NHS regulators have back-tracked on a controversial tax rule that led to many doctors cancelling locum shifts.

Under the rules, adopted in April, all locums were treated as employees and had tax and national insurance deducted at source.

The NHS said it had to adopt the policy to comply with the IR35 tax rules – which seek to prevent personal services companies being used to avoid tax.

This led to locums cancelling shifts on the grounds that they were not receiving the level of pay they expected.

Now new guidance, released yesterday, says that practices no longer need to adopt a blanket approach to the guidance.

It allows practices to assess each employee on a “case by case” basis.

It was welcomed by the British Medical Association.

A spokesperson said: “This is a significant and positive step forward in response to BMA pressure following the chaotic introduction of the IR35 rules. This change significantly penalised locums in general practice and in hospitals. It was administratively a disaster for the NHS.

“We are pleased that NHS Improvement has finally listened to grassroots GPs, hospital doctors and the BMA by dropping its unworkable blanket approach to this policy.

“The NHS should now do more to show that it values the essential role locum doctors play in ensuring patients get good care on a daily basis.”