Search for whether a dentist should use a limited company and most of what you find is written for the practice owner: retained profit to reinvest, the NHS contract inside the company, sale planning down the line. A locum's question is a different one, and copying the owner's answer can cost you money. A locum moves between engagements, faces IR35 on each one, often has little or no NHS pension through a company, and earns at a level where the company's extra cost frequently outweighs a thin tax saving.

This guide compares the two structures specifically for a locum dentist. We set out how a sole trader is taxed, how a company extracts profit, why IR35 is the factor that dominates the locum decision, and what the numbers look like at typical locum income at 2026/27 rates. The conclusion for many locums is the opposite of the standard advice: the sole trader route is usually no worse and often better, and the company only earns its place in specific circumstances.

Why the locum question is not the practice-owner question

If you own a practice, the company case rests on things a locum does not have: profit you can retain and reinvest in the business, an NHS contract that can sit inside the company, and a structure you might one day sell as shares. Those arguments are real for an owner, and we cover them in our guide to sole trader versus limited company for a practice owner.

A locum has none of them. There is no practice to reinvest in, usually no NHS contract to house, and rarely a business to sell. What a locum does have is a string of separate engagements, each of which has to be assessed for IR35, and income that is typically modest and variable. So the locum comparison turns on two things the owner barely thinks about: IR35 status and running cost versus saving. Start there, not with the owner's playbook.

The two structures for a locum

You have two realistic routes. As a sole trader you contract in your own name, keep simple records, and pay income tax and National Insurance on your profit through Self Assessment. As a personal limited company you contract through a company you own and direct, the company pays corporation tax, and you extract money as a small salary plus dividends. There is a third option some locums meet, the umbrella company, which employs you and taxes you as an employee through PAYE, often used for inside-IR35 work. This guide focuses on the sole trader versus personal company choice, which is the genuine planning decision.

Sole trader: how a locum is taxed

As a sole trader, your locum profit, fees received less allowable expenses, is taxed as your income:

  • Income tax at 20% from £12,571 to £50,270, 40% to £125,140, and 45% above, with the personal allowance tapering away over £100,000.
  • Class 4 National Insurance at 6% on profits between £12,570 and £50,270, then 2% above, for 2025/26.
  • Class 2 National Insurance is no longer charged from 6 April 2024 for profits above the small profits threshold, and you keep your state pension record.

That gives combined marginal rates of roughly 26% in the basic band, 42% in the higher band and 47% in the additional band. There is no corporation tax, no dividend tax and no payroll, because there is no company. You file one return and pay your own tax, including payments on account.

Limited company: how a locum extracts

Through a company the route is salary plus dividends:

  • The company pays corporation tax at 19% on profits up to £50,000, 25% above £250,000, with marginal relief between, so an effective rate around 26.5% in that middle band.
  • You take a salary, usually around the personal allowance, which triggers employer National Insurance at 15% on the amount above the £5,000 secondary threshold. A sole-director company cannot claim the Employment Allowance to relieve this.
  • You take dividends from post-tax profit, taxed from 6 April 2026 at 10.75% in the basic band and 35.75% in the higher band, with the additional rate 39.35% and a £500 dividend allowance.

The company's advantage was always the gap between the self-employed marginal rate and the corporation-tax-plus-dividend cost. The 2026/27 dividend rise narrowed that gap, and for a locum two further factors usually close it: IR35 and admin.

The IR35 problem that hits locums specifically

This is the factor that dominates. A locum providing services through a company to a practice is squarely within the off-payroll working rules. From 6 April 2021, where the engaging client is medium or large, which most NHS practices and dental groups are, the client, not the locum, determines the IR35 status and must issue a Status Determination Statement with reasons. If an engagement is assessed as inside IR35, the fee-payer deducts PAYE and National Insurance before paying your company. The company then receives that income net, and the salary-and-dividend extraction that justified the company in the first place is simply not available on it.

A locum working across several practices can hold a mix of inside and outside determinations at once, because each engagement is judged separately. Our guide to IR35 for locum dentists on NHS engagements explains how the rules work and how to challenge a determination through the 45-day client-led disagreement process. The headline for the structure decision is blunt: if much of your work is inside IR35, the company stops earning its keep, because it cannot deliver the tax efficiency on inside-IR35 income.

Inside IR35: when the company stops helping

It is worth being concrete. On an inside-IR35 engagement, your company receives income that has already had PAYE and National Insurance taken off as if you were employed. You cannot then re-extract it tax-efficiently as dividends, because the tax has already been suffered. You are left with the cost and admin of running a company, for income taxed as though you had no company at all. For a locum whose engagements are mostly with medium and large NHS clients, this is the common reality, and it is why the sole trader route, which avoids the company overhead entirely, is so often the better fit.

