Is Incorporating a Dental Practice Still Worth It After the 2026/27 Dividend Rise?

For years the standard advice to a profitable dental principal ran in one direction: once profits are comfortably into six figures, incorporate, take a small salary and the rest as dividends, and bank the saving. That advice was always more conditional than it sounded, and on 6 April 2026 one of its main supports moved. The dividend tax rates rose by two points. For a dentist whose company exists mainly to convert profit into dividends, that is a direct increase in the cost of the strategy.

This guide models what the change actually does to the numbers. We work the breakeven at £80,000, £120,000 and £180,000 of profit at 2026/27 rates, show side by side what the same extraction now costs compared with 2025/26, and set out where the limited company still earns its keep. The short version: the pure extraction case has narrowed sharply, and the real arguments for a company are now about retention, reinvestment, liability and sale planning, not the tax on money you take straight back out.

What actually changed on 6 April 2026

The change was made by Finance Act 2026 (c. 11), section 4, which amends the dividend rates in the Income Tax Act 2007. From the start of the 2026/27 tax year:

• The ordinary dividend rate rose from 8.75% to 10.75% (dividends falling in the basic-rate band).
• The upper dividend rate rose from 33.75% to 35.75% (dividends in the higher-rate band).
• The additional dividend rate stayed at 39.35% (dividends above £125,140 of total income).
• The dividend allowance stayed at £500.

Corporation tax did not change. It remains 19% on profits up to £50,000, 25% on profits above £250,000, with marginal relief between those points, for financial year 2026 just as for 2025. Income tax thresholds and Class 4 National Insurance rates for the self-employed are also unchanged. So the only moving part is the dividend rate, and dividends are precisely the part of a dental company's profit that the owner relies on. That is what makes this a narrowing of the incorporation case rather than a neutral tweak.

The old case for incorporating, in one paragraph

The classic argument is straightforward and we cover the full structural comparison in our guide to sole trader versus limited company for dentists. In essence: a sole trader pays income tax at 20%, 40% or 45% plus Class 4 National Insurance on every pound of profit. A company instead pays corporation tax on its profit, then the owner extracts what they need as a small salary plus dividends, which carry no National Insurance and were historically taxed at gentler rates than salary. The gap between the self-employed combined marginal rate and the corporation-tax-plus-dividend cost was the saving. The whole strategy lives or dies on the size of that gap, and the 2026/27 rise has closed it.

Why the 2026/27 rise specifically narrows the gap

The incorporation saving was never the corporation tax rate in isolation. It was the spread between two routes to the same pound in your pocket. Route one, sole trader, taxes a higher-rate pound at roughly 42% (40% income tax plus 2% Class 4). Route two, company, taxes that same pound twice: once at corporation tax inside the company, then again as a dividend when you take it out.

Add two points to the dividend side of route two and the spread shrinks on the part of profit you actually extract. Worse, the corporation tax marginal rate in the £50,000 to £250,000 band is an effective 26.5%, and from 6 April 2025 the company also pays employer National Insurance at 15% on salary above the £5,000 secondary threshold. Stack a 26.5% effective corporation tax layer, then a 10.75% or 35.75% dividend layer, then 15% employer National Insurance on the salary, and the company route is carrying more weight than it was. The examples below show the result is not a smaller win. On full extraction it is often no win at all.

The sole trader baseline for 2026/27

Take a single dentist with no other income. As a sole trader they pay:

• Income tax: nothing on the first £12,570 (personal allowance), 20% from £12,571 to £50,270, 40% from £50,271 to £125,140, 45% above. The personal allowance tapers away above £100,000 of income, lost entirely by £125,140.
• Class 4 National Insurance: 6% on profits between £12,570 and £50,270, then 2% above. Class 2 is no longer payable from 6 April 2024 for profits above the small-profits threshold.

That gives the combined marginal rates we measure against: about 26% in the basic band, 42% in the higher band and 47% in the additional band. All of these thresholds carry into 2026/27 unchanged from 2025/26. They are the benchmark for every example that follows.

The limited company route for 2026/27

For the company we assume the common owner-director set-up: a salary of £12,570 to use the personal allowance, then dividends on top. The mechanics are:

• Salary £12,570, which is deductible for corporation tax but triggers employer National Insurance at 15% on the £7,570 above the £5,000 secondary threshold, roughly £1,136. A sole-director company cannot claim the Employment Allowance to relieve this. Our guide to the salary and dividend split for a dental practice owner works through the £6,708 versus £12,570 salary decision in detail.
• Corporation tax on the profit after salary and employer National Insurance, using the 2026 small-profits and main rates with marginal relief.
• Dividends from the post-tax distributable profit, taxed at the new 10.75% and 35.75% rates with the £500 allowance.

Now we put real numbers through it.

Worked breakeven at £80,000 profit (2026/27)

Take £80,000 of profit before any owner reward.

Sole trader. Income tax is £7,540 on the basic band (£37,700 at 20%) plus £11,892 on the higher band (£29,730 at 40%), so £19,432. Class 4 is £2,262 (6% on £37,700) plus £595 (2% on £29,730), so £2,857. Total tax and National Insurance is about £22,289, leaving roughly £57,711 in hand.

