IR35 has been part of the UK tax landscape since 2000, but in 2026 it has never been more relevant — or more rigorously enforced — for healthcare practices and the professionals who work in them. The combination of Making Tax Digital for Income Tax now live from April 2026, HMRC’s confirmed intensification of compliance activity in the healthcare sector, increased data sharing between NHS payroll systems and HMRC, and a post-pandemic locum market that has expanded significantly, means that IR35 misclassification in healthcare is both more common and more detectable than at any point in the legislation’s history.
For GP practices engaging locum doctors, dental practices working with associate dentists and hygienists, and healthcare professionals operating through personal service companies, the stakes are high. A determination that a worker is inside IR35 — meaning they should have been taxed as an employee — can result in retrospective income tax and NIC liabilities, interest, and penalties running into tens of thousands of pounds. The liability can fall on the worker, the engager, or both, depending on the circumstances and the sector in which the work is performed.
This guide explains what IR35 is, how it applies specifically to the healthcare sector in 2026, who bears the responsibility for making the determination, what the key tests are, and what GP practices, dental practices, and individual healthcare professionals need to do right now to protect their position.
What IR35 Is and Why It Matters in Healthcare
IR35 — formally known as the off-payroll working rules — is a set of tax legislation designed to ensure that workers who provide their services through an intermediary (typically a personal service company or limited company) but who would be treated as employees if they contracted directly, pay broadly the same income tax and National Insurance as a direct employee would.
The legislation targets what HMRC calls disguised employment — a situation where a worker sets up a limited company, invoices for their services through that company, and then extracts income as dividends (taxed at lower rates than salary) even though the practical reality of the working arrangement is indistinguishable from employment.
In healthcare, the classic IR35 scenario is a locum doctor who operates through a personal service company, provides clinical sessions at GP surgeries or NHS trusts, and pays themselves primarily through dividends to reduce their personal tax bill. If HMRC determines that the working arrangement — the level of control, the substitution rights, the mutuality of obligation — means the locum would be an employee if contracted directly, the IR35 rules apply and the income is taxed as employment income, eliminating the dividend tax advantage entirely.
But IR35 is not only a risk for locum doctors. It applies across a wide range of healthcare working arrangements — dental associates, locum pharmacists, healthcare consultants, medical writers, agency nurses operating through their own companies, and physiotherapists and allied health professionals providing sessional services through limited companies.
Key Point: IR35 does not mean that working through a limited company in healthcare is illegal or always problematic. Many healthcare professionals legitimately operate outside IR35 — the question is whether the specific working arrangement, assessed against the statutory tests, genuinely reflects self-employment or disguised employment. Getting the assessment right from the outset is far preferable to facing a retrospective HMRC challenge years later.
The Off-Payroll Working Rules: Who Is Responsible in 2026?
One of the most important and often misunderstood aspects of IR35 in healthcare is the question of who bears the legal responsibility for making the IR35 determination — and who pays if it turns out to be wrong.
The answer depends on whether the engager is in the public sector or the private sector, and the size of the engager.
Public sector engagements (NHS trusts, GP practices commissioned by NHS England):
In the public sector — which includes NHS trusts, NHS foundation trusts, and GP practices operating under NHS GMS or PMS contracts — the responsibility for determining IR35 status has sat with the engager (the NHS body or GP practice) since April 2017. If a GP practice engages a locum doctor through a personal service company and incorrectly determines that the engagement is outside IR35, the GP practice bears the liability for the unpaid income tax and NIC — not the locum doctor’s company.
This is a significant and frequently misunderstood risk for GP practice owners and managers. Many practices assume that because they are engaging a locum through an agency or through the locum’s own company, the IR35 responsibility lies elsewhere. It does not. For public sector engagements, the determination and the liability rest with the practice.
Private sector engagements (private clinics, dental practices, private hospitals):
For medium and large private sector businesses — those with annual turnover above £10.2 million, a balance sheet above £5.1 million, or more than 50 employees — the off-payroll working rules have applied since April 2021. The engager (the dental practice, private clinic, or private hospital) bears the responsibility for the IR35 determination and, if wrong, the liability.
