Locum Dentist Ltd Company vs Self-Employed: Which Tax Structure Works Best?

Should You Run Your Locum Work Through a Limited Company?

Many locum dentists ask whether they should operate through a limited company (often called a personal service company or PSC) or stay self-employed as a sole trader. The answer depends on your fee income, how many practices you work for, your IR35 status, and whether you want to remain in the NHS Pension Scheme.

This guide compares both structures using 2025/26 tax rates and real worked examples. It covers income tax, National Insurance, pension access, IR35 risk, and practical administration. The aim is to help you decide which structure fits your locum work pattern.

Every locum dentist's situation is different. The figures below are for illustration. You should take specific advice from a dental-specialist accountant before changing your business structure.

How Locum Dentists Are Taxed: Sole Trader vs Limited Company

As a self-employed locum dentist (sole trader), you pay income tax and Class 4 National Insurance on your profits. Your tax return is straightforward. You report your fees minus allowable expenses on the self-employment pages of your Self Assessment.

As a locum dentist operating through a limited company, the company pays corporation tax on its profits. You then extract the money as salary, dividends, or a combination. This creates two layers of tax: corporation tax on company profits, then income tax and dividend tax on what you take personally.

The limited company structure can be more tax-efficient at higher profit levels, but it comes with extra compliance costs, filing requirements, and IR35 risk. It also affects your NHS Pension Scheme access.

Sole Trader Tax in 2025/26

If you are self-employed as a locum dentist, your tax calculation for 2025/26 works like this:

• You pay income tax at 20% (basic rate) on profits between £12,571 and £50,270
• You pay income tax at 40% (higher rate) on profits between £50,271 and £125,140
• You pay Class 4 National Insurance at 6% on profits between £12,570 and £50,270, and 2% above that
• Class 2 National Insurance was abolished from April 2024
• Your personal allowance is £12,570, tapered by £1 for every £2 of income above £100,000

Worked example: Sole trader locum earning £80,000 net fees after expenses

• Personal allowance: £12,570 (tax-free)
• Basic rate band: £37,700 at 20% = £7,540 tax
• Higher rate band: £29,730 at 40% = £11,892 tax
• Total income tax: £19,432
• Class 4 NI: £37,700 at 6% = £2,262, plus £29,730 at 2% = £595. Total NI: £2,857
• Total tax and NI: £22,289
• Net take-home: £57,711

Limited Company Tax in 2025/26

If you operate through a limited company, the company pays corporation tax on its profits. For 2025/26:

• Corporation tax is 19% on profits up to £50,000
• Corporation tax is 25% on profits above £250,000
• Marginal relief applies between £50,000 and £250,000
• You then extract profits as salary (subject to PAYE and employer/employee NI) or dividends (subject to dividend tax)

Worked example: Limited company locum earning £80,000 net fees after expenses

Assume you take a salary of £12,570 (personal allowance) and dividends of the remaining profit after corporation tax.

• Company profit: £80,000
• Salary: £12,570 (no tax or NI if within personal allowance; employer NI applies above £5,000 threshold)
• Employer NI on salary: 15% on £7,570 = £1,136
• Corporation tax: 19% on (£80,000 - £12,570 - £1,136) = 19% on £66,294 = £12,596
• Profit after tax: £66,294 - £12,596 = £53,698 available for dividends
• Dividend allowance: £500 (tax-free)
• Dividend tax: £500 at 0%, then £37,200 at 8.75% = £3,255, then £15,998 at 33.75% = £5,399
• Total dividend tax: £8,654
• Total tax (company + personal): £12,596 + £1,136 + £8,654 = £22,386
• Net take-home: £80,000 - £22,386 = £57,614

In this example, the total tax bill is almost identical to the sole trader route. The limited company structure does not automatically save tax at this profit level. The advantage comes at higher profit levels or when you can retain profits in the company to defer personal tax.

IR35 and the Locum PSC

The biggest risk for a locum dentist using a limited company is IR35. Since 6 April 2021, when a medium or large practice engages your limited company, the practice (not you) decides your IR35 status. If they determine you are inside IR35, the practice must deduct PAYE and National Insurance from the fees they pay your company, as if you were an employee.

If you are inside IR35, the tax advantage of the limited company largely disappears. You end up paying broadly the same tax as an employee, but with extra administration and no employment rights.

Locum dentists working through a PSC are more likely to be outside IR35 if they:

• Work for multiple practices (not just one)
• Have a genuine right of substitution (you can send another dentist in your place)
• Are not under the practice's direct control over how and when you work
• Bear financial risk (you invoice for work done, you cover your own indemnity and CPD)

If you work mainly for one practice and they control your schedule and methods, HMRC may argue you are an employee in all but name. The BDA model associate agreement does not guarantee self-employed status. HMRC and tribunals look at the actual working practice, not the paperwork.

If you are inside IR35, the tax comparison changes completely. The limited company offers little benefit, and the sole trader route may be simpler and cheaper.

NHS Pension Scheme Access

This is often the deciding factor for locum dentists. If you are a sole trader locum dentist, you can join the NHS Pension Scheme as a locum. You pay contributions based on your NHS locum income, and you build up pension benefits in the 2015 CARE scheme.

If you operate through a limited company, you cannot join the NHS Pension Scheme as a locum. The scheme requires you to be an individual practitioner, not a company. You would need to be employed directly by a practice (or by an NHS body) to access the NHS Pension as a limited company dentist.

