No dental practice runs without interruption. Sooner or later a dentist or a key staff member is away, for a holiday, a sickness absence, maternity leave, or a gap between associates, and the practice has to pay for locum cover to keep treating patients and earning. The cost of that cover is a normal, deductible business expense, but the way it is treated for tax depends on a question that is easy to get wrong: the status of the locum.

This guide explains both sides of locum cover: how to budget for it and how to treat it correctly for tax. We cover why the cost is deductible, why a genuine self-employed locum is a contractor cost rather than a payroll one, when the off-payroll (IR35) rules pull a company-based locum into the practice's responsibility, and how to plan for cover so it does not become a cash shock. The deductibility is rarely the hard part; the care is all in establishing that the locum's self-employed status genuinely holds, because that is what determines whether you simply pay a gross fee or take on deduction obligations.

The cost is deductible: start there

Begin with the reassuring part. Paying a locum to cover holiday, sickness, maternity leave or a gap is a cost incurred wholly and exclusively for the trade, so it is deductible in arriving at your taxable practice profit. For an unincorporated practice it reduces profit and gives relief at your marginal rate; for a company it reduces corporation tax. Whether you pay the locum gross as a self-employed contractor, or in limited cases operate deductions, the cost itself reduces taxable profit. So the question is never really "can I claim it?", it is "how do I treat the payment?", and that turns entirely on the locum's status.

The status question: self-employed or employed?

The crucial issue is whether the locum is self-employed or, in substance, an employee. It matters because it changes everything about how you pay them:

  • A genuine self-employed locum invoices you, you pay them gross, and they account for their own income tax and National Insurance. You run no payroll on them and pay no employer NIC.
  • An arrangement that is really one of employment would bring PAYE obligations: deducting tax and NIC, paying employer NIC, and the rest of the employer duties.

The line turns on the substance of the arrangement, not the label, exactly as it does for associate status, which we cover in our guide to locum versus associate tax treatment. A locum who works across multiple practices, sets their own terms, carries their own indemnity and exercises clinical autonomy is typically self-employed. One who is closely controlled, works set hours under direction, and becomes fully integrated into a single practice over a long period can start to look like an employee. Most genuine short-term clinical cover is self-employed, but a long-running, controlled arrangement is where the risk lies.

Why getting status wrong is expensive

The reason status matters so much is the cost of getting it wrong. If you treat a locum as a simple gross-paid contractor but HMRC later decides the arrangement was really employment, the practice can face back PAYE, back employer National Insurance, interest and penalties, because it should have been operating deductions all along. The risk grows the longer and more controlled a locum arrangement becomes. A two-week holiday locum across several practices is plainly self-employed; a "locum" who has covered the same chair, set days, under the practice's direction, for two years, is a status question waiting to be asked. So the discipline is to keep cover arrangements genuinely flexible and contractor-like, and to reassess any locum who becomes a fixture.

When the off-payroll rules apply

A further layer applies where a locum works through their own personal service company (PSC). The off-payroll (IR35) rules mean that where the engaging practice is medium or large, the practice, as the client, must determine the locum's status and, if the engagement is inside the rules, operate deductions before paying the company. Because most NHS practices and dental groups are medium or large, a practice engaging a PSC locum cannot ignore the off-payroll rules and leave the status to the locum. We explain the regime in our guide to IR35 for locum dentists on NHS engagements.

The practical takeaways are these. A locum who is a sole trader rather than working through a company is outside the off-payroll regime, though ordinary employment-status still matters as above. A locum working through a company, engaged by a medium or large practice, brings the off-payroll obligation onto the practice: you must assess the status, issue a determination, and deduct if inside. So before engaging a PSC locum, establish whether your practice is within the medium or large bracket (most are) and be ready to make a status determination. This is the single most overlooked obligation in locum engagement, and it sits with the practice, not the locum.

Budgeting for cover

The financial side is about anticipating cover rather than reacting to it. Two kinds of cover need different planning:

  • Planned cover, such as holiday or a known maternity leave, is foreseeable, so build a reserve for it through the year. You know it is coming; the only question is the cost.
  • Unplanned cover, such as sudden sickness, is a contingency, so hold cash against the possibility, because it arrives without notice and still has to be paid.

Because cover replaces clinical capacity, the real budgeting question is whether the income the locum generates covers their cost and contributes, or whether you are paying to keep the practice running at a loss for a period. A locum who keeps the appointment book full and the UDA delivery on track may be close to self-funding; cover for a non-earning role is a pure cost. Either way, building cover into your cash-flow planning and tax reserves stops it becoming a shock, and treating it as a known feature of running a practice, rather than an emergency, is the mark of a well-run book.