Why the company's tax advantage shrank

It is worth understanding why the company case is weaker now than the older advice assumes, because the change is recent and structural. The limited company never saved tax through the corporation tax rate alone; it saved through the spread between the self-employed marginal rate and the combined corporation-tax-plus-dividend cost of the same pound. Three changes have compressed that spread. The employer National Insurance rate rose to 15% and its threshold fell to £5,000 from 6 April 2025, adding cost to the salary leg. The dividend rates rose by two points from 6 April 2026, to 10.75% and 35.75%, adding cost to the extraction leg. And the dividend allowance, long since cut to £500, shelters almost nothing. Stack a corporation tax layer, a heavier dividend layer and employer National Insurance, and the company route now carries more weight than the self-employed marginal rate it is meant to beat. For a high-profit owner who retains and reinvests, the company still wins on other grounds; for a locum extracting modest income, the headline tax saving has largely gone.

A worked comparison at locum income

Take a locum with £70,000 of profit after expenses, assume genuinely outside-IR35 work so the company has its best case, and compare full extraction at 2026/27 rates.

Sole trader. Income tax is about £7,540 on the basic band (£37,700 at 20%) plus about £7,892 on the higher band (£19,730 at 40%), so roughly £15,432. Class 4 is about £2,262 (6% on £37,700) plus £395 (2% on £19,730), so about £2,657. Total tax and National Insurance is about £18,089, leaving roughly £51,911.

Limited company. Salary £12,570 costs about £1,136 in employer National Insurance. Profit after salary and that cost is about £56,294, on which corporation tax with marginal relief is roughly £11,700. Distributable profit is about £44,594, paid out as dividends. Dividend tax is roughly £8,500 across the basic and higher bands at 10.75% and 35.75% after the £500 allowance. Total tax across employer National Insurance, corporation tax and dividends is about £21,300, leaving roughly £48,700.

Takeaway. Even on its best-case, fully-outside-IR35 assumption, the company route here is around £3,200 worse on full extraction at 2026/27 rates, before you add the company's running cost. Switch some of that work to inside IR35 and the company falls further behind. This is the heart of the locum result: the structure that looks clever for a high-profit owner often loses for a locum.

The admin and cost the company adds

The comparison is not only about tax. A company files annual accounts and a confirmation statement at Companies House, runs payroll, prepares a corporation tax return, and documents every dividend with a minute and voucher, with the accounts on public record. A sole trader files a single Self Assessment return. For a locum with modest, variable income, the extra accountancy fees and administration are a meaningful cost that the worked example above has not even counted. When the tax saving is already thin or negative, this overhead is usually decisive.

Where the umbrella company fits

Many locums first meet the structure question not as a choice between sole trader and personal company, but when an agency or practice offers work through an umbrella company. An umbrella employs you and runs your pay through PAYE, deducting income tax and National Insurance as if you were any employee, and it is the common vehicle for inside-IR35 engagements where a personal company would gain you nothing. The trade-off is that there is no dividend planning and the umbrella takes a margin, so your net pay is straightforward employment income minus a fee.

The umbrella is not a rival to the sole trader route so much as a parallel track for a different kind of work. A locum can quite reasonably be a sole trader for their genuinely independent engagements and work through an umbrella for inside-IR35 agency placements, without ever needing a personal company. Our guide to IR35 for locum dentists explains how to tell which engagements are which. The key point for this comparison is that the existence of the umbrella removes one of the main reasons a locum might otherwise reach for a personal company: you do not need your own company to handle inside-IR35 work, because the umbrella already does.

The retention argument, and why it rarely rescues the locum company

The strongest modern argument for any dental limited company is retention: profit left inside the company has suffered only corporation tax and escapes the dividend layer until you draw it. For a practice owner with a refit to fund or an acquisition to save towards, that is genuinely valuable. For a locum, it usually is not, for two reasons.

First, a locum rarely has a business reason to retain. There is no surgery to refurbish, no equipment to buy, no associate to hire. Retained profit just sits in the company waiting to be drawn, and the day it is drawn it is taxed as a dividend at the rates of that year. The deferral is real but, with nothing productive to do with the money, thin. Second, a locum's income is often not high enough to make retention worthwhile after the company's running costs. If you are going to draw essentially everything to live on, you carry all the cost and admin of a company for a deferral you never really use.