Limited company. Salary £12,570 costs £1,136 in employer National Insurance. Profit after salary and that cost is £66,294. Corporation tax with marginal relief on that is about £13,818 (an effective rate just above 20% across the band). Distributable profit is about £52,476, all paid out as dividends. Dividend tax is £3,999 on the basic-band slice (about £37,200 at 10.75% after the £500 allowance) plus £5,282 on the higher-band slice (about £14,776 at 35.75%), so roughly £9,281. Total tax across employer National Insurance, corporation tax and dividends is about £24,235, leaving roughly £55,765 in hand.

Takeaway. At £80,000 the company route on full extraction is around £1,900 worse than the sole trader at 2026/27 rates. The double tax layer plus 15% employer National Insurance now exceeds the self-employed combined marginal rate. At this profit level, on extraction alone, incorporation does not pay.

Worked breakeven at £120,000 profit (2026/27)

At £120,000 the personal allowance taper bites: above £100,000 the allowance is withdrawn by £1 for every £2 of income, so a sole trader on £120,000 has only £2,570 of personal allowance left.

Sole trader. Income tax works out at about £37,432 once the reduced personal allowance is applied across the basic and higher bands. Class 4 is about £3,657 (6% to £50,270, then 2% on the £69,730 above). Total tax and National Insurance is about £41,089, leaving roughly £78,911.

Limited company. Salary £12,570 (employer National Insurance £1,136), profit after salary cost £106,294, corporation tax with marginal relief about £24,418, distributable about £81,876. Distributing it all, dividend tax is about £19,792, with a large slice now in the 35.75% higher band. Total tax is about £45,346, leaving roughly £74,654.

Takeaway. The company is about £4,250 worse than the sole trader on full extraction at £120,000. Much of the profit is being extracted as higher-rate dividends at 35.75% on top of corporation tax already paid, and that double layer is heavier than the self-employed 42% marginal rate. A mixed NHS and private principal we modelled at around this profit found the saving they expected had not merely shrunk: on a draw-it-all basis it had turned negative.

Worked breakeven at £180,000 profit (2026/27)

At £180,000 the sole trader has no personal allowance (fully withdrawn above £125,140) and pays 45% income tax plus 2% Class 4 on the top slice.

Sole trader. Income tax is about £64,689 and Class 4 about £4,857, so total tax and National Insurance is about £69,546, leaving roughly £110,454.

Limited company, full extraction. Salary £12,570, employer National Insurance £1,136, corporation tax about £40,318, distributable about £125,976. Paying it all out, dividend tax is about £36,040, including a slice at the 39.35% additional rate above £125,140 of total income. Total tax is about £77,494, leaving roughly £102,506, about £7,950 worse than the sole trader.

Limited company, with retention. This is where the company finally earns its place. Suppose the dentist needs roughly the sole-trader take-home and no more, and retains the rest in the company to fund a refit or future acquisition. Say they draw enough dividends to use the basic band and a modest higher-rate slice, around £40,000, and retain about £86,000. The retained profit has suffered only corporation tax. It has not been hit by any dividend tax at all, because it was never distributed. That deferred dividend layer is the whole modern argument for incorporation: not the tax on what you take, but the tax you postpone on what you leave in.

Takeaway. At £180,000 the incorporation advantage is driven by retention and reinvestment, not by extraction. Draw everything and the company loses on tax. Leave a meaningful slice inside and the company wins, because that slice escapes the dividend layer until you need it.

The catch in the retention argument: you have to leave it there

The retention case is real, but it is easy to overstate, so it pays to be honest about the catch. Profit retained in the company has only deferred the dividend tax, not abolished it. The day you take that money out personally, for a holiday home, a school fee or simply to live on in a year you stop working, it is taxed as a dividend at the rates of that year. The company is a tax-deferral wrapper on the retained slice, not a tax-free one.

That deferral is still valuable for two reasons. First, money kept inside compounds on a larger, pre-personal-tax base: £86,000 invested or reinvested has more working capital behind it than the roughly £45,000 to £50,000 you would have left after extracting and paying personal tax first. Second, you control the timing of extraction, so you can draw the retained profit in a future low-income year, perhaps as you wind down clinical work, when more of it falls in the basic-rate dividend band at 10.75% rather than the higher band at 35.75%. The retention argument is therefore strongest for owners who genuinely do not need the cash now and have a plausible lower-income window later. For an owner who will draw it all within a year or two anyway, the deferral is short and the benefit thin.

2025/26 versus 2026/27, same profit, side by side

The cleanest way to see what Finance Act 2026 did is to hold everything constant except the dividend rate. Take the same £120,000 profit, the same £12,570 salary, the same dividend volume, and change only the dividend rates from the 2025/26 figures (8.75% and 33.75%) to the 2026/27 figures (10.75% and 35.75%).

• In 2025/26, dividend tax on that extraction was about £18,165.
• In 2026/27, on the identical extraction, it is about £19,792.

