Day Rate vs Percentage: The Real Question for a Locum Dentist
If you work as a locum dentist in the UK, you have probably been offered work on two different bases: a fixed day rate (sometimes called a per diem locum) or a percentage locum arrangement, where you take an agreed share of the fees you generate. The question most locums ask is which one leaves more in their pocket after tax.
The honest answer is that the pay structure itself does not change how you are taxed. For a genuinely self-employed locum, both a day rate and a percentage are trading income taxed in exactly the same way. What the structure does change is the volatility of your gross income, who bears lab and material costs, and the financial risk you carry. This article walks through how each model interacts with tax, National Insurance, expenses and risk for the 2026/27 tax year, so you can judge an offer on its substance rather than its headline.
Both Structures Are Trading Income
This is the point that surprises most people. Whether a practice pays you a set amount per session or a slice of the fees you bring in, a self-employed locum reports the lot as self-employed trading income on the same Self Assessment return. There is no separate tax regime for fixed fees versus variable fees, and HMRC does not treat a percentage of fees more or less favourably than a day rate.
So the comparison is not really day rate tax versus percentage tax. It is gross income under one structure versus gross income under the other, run through identical tax and National Insurance rules, after the expenses each structure leaves you to bear. Get the gross-income and cost picture right and the tax follows automatically.
How a Day Rate Works
A day rate (per diem) is a fixed fee paid per session or per day, regardless of how much treatment you complete or what those treatments are worth. The attraction is predictability: you know what each booked day is worth before you arrive. The trade-off is that the upside on a busy, high-value day stays with the practice, because you are paid for your time rather than your output. A day rate also tends to leave lab and material costs with the practice, since you are not taking a cut of the fee those costs relate to.
How a Percentage Works
A percentage locum arrangement pays you an agreed share of the fees you generate. For NHS work that is a share linked to the activity you deliver against the practice's contract; for private work it is a share of the fees charged and collected. The attraction is that your income scales with productivity, so an efficient clinician on a busy list can do well. The trade-offs are variability and risk: quiet lists, cancellations and slow private collection all reduce your share, and many percentage deals deduct lab fees, materials or bad debts before calculating your slice. That means you effectively carry part of those costs, which is something a day rate insulates you from.
Tax and National Insurance: Identical Under Both
Because both structures produce self-employed trading income, the tax and National Insurance treatment is the same for each. The mechanism that matters is the same whichever offer you take.
- Income tax is charged on your taxable profit (gross income less allowable expenses) at your marginal rate: 20% in the basic-rate band, 40% in the higher-rate band and 45% above the additional-rate threshold, with the £12,570 personal allowance tapering away once income passes £100,000.
- Class 4 National Insurance is charged at 6% on profits between £12,570 and £50,270, then 2% above £50,270.
- Class 2 National Insurance was abolished from 6 April 2024. There is no longer a weekly flat-rate charge for self-employed locums above the small-profits threshold, who are still treated as having paid for state-pension and benefit purposes.
Because nothing is deducted at source for a self-employed locum, you settle the bill through Self Assessment. Where the prior year's liability exceeds £1,000 and less than 80% was collected at source, HMRC also requires payments on account: two interim payments due on 31 January and 31 July, each broadly half of the previous year's liability. A percentage arrangement, with its swings between busy and quiet periods, makes those instalments and your cash-flow planning more demanding than a steady day rate does, but it does not change the rates you pay.
Where the Structures Genuinely Differ
The differences that actually move your net position are about income volatility, cost-bearing and risk, not the tax rules. The table below summarises them.
| Feature | Day rate (per diem) | Percentage of fees |
|---|---|---|
| Tax status of income | Self-employed trading income | Self-employed trading income |
| Income tax | Marginal rate (20% / 40% / 45%) | Marginal rate (20% / 40% / 45%) |
| National Insurance | Class 4 (6% then 2%); no Class 2 | Class 4 (6% then 2%); no Class 2 |
| Gross income predictability | High: fixed per session | Variable: rises and falls with activity |
| Reward for high output | Upside stays with the practice | You share the upside on busy days |
| Lab and material costs | Usually borne by the practice | Often deducted before your split |
| Collection / bad-debt risk | Carried by the practice | Frequently shared by you |
| Cash-flow and payments on account | Easier to forecast | Harder to forecast across the year |
Read that way, the choice is a risk-and-reward decision. A day rate buys certainty and pushes cost and collection risk onto the practice. A percentage offers a share of the upside in exchange for accepting variability and, frequently, a slice of the lab, material and bad-debt risk. Neither is more tax-efficient in the abstract; the better deal is simply the one that produces the higher taxable profit for your way of working, after the costs each structure leaves with you.
Expenses: Driven by Status, Not Structure
Allowable expenses follow from being self-employed, not from how the fee is calculated. Under either structure you can deduct costs incurred wholly and exclusively for your locum work, including:
- Professional indemnity with a defence organisation or equivalent insurer.