The maternity-cover double cost

Maternity cover deserves a specific note because it can be a double cost for a period. The locum's fee is treated like any other locum cost, a deductible business expense, regardless of the reason for cover. But around maternity you may also carry obligations to the employee on leave, including statutory maternity pay and keeping their role open, so for a time you can be paying both the ongoing cost of the absent employee (the SMP exposure) and the cost of the locum covering the work. That overlap is foreseeable once a leave date is known, so it should be planned well in advance. A practice that budgets for the double cost ahead of a known maternity leave handles it comfortably; one that does not can find the combined cost a strain in the relevant months.

Covering your own absence as principal

The same treatment applies when you engage a locum to cover your own absence as the principal, for your holiday, illness or leave. The cost is incurred for the purposes of the practice, the practice continues to earn from the work the locum does, and the locum's fee is a cost of that income, so it is deductible in the usual way. The status question is identical: you need the locum to be genuinely self-employed, or to handle a PSC engagement under the off-payroll rules, but the deductibility of covering your own absence is not in doubt. This is worth stating plainly because some owners assume a cost incurred while they personally are not working is somehow not a business cost; it is, because the practice is still trading on the back of the cover.

How a locum differs from an employed team member

It is worth drawing the contrast cleanly, because the whole tax treatment flows from it. An employed team member, a nurse or manager, is a payroll cost: you deduct their tax and NIC, pay employer National Insurance, enrol them in a workplace pension, and carry employment obligations and on-costs. A genuine self-employed locum is a contractor cost: you pay a gross fee against an invoice, with no payroll, no employer NIC, no pension auto-enrolment, and no employment-law tail. The difference in the practice's obligations is substantial, which is exactly why the status has to be genuine.

This is the mirror image of the decision covered in our guide to employing your first nurse or practice manager: there, the question is the loaded cost of taking someone onto the payroll; here, it is whether a cover need is better met by a flexible contractor instead. For occasional cover the contractor route avoids the employer on-costs entirely, which is part of its appeal. But the avoidance of those costs is only legitimate where the locum genuinely is a contractor; you cannot have the contractor treatment for someone who is, in substance, an employee. So the cost advantage of a locum and the status discipline are two sides of the same coin: the savings are real precisely because the relationship is genuinely different from employment.

An engagement checklist for a locum

To engage a locum cleanly, run a short checklist before the first payment:

  • Establish the structure. Is the locum a sole trader or working through their own company? A sole trader is outside the off-payroll rules; a company brings the off-payroll obligation onto the practice if you are medium or large.
  • Assess the status. Is this genuinely a self-employed, flexible, autonomous engagement, or is it really controlled, integrated employment? For short cover the former is usual; for a long-running fixture, reassess.
  • Make a determination if needed. For a PSC locum and a medium or large practice, issue a status determination and deduct if the engagement is inside the rules.
  • Document it. Keep the invoices, the evidence of self-employment, the engagement terms and any determination.
  • Budget the cost. Slot the fee into your cash-flow plan as planned or contingency cover, and treat it as the deductible expense it is.

Run through this each time and locum cover stays clean: correctly treated, properly documented, and budgeted rather than improvised. The checklist takes minutes and removes the two real risks, a status misjudgment and a missed off-payroll obligation, that turn a routine cost into a tax problem.

The day rate and what drives it

Locum cover carries a premium over the equivalent permanent capacity, and understanding why helps with both budgeting and the decision to use cover at all. A locum charges for flexibility: they take the risk of irregular work, carry their own indemnity and costs, and provide cover at short notice, so their rate reflects more than the bare clinical time. For the practice, the premium is the price of not carrying a permanent cost for an intermittent need. The way locum pay is structured, a day rate or a percentage of fees generated, also affects the economics, and we explore that in our guide to locum day rate versus percentage.

The budgeting consequence is that you should not compare a locum's headline rate directly with a permanent salary as if they were the same; the locum rate includes the flexibility premium and excludes the employer on-costs you would otherwise pay. For genuinely intermittent cover the premium is worth paying because you avoid a standing cost; for a steady, predictable need the premium becomes poor value and a permanent hire wins. Pricing the cover correctly, and recognising what the premium buys, is part of treating locum cover as a managed cost rather than a reluctant emergency spend.

