurate claims, and give you supporting evidence if ever needed.
7. Plan around income thresholds
Doctors with multiple income streams can cross tax thresholds without realising it. One rule that often catches higher earners out is the fact that your personal allowance for Income Tax (£12,570 in 2026/27) reduces by £1 for every £2 you earn over £100,000. This means that, if you earn more than £125,140, you lose your personal allowance entirely. This can lead to unexpectedly high increases in tax liabilities.
Being aware of thresholds can help you plan income and taxation to stay the right side of them. Pension contributions, charitable giving, expense claims and the timing of private income can all make a difference.
Specialist tax support for doctors in Sutton
For medical professionals, there’s no one single decision that will make your income more tax efficient. It is about connecting the dots between different income streams and different ways to reduce your liabilities in a way that works for you.
At Xeinadin Sutton, we support medical professionals with practical, tailored tax advice. Whether you are a salaried doctor with additional income, a GP partner, a locum or a consultant building a private practice, we can help you understand your position and plan with confidence.
For support with medical tax planning, Self Assessment, pension tax or private practice accounts, contact Xeinadin’s Sutton office today.