For small private sector businesses — those meeting two or more of: turnover below £10.2 million, balance sheet below £5.1 million, fewer than 50 employees — the responsibility for the IR35 determination still sits with the worker’s own company (the personal service company). Most independent dental practices and small private clinics fall within the small company exemption, meaning the individual healthcare professional’s company determines its own IR35 status.
The agency fee-payer rule:
Where a locum or healthcare contractor is engaged through a staffing agency that sits between the engager and the worker’s personal service company, the agency is typically the fee-payer and bears the employer NIC and income tax liability if the engagement is determined to be inside IR35. This does not remove the engager’s responsibility for making the determination in the public sector or in medium/large private sector businesses — it shifts the financial liability to the agency once the determination is made.
Understanding which of these categories applies to your practice is the essential first step before any IR35 assessment can be undertaken. Our healthcare accounting specialists work with practices across all of these categories to establish which rules apply and what obligations flow from them.
The Three Key Tests: How IR35 Status Is Determined
IR35 status is not determined by what a contract says — it is determined by what actually happens in practice. HMRC looks at the reality of the working relationship, not the label attached to it. There are three primary tests, each of which carries significant weight in the overall assessment.
Test 1 — Control
The control test asks: does the engager control how, when, and where the worker performs their services?
In employment, an employer typically directs the employee — setting working hours, determining the method of work, specifying where the work takes place. A genuinely self-employed contractor has significant freedom over how they deliver their services.
In healthcare, control is a nuanced issue. A locum doctor working at a GP surgery must follow clinical protocols, use the practice’s systems, and see patients at scheduled appointment times — all of which look like control. However, the clinical autonomy inherent in medical practice — the doctor’s independent professional judgment in treating each patient — is a counter-indicator of employment.
HMRC looks at the overall picture. A locum who turns up at specified times, uses the practice’s equipment, follows its administrative procedures, and has no meaningful ability to deviate from the appointment schedule will face a stronger control argument than a locum who has genuine flexibility over when they work and how they structure their clinical sessions.
Test 2 — Substitution
The substitution test asks: does the worker have a genuine right to send a substitute to perform the work in their place?
A genuine right of substitution — where the worker can send another qualified person to do the work without the engager’s approval — is one of the strongest indicators of self-employment. An employee cannot send a substitute to work on their behalf.
In healthcare, substitution is complex. A GP practice will typically require any locum to be appropriately qualified and registered with the GMC, have indemnity cover, and be approved by the practice. These requirements are clinically necessary but they do constrain the right of substitution. HMRC distinguishes between restrictions on substitution that are commercially reasonable (requiring the substitute to be equally qualified) and restrictions that are so broad they effectively eliminate the substitution right entirely.
A personal service company contract that provides an unfettered right of substitution but where substitution has never actually occurred — and where in practice the work is always performed by the same individual — will not carry much weight with HMRC. The substitution right must be genuine and exercisable, not merely a clause inserted to engineer an outside IR35 result.
Test 3 — Mutuality of Obligation
The mutuality of obligation test asks: is there an ongoing obligation on the engager to offer work and on the worker to accept it?
Classic employment involves mutual obligations — the employer is obliged to offer work and pay the employee, and the employee is obliged to turn up and work. Genuine self-employment involves no such ongoing mutual obligation — the contractor takes on individual projects and there is no expectation of continued engagement beyond the current assignment.
In healthcare, a locum who has been working at the same practice every Monday and Wednesday for three years, booking sessions months in advance on a rolling basis, with an implicit expectation of continued engagement, exhibits strong mutuality of obligation. A locum who responds to individual session requests on an ad-hoc basis, with no guarantee of future bookings and no obligation to accept work offered, exhibits much weaker mutuality of obligation — indicating self-employment.
Other relevant factors:
Beyond the three primary tests, HMRC also considers: whether the worker provides their own equipment, whether they bear financial risk (including the risk of making a loss), whether they work exclusively for one engager or multiple clients simultaneously, whether they are integrated into the engager’s organisation, and whether the contract is for services (self-employment) or a contract of service (employment).
In healthcare, the fact that many locums work across multiple practices simultaneously — and that this is structurally encouraged by the locum market — is a positive indicator of self-employment on the multiple clients and integration tests.