The rise costs this owner roughly £1,628 a year for taking home the same money. Run the same comparison at other profit levels and the extra dividend tax is about £1,040 at £80,000, around £1,334 at £100,000 and over £2,200 at £180,000. That recurring annual figure, repeated every year you trade, is the part of the incorporation saving that Finance Act 2026 quietly removed.

The factor that usually decides it: NHS pension accrual

Even before the dividend rise, the tax saving was rarely the decisive number for an NHS dentist. The decisive number is often the NHS pension. For an incorporated dentist on the officer route, only the PAYE salary is pensionable and dividends are not pensionable. Switch £150,000 of pensionable, NHS-derived profit into a £30,000 salary plus £100,000 of dividends and you have cut your pensionable pay to £30,000. In the 2015 CARE scheme that loss of pensionable pay translates directly into lost 1/54th accrual, compounding over every year to retirement into a large slice of guaranteed, inflation-linked pension.

For a principal who actually holds the NHS contract the position is more nuanced and depends on the contract ceiling, so it must be confirmed with NHSBSA. But the rule of thumb stands: never weigh the incorporation tax saving on its own. A four-figure annual tax saving that costs you tens of thousands of pounds of lifetime pension is a bad trade. Our detailed guide to the NHS pensionable pay rules for dentists sets out the practitioner versus officer distinction, and we model the full lost-accrual figures in our companion piece on the incorporation pension trap.

The other non-tax factors

With the extraction tax case neutral to negative at typical profits, the remaining arguments for a company are the ones that were always the strongest:

• Limited liability. A company gives a liability shield the sole trader does not have, though directors still face personal exposure in some circumstances and lenders usually want personal guarantees.
• Retained earnings for reinvestment. As the £180,000 example showed, profit left in the company has paid only corporation tax and is the cheapest source of capital for a refit, a new surgery or a practice purchase.
• Spouse employment at a market rate. A genuinely employed spouse, paid for real work, spreads income and can unlock the Employment Allowance that a sole-director company cannot claim. The work must be genuine and the pay market-rate; we cover the boundaries in our guide to employing a spouse in a dental business.
• Sale planning. A company can be sold as shares, potentially within Business Asset Disposal Relief, and is the natural structure for a planned exit.
• Administration and cost. Against all of that, weigh higher accountancy fees, payroll, Companies House filing and public disclosure, plus the friction of novating an NHS contract into the company.

Should you incorporate just before or just after April 2026?

A question we hear often is whether there is a window to incorporate around 6 April 2026 that locks in the old, gentler dividend rates. There is not. The dividend rates apply by tax year, so whenever you incorporate, dividends you draw in 2026/27 and later are taxed at 10.75% and 35.75%. Incorporating a day before the change buys you nothing on future dividends.

The genuine date sensitivity sits elsewhere, on the exit side. Business Asset Disposal Relief, which can apply a reduced capital gains rate to a qualifying practice sale, stepped up to 18% from 6 April 2026 (from 14% in the preceding year and 10% before that). For an owner already planning a sale, the timing lever is the disposal date, not the incorporation date, and the qualifying conditions for a share sale need around two years in place beforehand. If a sale is on your horizon, the structure and timing should be planned around that exit, with advice, rather than around the dividend-rate calendar. Incorporation itself has no magic date.

What incorporating actually involves

It is worth being concrete about the work, because the administration is part of the comparison and is sometimes underweighted. Incorporating an existing practice means transferring the business and its assets into a new company, which is a disposal for capital gains purposes. Goodwill and tangible assets are valued, and incorporation relief under TCGA 1992 section 162 can defer the gain where the whole business passes to the company wholly or partly for shares. The NHS contract must be novated to the company with commissioner consent, which takes time and can prompt a value review. Premises, equipment finance, indemnity, the practice bank account and supplier contracts all have to be moved across or re-papered.

From then on the company runs payroll, files annual accounts and a confirmation statement at Companies House, prepares a corporation tax return, and documents every dividend with a board minute and voucher. Those accounts are on the public record. None of this is prohibitive, and a good dental accountant handles most of it, but it is a standing cost in money and attention that a sole trader simply does not carry. When the tax case is neutral, this overhead can tip the balance back toward staying unincorporated.

So, is it still worth it? A decision framework

Put the pieces together and the 2026/27 answer is clearer than the old rule of thumb suggested.

• If you extract everything and have no other reason to incorporate, the post-FA-2026 tax case has gone. At £80,000, £120,000 and £180,000 of profit a sole trader is no worse, and usually a little better, on a draw-it-all basis.
• If you retain and reinvest, the company is genuinely attractive, because retained profit escapes the dividend layer that the rise made more expensive.
• If you employ a spouse, value liability cover, or are planning a sale, those benefits stand independently of the dividend rates.
• If you are an NHS dentist, model the pensionable-pay loss before anything else, because it can dwarf the tax numbers in either direction.

The honest conclusion is that incorporation in 2026/27 is no longer a tax trick that pays for itself on extraction. It is a structural choice that suits owners with a reinvestment, family or exit plan, and a poor choice for an NHS dentist who would simply be trading guaranteed pension for a saving that the dividend rise has already shrunk. Model both the tax saving and the pension loss before you decide, and use real figures rather than a profit threshold from an older tax year.