Records that protect your treatment

Because status is where the risk sits, records are what protect your treatment of locum payments as gross contractor costs. Keep:

  • The locum's invoices.
  • Evidence of genuine self-employment: their own indemnity, their work across other practices, their clinical autonomy.
  • A clear record of the engagement terms.
  • For a PSC locum where the off-payroll rules apply, your status determination and the basis for it.

If HMRC ever questions whether a long-running locum was really self-employed, this contemporaneous evidence is what supports your position. A practice that keeps it has little to fear; one that paid a regular locum gross for years with no evidence of genuine self-employment is exposed if the arrangement is challenged. Good records turn a status question from a threat into a non-event.

Locum cover versus a permanent hire

Finally, a strategic point: is locum cover the right answer at all, or should the need be met by employing someone? It depends on the pattern of need. For occasional or unpredictable cover, a self-employed locum is usually more efficient, because you pay only for the cover you use, with no employer National Insurance, no pension auto-enrolment and no ongoing employment obligations, the on-costs we set out in our guide to employing your first nurse or practice manager. For a permanent, predictable need, employing someone is often better value despite the employer on-costs, because a locum day rate carries a premium for flexibility. So the decision is a capacity-planning one: a standing vacancy usually justifies a permanent hire, while genuine gaps and absences suit locum cover. Matching the engagement to the pattern of need keeps both the cost and the tax treatment clean.

VAT and the locum fee

A point that occasionally surfaces is whether VAT enters the picture on a locum fee, and for a dental practice the answer is usually reassuring. The supply of dental care by a registered dentist is exempt from VAT, so a locum providing clinical dental services is generally making exempt supplies, and the fee does not carry VAT to recover or worry about in the ordinary case. Where a practice is partly exempt because it has some taxable cosmetic income, the interaction can become more nuanced, but for the typical case of a clinical locum covering NHS or private dental treatment, VAT is not the issue.

The practical message is to treat the locum fee as a clean, deductible cost for income tax or corporation tax purposes, and not to assume VAT complicates it, while remembering that a practice with a meaningful taxable cosmetic side should check the partial-exemption position with its accountant. For most practices, the VAT exemption on dental care means the locum cost is simply a deductible expense, recorded gross of any VAT concern, which keeps the treatment straightforward. It is one less thing to worry about in an area where the real care is reserved for the status question, not the VAT.

The accounting treatment of cover costs

A practical accounting point rounds out the tax picture. Locum fees are a revenue expense, recognised in the period the cover is provided, so they reduce profit in the year of the cover rather than being spread or capitalised. For a practice on the accruals basis, the cost is matched to the period the locum worked, even if the invoice is paid slightly later, which keeps the profit and loss account giving a true picture of each period. This matters where cover straddles a year end: the cost belongs in the period the work was done, and a well-kept set of records places it correctly.

Recording locum costs clearly in your bookkeeping also feeds your wider financial picture. A line for locum and cover costs in the management accounts lets you see, over time, how much the practice spends on cover and whether that points to a structural need, a recurring gap that might be better filled by a permanent hire, or genuinely occasional absences. So the same digital records that support the tax deduction also turn cover spend into useful management information. Capturing the cost properly is therefore worthwhile twice over: once for the deduction and the clean profit figure, and once for the insight into whether your cover pattern is telling you something about how the practice is staffed.

Treat cover as routine, get the status right

Locum cover is a normal part of running a dental practice, and its cost is straightforwardly deductible. The discipline is twofold: budget for it as a known feature rather than an emergency, building reserves for planned cover and contingencies for the unplanned, and get the status right, treating a genuine self-employed locum as a gross-paid contractor, but reassessing any long-running or controlled arrangement and meeting the off-payroll obligations for a company-based locum. A specialist dental accountant can confirm the status and off-payroll treatment of your locum arrangements, keep the records that support them, and help you budget cover within your cash flow, so cover keeps the practice running without creating a tax problem.

The broader perspective is that cover is not an interruption to be resented but a normal cost of keeping a practice running through the absences that every business has. The practices that handle it best stop treating each instance as an emergency and start treating cover as a planned line in the budget, with a clear, repeatable process for engaging a locum cleanly. They know their cover pattern, they hold reserves for the predictable and contingencies for the unpredictable, they confirm status and off-payroll position as a matter of routine, and they keep the records that protect their treatment. Approached that way, locum cover becomes what it should be: a managed, deductible cost that keeps patients seen and income flowing while a colleague or the principal is away, with no tax surprise attached.