IR35 in GP Practices: The Specific Risks and How to Manage Them
GP practices face IR35 risk from two directions: as the engager of locum doctors through personal service companies (where the practice bears the determination responsibility as a public sector body), and as the practice structure itself for GP partners who operate through personal service companies alongside their partnership income.
Locum doctors engaged through personal service companies:
When a GP practice engages a locum doctor who invoices through their own limited company, the practice must determine whether the engagement is inside or outside IR35. This determination should be documented — ideally using HMRC’s Check Employment Status for Tax (CEST) tool supplemented by a fuller contractual and factual analysis — and the outcome should be communicated to the locum’s company in a Status Determination Statement (SDS).
If the practice determines the engagement is inside IR35, it must operate PAYE and deduct income tax and employee NIC from payments made to the locum’s company, and account for employer NIC (now at 15% from April 2026) on top. This is operationally more complex than simply paying an invoice and requires the practice’s payroll system to handle the deemed employment payment.
If the practice determines the engagement is outside IR35, it should document the basis for that determination carefully. If HMRC subsequently challenges the determination and finds it was incorrect, the practice faces a liability for the unpaid income tax, employee NIC, and employer NIC — plus interest and potentially penalties. Given the new 15% employer NIC rate, an incorrect outside-IR35 determination on a locum earning £500 per day for 50 days per year generates an approximate employer NIC liability of £3,750 per year — which HMRC can assess for up to six years retrospectively.
Practical steps for GP practices engaging locums:
Review every locum engagement where the locum invoices through a limited company. Complete a Status Determination Statement for each engagement. Document the specific factors supporting the determination. Ensure locum engagement contracts address the three key tests explicitly — control, substitution, and mutuality of obligation. Review the terms under which sessions are booked to ensure they reflect the determined status. Our GP practice accounting team can assist with SDS preparation and IR35 risk assessment for your current locum arrangements.
GP partners operating through personal service companies:
Some GP partners have historically channelled their partnership income through a personal service company — receiving the partnership profit share into the company and then paying themselves via salary and dividends. HMRC has historically viewed this arrangement with significant scepticism because a GP partner is by definition in a partnership and has the characteristics of self-employment — but the interposition of a personal service company and dividend extraction introduces the same IR35 risk factors as for any other personal service company engagement.
If the GP partnership is a public sector body (as most NHS GP partnerships are), and the partner’s personal service company is providing services to the partnership, the off-payroll working rules may technically apply. In practice, the position is complex and fact-specific. If your practice has partners operating through personal service companies, a specific review of the arrangements is advisable given the increased HMRC scrutiny in 2026. Our GP practice accounting specialists can review this for your practice.
IR35 in Dental Practices: Associates, Hygienists and the Employment Status Question
Dental practices face a particularly complex IR35 landscape because the employment status of dental associates has been contested for decades and has generated significant case law and HMRC guidance.
Dental associates — the historical position:
Dental associates have traditionally been treated as self-employed contractors, working under associate agreements that provide for a percentage split of NHS UDA income and private treatment fees. This self-employment treatment has been broadly accepted by HMRC for many years, and HMRC published a specific employment status agreement for dental associates in the 1990s that gave comfort to the sector.
However, HMRC has been reviewing this position and the protections offered by the old status agreement have been progressively eroded. The key issue is that dental associates working in a single practice, on a fixed schedule, using the practice’s equipment and support staff, with no genuine right of substitution and an implicit expectation of continued engagement, exhibit many of the characteristics of employment — particularly under the control and mutuality of obligation tests.
The BDA and HMRC guidance position in 2026:
The British Dental Association has been engaged in ongoing discussions with HMRC about the employment status of dental associates. Dental practices should not assume that historic HMRC acceptance of self-employed status automatically protects them going forward. HMRC has explicitly stated that employment status is determined on the facts of each individual arrangement, and that blanket historic acceptance does not preclude future challenge.