- The GDC annual retention fee and specialist-register fees. Note that restoration fees and any CPD-shortfall penalties are not allowable.
- Professional subscriptions on HMRC's approved List 3, such as relevant professional bodies and journals.
- CPD that maintains or updates skills for your current practice, though training that creates a genuinely new qualification can be capital rather than revenue.
- Instruments and loupes, normally relieved through capital allowances and the Annual Investment Allowance rather than as a straight revenue deduction.
- Mileage between practices at HMRC's approved rates of 55p per mile for the first 10,000 business miles (from 6 April 2026, up from 45p) and 25p thereafter. Travel from home to your first practice of the day is ordinary commuting and is not deductible.
The one structural twist is cost allocation. A percentage deal that deducts lab fees and materials before your split has effectively removed those costs from your figures already, so you would not also claim them; a day rate that leaves those costs with the practice never puts them on your tax return in the first place. Either way, keep clean records and a mileage log. For the full mechanics of putting this on a return, see our step-by-step locum dentist tax return guide.
IR35 Applies Only If You Trade Through a Company
One area where the wrong assumption can cost real money is IR35, and it has nothing to do with whether your deal is a day rate or a percentage. The off-payroll rules only engage if you provide your services through a personal service company (PSC). A genuinely self-employed sole-trader locum is outside the regime altogether.
If you do work through a company, the position since 6 April 2021 is that, where the engaging practice is medium or large (most NHS practices and dental groups are), the practice, not you, determines your status and must issue a Status Determination Statement (SDS) with reasons, taking reasonable care. This sits in Chapter 10, Part 2 of ITEPA 2003. If a practice determines an engagement inside IR35, the fee-payer operates PAYE and NIC before paying your company, so the tax-efficient salary-and-dividend extraction normally associated with a company is not available on that income. The determination attaches to the engagement, so a locum across several practices may hold a mix of inside and outside positions at once, and that mix is independent of whether each deal is structured as a day rate or a percentage.
You can challenge a determination you disagree with through the client-led disagreement process, which gives the practice 45 days to respond with its reasons. If you extract through a company, remember that company profits taken as dividends are taxed for 2026/27 at 10.75% (ordinary rate), 35.75% (upper rate) and 39.35% (additional rate), after the £500 dividend allowance, which is a further reason an inside-IR35 finding hurts: it removes the dividend route on that income entirely. For the wider trading-personally-versus-company decision, see locum dentist limited company vs self-employed.
How to Compare an Offer in Practice
Because the tax mechanism is fixed, comparing a day rate offer with a percentage offer is really about forecasting the gross income each will produce for the way you actually work, then subtracting the costs each leaves with you.
- For a day rate, ask what activity the practice expects from the session and what the booked list typically looks like. A fixed amount is attractive when lists are unpredictable, when private collection is slow, or when you value certainty over upside.
- For a percentage, ask for recent gross fee figures for the chair you would cover, and clarify exactly which deductions come off before your split: lab fees, materials and bad debts are the common ones. A percentage rewards a busy, efficient list but exposes you to quiet days and collection risk.
- Consider a hybrid. Some locums negotiate a base session fee plus a share above an agreed activity threshold, blending the downside protection of a day rate with the upside of a percentage. Tax treatment is unchanged: it is all self-employed trading income.
Whichever you choose, set aside a realistic slice of every payment for income tax and Class 4 National Insurance, register for Self Assessment if you have not already, and plan for the 31 January and 31 July payment dates. A percentage deal needs a larger cash buffer because the swings are wider.
Where This Sits Alongside the Bigger Decisions
Day rate versus percentage is a narrower question than it first appears, because both sit inside the same self-employed tax framework. The decisions that move your tax position further are about your role and structure, not your fee basis. If you are weighing locum work against an associate position, see how the two roles compare in our guide to locum dentist vs associate tax treatment. If you are choosing between employed salary and self-employed fees, our comparison of salary vs associate fees works through the trade-offs.
Conclusion: It Is About Risk, Not the Tax Rate
There is no universal winner between a day rate and a percentage, but there is a clear way to think about it. The tax and National Insurance treatment is identical: both are self-employed trading income, taxed at your marginal rate with Class 4 National Insurance at 6% then 2%, and no Class 2 charge since April 2024. What differs is volatility, who carries lab, material and collection costs, and how predictable your cash flow is. A day rate buys certainty; a percentage offers a share of the upside in return for accepting risk.
The best approach is to forecast the gross income and the costs each structure leaves with you, then judge the offer on substance. If you want help modelling a specific opportunity or reviewing how IR35 applies to a company engagement, contact us for an initial discussion. We work with locum dentists across the UK and can help you read an offer correctly before you commit.