The retention case can flip for a specific locum: one with steady, clearly outside-IR35 income, a genuine plan to save towards buying into or acquiring a practice, and the discipline to leave profit in the company for several years. For that person the company is a sensible savings wrapper. But this is a narrow profile, and it is the exception that proves the rule: the company suits the locum who is, in effect, becoming an owner, not the locum who intends to stay a locum.

Record-keeping and the practical reality of each route

Day to day, the two routes feel very different, and the difference is part of the decision. As a sole trader you keep a record of income and expenses, file one Self Assessment return a year, and pay your tax in the January and July payment cycle. That is the whole of it. From 6 April 2026, Making Tax Digital for Income Tax adds digital records and quarterly updates once your gross income exceeds £50,000, but the substance stays simple.

As a company you take on a standing administrative load: a separate business bank account, payroll for your salary with real-time reporting to HMRC, dividend vouchers and board minutes for every distribution, annual accounts and a confirmation statement at Companies House, and a corporation tax return, all on top of your personal Self Assessment. The accounts are public. For a locum juggling several practices and variable income, that overhead is not just a cost in fees, it is a cost in attention. When the tax outcome is already neutral or negative, this practical friction is frequently what settles the decision in favour of staying a sole trader.

The NHS pension cost of the company route

NHS pension access for locums is already patchy, and where a locum does have scheme access, only salary is pensionable for an officer, not dividends. Route your income through a company and extract it as dividends and that portion is not pensionable. For a locum who values building a guaranteed, inflation-linked NHS pension, the company route can quietly cost retirement benefits that dwarf a small tax saving. If you have no NHS access at all, your pension planning shifts to private pensions instead, which we cover in our guide to pension options for a locum outside the NHS scheme. Either way, weigh the pension, not just the tax.

The hidden costs the headline comparison misses

When a locum weighs the two routes, the temptation is to compare only the tax figures, but several real costs sit outside that calculation and almost always favour the sole trader. There is the accountancy fee: company accounts, payroll and a corporation tax return cost more to prepare than a single Self Assessment return, and that gap recurs every year. There is the time cost of running a company, the dividend paperwork, the deadlines, the bank reconciliations, which for a busy clinician is real even if it does not show on an invoice. There is the cost of getting it wrong: an overdrawn director's loan account, a missed filing, or a dividend declared without sufficient distributable profit all carry tax consequences a sole trader simply cannot trigger. And there is the exit cost: closing a company down when you stop locuming, or when you join a practice as an associate, is more involved than simply ceasing to trade.

Set against these, the company offers a locum very little that a sole trader lacks, unless the narrow retention case applies. Limited liability sounds attractive, but a locum's clinical risk is covered by indemnity, not by a corporate shield, and lenders and landlords usually want personal guarantees from a small company anyway, so the liability protection is thinner than it appears. Once the hidden costs are added to a tax comparison that already leans towards the sole trader, the balance tips further still.

A note on changing your mind later

One reassurance worth giving: the decision is not irreversible, and starting simple costs you nothing in optionality. A locum who begins as a sole trader can incorporate later if their circumstances change, for example if they secure steady outside-IR35 income or move towards practice ownership. Incorporating is a well-trodden step. Going the other way, unwinding a company you set up prematurely, is more painful and more expensive. So when the tax case is neutral and the circumstances do not clearly call for a company, the lower-risk choice is to stay a sole trader and revisit the question when something concrete changes, rather than incorporate speculatively and hope it pays off. For a locum, simple is not a compromise; it is usually the optimum.

So which, for a locum?

Put it together and the answer for most locums runs against the standard advice.

  • If your work is mostly inside IR35, the company cannot deliver its tax advantage on that income, so a sole trader, or an umbrella for inside-IR35 jobs, is usually the sensible route.
  • If you draw everything each year, the company is often no better and frequently worse at typical locum income once employer National Insurance, the 2026/27 dividend rates and admin are counted.
  • If you have steady, clearly outside-IR35 income and can retain some profit, the company starts to make sense, because retained profit escapes the dividend layer until you draw it. This is the narrow case where it earns its place.
  • If you value NHS or private pension building, weigh the lost pensionability before incorporating, because it can outweigh the tax.

The honest position is that the limited company is a tool built for the practice owner, and a locum has to ask a harder question to justify it. For a locum who draws their income, works across medium and large NHS clients, and earns at locum levels, staying a sole trader is usually the cleaner, cheaper and equally tax-efficient choice. Model your own engagement mix and income with a dental accountant before setting up a company, because for many locums the right answer is not to.