What dental practices should do:
Review associate agreements to ensure they reflect the economic reality of the arrangement and address the three key tests. If an associate genuinely has a right of substitution — not merely a contractual clause but a practical ability to send a qualified alternative — ensure this is documented. If associates work across multiple practices, maintain records of this multi-client activity as evidence of genuine self-employment. Consider whether any associates whose arrangements have evolved into something resembling employment should be formally re-engaged as employees.
Our dental practice accounting team works with practices to review associate agreements in light of the current IR35 and employment status environment. The VAT specialist position of dental associates also interacts with their employment status — self-employed associates may need to be VAT-registered separately depending on their income levels, which is another area requiring review.
Dental hygienists and therapists:
Dental hygienists and therapists who provide sessional services to dental practices through their own companies or as self-employed individuals face the same IR35 analysis as locum doctors. The key questions are: does the hygienist work across multiple practices, do they have genuine flexibility over working arrangements, do they provide their own equipment, and is there a genuine substitution right? A hygienist who works every Tuesday and Thursday at the same practice, on the same schedule, for years, exhibits stronger employment characteristics than one who provides ad-hoc sessional cover across several practices.
IR35 and Locum Doctors: The Individual Healthcare Professional’s Perspective
For locum doctors operating through personal service companies, 2026 brings a heightened risk environment. MTD for Income Tax — now live from April 2026 — means that HMRC receives quarterly data on income and expenses from locums who have registered for MTD. This data, cross-referenced with NHS payroll records and NHSBSA payment data, gives HMRC a significantly improved picture of locum income flows than it had under the annual Self Assessment system.
The MTD-IR35 interaction:
A locum doctor filing quarterly MTD updates that show income flowing through a personal service company — combined with NHS payroll records showing the same doctor working regular sessions at a small number of practices — creates a data pattern that HMRC’s compliance systems can identify as potentially requiring IR35 scrutiny. The quarterly visibility that MTD provides makes it harder for IR35 non-compliance to remain undetected for years at a time, as it could when the only data point was an annual tax return. Read our guide on MTD for income tax for GP partners and locum doctors for the full picture of MTD compliance obligations.
What locum doctors should review:
Assess each of your current engagements against the three key tests. Consider how many different practices you work for — working across five or more practices is a much stronger indicator of genuine self-employment than working primarily for one or two. Review your contracts to ensure they genuinely reflect the working arrangements in practice, not just a preferred tax outcome. Ensure you have a genuine substitution mechanism — not just a contractual clause. Keep contemporaneous records of your working arrangements, including evidence of working for multiple clients, rejecting sessions, and exercising professional independence.
If your working arrangements have evolved over time — perhaps you now work predominantly for one practice and have reduced the multi-client activity that originally justified outside IR35 status — the position should be reviewed. An arrangement that was legitimately outside IR35 three years ago may not be today if the facts on the ground have changed.
The personal service company question:
For locum doctors considering whether to operate through a personal service company in 2026, the calculation has changed materially. The dividend tax rate increase to 35.75% (higher rate) from April 2026 — covered in detail in our dividend tax increase guide — has reduced the financial benefit of operating through a company. Combined with the IR35 risk and the administrative cost of running a company, the tax saving from a personal service company is narrower than it was three years ago. For some locum doctors, operating as a sole trader may now be simpler, less risky, and only modestly less tax-efficient than operating through a company. Our personal tax team can model the specific comparison for your income level and working arrangements.
HMRC’s Enforcement Activity in Healthcare in 2026
HMRC has signalled clearly that the healthcare sector is a priority area for IR35 and employment status compliance activity in 2026. Several factors are driving this focus.
The post-pandemic expansion of locum and agency working in healthcare has significantly increased the number of workers operating through personal service companies in the sector. HMRC’s increased data access through MTD, NHS Digital data sharing arrangements, and the NHSBSA payment system gives it better visibility of income flows than at any previous point. The government’s broader objective of closing the tax gap — confirmed in the Autumn Budget 2025 and reinforced in the Spring Statement 2026 — has increased resources allocated to employment status compliance across all sectors.
HMRC has also introduced the Strengthened Reward Scheme — sometimes called the whistleblower scheme — which pays informants 15% to 30% of tax collected where their information leads to HMRC recovering at least £1.5 million. In large NHS trusts and healthcare groups where IR35 non-compliance may be systemic, this creates an incentive for staff or former employees to report arrangements to HMRC.