For many locum dentists, the NHS Pension benefits are more valuable than the tax savings from a limited company. The 2015 CARE scheme provides a guaranteed, index-linked pension that is hard to replicate with private investments. If you plan to stay in the NHS Pension, the sole trader structure is usually the better choice.

Administration and Compliance Costs

A limited company requires more paperwork than being a sole trader. You must:

• File annual accounts with Companies House
• File a corporation tax return with HMRC
• Run a payroll (even if you are the only employee)
• Submit RTI (Real Time Information) reports each pay period
• Maintain statutory registers and hold annual board meetings
• Prepare personal Self Assessment returns for dividend and salary income

Accountancy fees for a limited company locum dentist are typically £1,500-£3,000 per year, compared to £500-£1,000 for a sole trader. You also need to consider the cost of payroll software or a bookkeeper.

The sole trader route is simpler. You file one Self Assessment return each year. No company accounts, no payroll, no corporation tax return. For locum dentists earning under £80,000-£100,000, the extra compliance cost of a limited company often outweighs any tax saving.

Profit Extraction and Timing

One advantage of the limited company is that you can control when you extract profits. If you have a high-income year, you can leave profits in the company and take them in a lower-income year. This can smooth your tax bill and keep you in lower tax bands.

For example, if you earn £120,000 in one year as a locum dentist, as a sole trader you lose your personal allowance (tapered above £100,000) and pay 40% and 45% tax on most of your income. With a limited company, you could leave £40,000 in the company and take only £80,000 as salary and dividends. The retained profits are taxed at 19% corporation tax now, and you can extract them later when your income is lower.

This deferral can be valuable, but it only works if you have lower-income years ahead. If you plan to build up a practice or buy into a partnership, the retained profits can fund your investment.

When a Limited Company Makes Sense for a Locum Dentist

A limited company structure is more likely to be beneficial if:

• Your locum fee income exceeds £100,000 per year
• You work for multiple practices and are clearly outside IR35
• You do not need NHS Pension Scheme access (or you have alternative pension arrangements)
• You want to retain profits in the company for future investment
• You plan to build up retained profits and eventually extract them via a capital distribution (which may qualify for lower CGT rates)

If you fall into this category, a limited company can reduce your overall tax burden, especially at higher income levels where the sole trader faces 40% income tax plus 2% NI on profits above £50,270.

When Sole Trader Is the Better Choice

Staying self-employed as a sole trader is usually better if:

• Your locum fee income is under £80,000-£100,000
• You want to remain in the NHS Pension Scheme
• You work mainly for one practice and could be caught by IR35
• You prefer simplicity and lower accountancy fees
• You do not need to retain profits in a company

For most locum dentists earning under £80,000, the sole trader route is simpler, cheaper, and gives access to the NHS Pension. The limited company adds complexity without a meaningful tax saving at this level.

Making the Switch: Sole Trader to Limited Company

If you decide to move from sole trader to limited company, you need to:

• Register a new company at Companies House
• Register for corporation tax with HMRC
• Set up a business bank account
• Transfer any assets (equipment, goodwill) to the company
• Notify HMRC that your self-employment has ceased
• Consider whether you need to register for VAT (if your fees exceed £90,000)

Transferring assets to the company can trigger capital gains tax. Section 162 incorporation relief (TCGA 1992 s.162) can defer CGT if you transfer your entire unincorporated business to a company in exchange for shares. This is a complex area and you should take advice from a dental-specialist accountant before proceeding.

Making the Switch: Limited Company to Sole Trader

If you are already operating through a limited company and want to move back to sole trader, you need to:

• Close the company (strike off or liquidate)
• Extract any retained profits (subject to tax on distribution)
• Notify HMRC that the company has ceased trading
• Register as self-employed with HMRC
• Transfer any assets back to your personal name (may trigger CGT)

Closing a company with retained profits can trigger dividend tax or capital gains tax on the distribution. If the company has significant retained profits, the tax bill can be substantial. Plan the exit carefully with your accountant.

VAT Considerations for Locum Dentists

Dental treatment provided by a registered dental professional is exempt from VAT under VATA 1994 Schedule 9 Group 7. This applies whether you are a sole trader or a limited company. You do not charge VAT on your locum fees for dental treatment.

However, if you also provide purely cosmetic services (such as tooth whitening without a medical purpose), those services may be standard-rated for VAT. If your total VAT-able income exceeds £90,000, you must register for VAT. This is a borderline area and HMRC scrutinises cosmetic claims. Take advice from a locum dentist tax specialist if this applies to you.

Summary: Which Structure for Your Locum Work?

For the majority of locum dentists, the sole trader structure is the better choice. It gives you access to the NHS Pension Scheme, keeps compliance costs low, and avoids IR35 risk. The tax saving from a limited company is marginal at income levels below £100,000 and can be wiped out by IR35 determinations.

A limited company can work well for high-earning locum dentists who are clearly outside IR35 and do not need the NHS Pension. But it requires careful planning, higher accountancy fees, and ongoing compliance.

Before making a decision, run the numbers for your specific income level and work pattern. Use our locum cost benefit calculator to compare take-home pay under each structure. Then speak to a dental-specialist accountant who understands locum tax, IR35, and the NHS Pension Scheme.

The right structure depends on your facts. There is no one-size-fits-all answer. But with the right advice, you can choose the structure that keeps more of your fees in your pocket while staying compliant.