Whether to run your practice through a limited company is one of the questions owners ask most often. It is rarely answered well in a single conversation, because it depends on profit level, how you take money out, what you plan to invest in, and how you work with associates. Below is a practical framing — and where profit extraction fits once the structure is clear.

Start with clarity on true profit

Extraction planning should sit on top of reliable management accounts. In dental practices, EBITDA can move with associate pay mixes, lab costs, and equipment cycles — if you only look at the bank, you can over-draw or miss pension opportunities.

Before deciding how to extract profit, know what sustainable profit actually looks like for your practice. A good year boosted by one-off private cases shouldn't set the template for ongoing drawings. Work from an average of the last 2-3 years, adjusted for known changes.

Salary and dividends: the standard approach

Most dental practice owners who operate through a limited company take a combination of salary and dividends. The typical approach involves:

  • Salary up to the NI threshold — currently around £12,570, preserving state pension entitlement without triggering employer or employee NI contributions.
  • Dividends from remaining profits — taxed at lower rates than salary (8.75% basic rate, 33.75% higher rate), though only available from post-tax company profits.

The optimal split depends on your personal tax position, other income sources, and whether you have a spouse who could be a shareholder in the company.

Pension contributions as extraction

Employer pension contributions from the company are one of the most tax-efficient extraction methods for dental practice owners. The company gets corporation tax relief, and the contributions don't attract NI or income tax (within annual allowance limits).

For practice owners already in the NHS pension scheme, careful coordination is needed to avoid breaching the annual allowance — which has caught many dentists with unexpected tax charges. Your accountant should model combined NHS and private pension contributions to find the optimal level.

Common extraction building blocks

Most limited company owners consider a blend of salary and dividends, alongside pension contributions where appropriate. The balance shifts with dividend allowances, corporation tax rates, and personal cash needs.

Specialist dental accountants will also stress-test decisions against regulatory and NHS contract realities — not because tax drives clinical decisions, but because cash timing and investment plans are intertwined.

Director loan accounts: proceed with caution

Director loan accounts allow practice owners to take money from the company as a loan rather than income. While flexible, they carry significant risks:

  • Loans over £10,000 outstanding at year-end trigger a Section 455 tax charge (33.75%).
  • The charge is repayable when the loan is repaid, but creates cash flow problems for the company.
  • HMRC scrutinises director loan accounts closely — inconsistent or large balances raise red flags.

Use director loans as a short-term cash management tool, not a permanent extraction strategy. Clear them before year-end wherever possible.

Timing extraction around investment

Dental practices often face lumpy capital expenditure — a new chair, digital imaging equipment, or a practice refurbishment. Timing profit extraction around these investments can improve tax efficiency.

Retaining profits in the company before a major investment means corporation tax has already been paid at 19-25%. If you extract and then reinvest personally, you pay income tax first and lose the benefit of using pre-tax company funds.

Compliance and calm governance

HMRC risk rises when transactions between the practice and directors are informal. Clean documentation, board minutes where relevant, and a clear policy for expenses protect both the practice and the individuals behind it.

If you are weighing a significant investment — a squat practice, a merger, or a large equipment package — model the next three years before fixing extraction.

When to review your extraction strategy

Review annually at minimum, but also trigger a review when:

  • Practice profits change significantly (up or down).
  • Tax rates or thresholds change — the 2026/27 tax year brings further adjustments.
  • Your personal circumstances change — marriage, children, approaching retirement.
  • You are planning a major investment or acquisition.
  • You are considering bringing in a partner or selling the practice.

A proactive accountant should initiate these conversations rather than waiting for you to ask.