HMRC’s CEST tool:
HMRC’s Check Employment Status for Tax tool has been updated and HMRC has stated that it will stand behind determinations produced by CEST where the information entered is accurate. Using CEST and retaining the output as part of a documented IR35 assessment process provides a degree of protection — not immunity from challenge, but evidence of a reasonable and structured approach to the determination. Healthcare practices that have never used CEST and cannot demonstrate any formal IR35 assessment process are in a significantly more exposed position if challenged.
Documenting Your IR35 Position: What Good Practice Looks Like
Whether you are a GP practice managing locum engagements, a dental practice working with associates, or an individual locum doctor assessing your own status, good IR35 documentation follows the same principles.
For engagers (GP practices, dental practices, private clinics):
Produce a Status Determination Statement for every engagement where a worker provides services through an intermediary. The SDS should state the determination (inside or outside IR35), the reasons for the determination, and the specific factors considered. The SDS must be provided to both the worker and any agency in the chain. Keep a copy on file along with the underlying contract and any supporting factual analysis. Review determinations when working arrangements change — a determination made on the basis of facts that no longer apply is not a valid determination.
For workers (locum doctors, dental associates operating through companies):
Maintain a file for each engager that documents the working arrangements against the three key tests. Keep copies of contracts, invoices, session booking records, and any communications that demonstrate the practical reality of the arrangement. If you work for multiple engagers, maintain a record of all active engagements as evidence of multi-client activity. If you have exercised a substitution right, keep records of the occasion — including the substitute’s name, qualifications, and the engager’s response.
Review your position annually:
IR35 status is not a once-and-done determination. It should be reviewed whenever working arrangements change — when you move from working across multiple practices to primarily one, when a contract is renewed on different terms, when the nature of clinical sessions changes, or when new HMRC guidance or case law is published. Our healthcare accounting team recommends an annual IR35 review for every client operating through a personal service company.
The Interaction Between IR35 and the April 2026 Tax Changes
IR35 does not sit in isolation from the other April 2026 tax changes. For healthcare professionals and practices navigating 2026/27, the IR35 question interacts with several other changes that together shape the optimal structure and approach.
The employer NIC rate increase to 15% from April 2026 means that an inside-IR35 determination generates a higher employer NIC liability than it would have in 2025/26. A practice that was on the margin of whether to engage a locum inside or outside IR35 faces a higher cost of an incorrect outside-IR35 determination than before.
The dividend tax rate increase means the financial benefit of operating outside IR35 through a personal service company is smaller than it was — reducing the incentive for some healthcare professionals to maintain a company structure primarily for tax reasons.
MTD for Income Tax increases HMRC’s data visibility on income flows, making IR35 non-compliance more detectable. And the WDA rate reduction to 14% reduces the capital allowances benefit of operating a company, further narrowing the financial case for personal service company structures in some situations.
The overall direction of travel is clear — the tax environment in 2026 is less favourable to personal service company structures in healthcare than it was three or four years ago, while the enforcement risk has increased. This does not mean that operating outside IR35 through a personal service company is wrong or inadvisable in all cases — many healthcare professionals legitimately do so. But it does mean the position warrants careful, current, documented review rather than continuation by default.
Frequently asked questions
IR35 and employment status — what healthcare and dental practices need to know.
Act now rather than waiting for an HMRC challenge. Prepare a Status Determination Statement for the engagement retrospectively, assessing the working arrangements as they have actually operated over the past two years.
If the determination is that the engagement was outside IR35, document the basis for that conclusion carefully and retain it on file. If the assessment suggests the engagement may have been inside IR35, take professional advice immediately — which may include correcting the position going forward, considering voluntary disclosure to HMRC, and reviewing contractual terms for future engagements.
Doing nothing leaves the practice exposed to a retrospective liability that grows with each passing month. Our GP practice accounting team can assist with a retrospective IR35 review and Status Determination Statement preparation.
Working for multiple practices is a positive indicator of self-employment but it does not automatically mean you are outside IR35. The three key tests — control, substitution, and mutuality of obligation — need to be assessed for each engagement individually.
It is possible to be outside IR35 for some practices and inside IR35 for others. If one practice accounts for 80% of your sessions and you have been working there on a regular schedule for years with an implicit expectation of continued engagement, that specific arrangement may exhibit employment characteristics even if your other engagements are clearly self-employed.
An IR35 review that looks at each engagement individually — rather than your working life as a whole — is the correct approach. Contact our team for a personalised IR35 assessment.
For a small dental practice meeting the small company threshold, the responsibility for IR35 determination sits with the worker’s own company rather than with your practice. This means that if a dental associate operating through a personal service company is inside IR35, the primary liability sits with the associate’s company.
However, your practice is not entirely without risk — if it is found to have engaged a worker in a way that deliberately circumvents the rules, additional liabilities can arise. More practically, the employment status of dental associates raises separate questions beyond IR35 — including employment rights, holiday pay, and pension auto-enrolment obligations — that apply regardless of company size.
Our dental practice accounting team can review your associate arrangements across all of these dimensions.
Engage a specialist adviser immediately — do not respond to HMRC directly without professional support. An HMRC IR35 compliance enquiry is a serious matter that requires careful management.
Gather all documentation related to the engagement — the contract, Status Determination Statement (if one was prepared), invoices, correspondence, and any records of the practical working arrangements. HMRC will be assessing the reality of the working relationship, not just the contractual terms.
A specialist who understands both IR35 and the healthcare sector is best placed to manage the response. Contact our team immediately if you have received an HMRC IR35 enquiry.
HMRC has stated that it will stand behind CEST determinations where the information entered accurately reflects the working arrangements. This means a CEST result of outside IR35, based on accurate inputs, provides some protection against a subsequent HMRC challenge — though it is not a guarantee.
CEST has limitations — it does not cover every scenario, and it has been criticised for producing inconclusive results in borderline cases common in healthcare. CEST should be used as part of a broader IR35 assessment process, not as the sole determinant.
Keep a record of the CEST result, the inputs used, and any additional analysis supporting the determination. Our healthcare accounting team uses CEST alongside a more detailed factual analysis to produce robust IR35 assessments for healthcare clients.
What Healthcare Practices and
Locums Must Do in 2026
Kudos Accounting · Specialist Healthcare Accountants
IR35 compliance in healthcare has never required more attention than it does in 2026. The combination of increased HMRC enforcement activity, improved HMRC data access through MTD and NHS data systems, higher financial consequences of non-compliance at the new 15% employer NIC rate, and a narrowed tax benefit from personal service company structures means the risk-reward calculation has shifted decisively toward compliance and documentation.
For GP Practices
Status Determination · Contracts · Payroll- Prepare Status Determination Statements for every locum engaged through a personal service company.
- Review the factual working arrangements against the three key employment status tests.
- Update contracts to reflect the determined status accurately and in writing.
- Ensure your payroll system is set up to handle inside-IR35 deemed employment payments where required.
For Dental Practices
Associate Agreements · Status Reviews · Hygienists- Review associate agreements against the current employment status tests in full.
- Do not rely on historic HMRC acceptance of self-employed status as a permanent shield.
- Consider a formal IR35 review of hygienist and therapist arrangements where these have not been assessed recently.
For Locum Doctors and Healthcare Contractors
PSC Structures · Records · MTD Compliance- Assess each engagement individually — a single status determination does not apply across all roles.
- Maintain contemporaneous records of working arrangements at every practice you engage with.
- Review whether your personal service company structure remains the right approach given the narrowed tax differential in 2026.
- Ensure your bookkeeping and MTD compliance are structured correctly to avoid creating data patterns that attract HMRC attention.
Generic IR35 advice that does not account for the nuances of NHS GP contracts, dental associate arrangements, or multi-practice locum working will not provide the protection that healthcare professionals and practices need. Working with a specialist healthcare accountant who understands both the IR35 legislation and the specific working arrangements common in the sector is the most effective way to manage this risk.
Have You Reviewed Your IR35 Position Lately?
If you have not reviewed your IR35 position in the last twelve months — or have never formally assessed it — contact our team for an immediate review before HMRC identifies the gap before you do.
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