You have already incorporated. The dental practice runs through a limited company, the corporation tax is paid on profit, and the money you want to live on is now sitting in a company bank account rather than in your own. The question this guide answers is the one that comes after the structure decision: how do you move that retained profit into your own hands at the lowest combined tax cost for the 2026/27 tax year. The routes are a small salary, dividends, employer pension contributions and (carefully) a director loan account, and the right blend changes with your profit level, your other income and what you plan to invest in.
If you are still weighing whether to incorporate at all, read our guide to sole trader versus limited company for dentists first. This page assumes the company already exists.
Start with the true distributable profit
Extraction planning sits on top of reliable management accounts. In dental companies the profit figure moves with associate pay mixes, lab costs and equipment cycles, so the bank balance is a poor guide. Dividends can only be paid from accumulated post-tax profits (distributable reserves). Pay a dividend the reserves do not support and it is unlawful, and HMRC can recharacterise it as salary or a loan.
Work from a sustainable profit figure. A good year boosted by one-off private cases should not set the template for ongoing drawings. Take an average of the last two to three years, adjust for known changes, then plan extraction against that.
The four extraction routes compared
Each route has a different tax footprint. The table below sets out the headline treatment at 2026/27 rates, before you layer on your personal position.
| Route | Corporation tax relief? | NIC? | Personal tax | 2026/27 notes |
|---|---|---|---|---|
| Salary at £5,000 secondary threshold | Yes (deductible) | No employer NIC at or below £5,000 | Within personal allowance, so nil | Common single-director level. Below the £6,708 LEL, so does not bank a state-pension year |
| Salary at £6,708 (LEL) | Yes (deductible) | 15% employer NIC on £1,708 | Within personal allowance, so nil | Banks a qualifying state-pension and NHS-officer year for a small NIC cost |
| Dividends | No (paid from post-tax profit) | None | 10.75% ordinary, 35.75% upper, 39.35% additional, £500 allowance | Rates rose from 8.75% and 33.75% under Finance Act 2026. Not pensionable for the NHS scheme |
| Employer pension contribution | Yes (deductible on a paid basis) | None | Nil at contribution, taxed on later drawdown | Within the £60,000 annual allowance plus three-year carry-forward. Taper applies at high income |
| Director loan (overdrawn) | No | Class 1A on the benefit if applicable | None at drawdown, but a company charge follows | Section 455 at 35.75% if not cleared within 9 months and 1 day. BIK over £10,000 unless interest paid |
Salary and dividends: the standard mix
Most dental company owners take a small salary topped up by dividends. The salary level is the first decision, and it turns on two numbers.
- The £5,000 secondary threshold. Employer (secondary) National Insurance applies at 15% on salary above £5,000 from 6 April 2025. A single-director company cannot claim the £10,500 Employment Allowance, so paying a salary up to the £12,570 personal allowance would expose the slice above £5,000 to employer NIC. That is why a one-director dental company commonly sets salary at £5,000: it is fully relieved against corporation tax and carries no NIC.
- The £6,708 lower earnings limit. A salary at £5,000 does not credit a qualifying year towards the state pension. To bank the year, the salary needs to reach the £6,708 LEL, which costs 15% employer NIC on the £1,708 above the secondary threshold (about £256 of NIC). Many directors accept that small cost to protect the state-pension record. A genuinely employed spouse paid a market rate can unlock the Employment Allowance and change this answer.
Above the salary, the rest of the extraction comes out as dividends. For 2026/27 the dividend rates are 10.75% ordinary, 35.75% upper and 39.35% additional, with a £500 dividend allowance. These rose from 8.75% and 33.75% under Finance Act 2026 (section 4), so the dividend route is a little less generous than it was, which narrows the gap between dividends and a larger salary. Dividends are paid from post-tax profit and are not pensionable for the NHS scheme, a point that matters for incorporated principals (covered below). For the detailed numbers at each profit band, see our dedicated guide to the optimal salary and dividend split for 2026/27.
A worked example at 2026/27 rates
Take a single-director dental company with £100,000 of profit before the director's salary, no associates on payroll and no other income for the director. The owner wants to bank a state-pension year, so sets salary at the £6,708 LEL.
- Salary £6,708. Deductible against corporation tax. Employer NIC at 15% on the £1,708 above the £5,000 secondary threshold is about £256. The salary is within the £12,570 personal allowance, so no income tax or employee NIC.
- Company profit after salary and employer NIC. £100,000 minus £6,708 salary minus £256 employer NIC leaves roughly £93,036 of taxable profit.
- Corporation tax. At £93,036 the company is in the marginal-relief band between £50,000 and £250,000, where the effective rate on the slice above £50,000 is about 26.5%. The bill is roughly £21,800 (19% on the first £50,000 plus marginal relief above it). That leaves about £71,200 of post-tax profit available as a dividend.
- Dividend. The director draws the £71,200. The first £5,862 of the personal allowance is still unused after the salary, then the £500 dividend allowance applies. Most of the dividend falls in the ordinary band at 10.75% and the balance in the upper band at 35.75% once total income passes £50,270.
The headline point is the layering: corporation tax is paid once inside the company, then dividend tax is paid again on extraction, so the combined rate on profit taken as a dividend is higher than the dividend rate alone. That is exactly why employer pension contributions, which skip the second layer entirely, are so often the better marginal pound. If the director did not need the full £71,200 to live on, diverting part of it into an employer pension contribution before it is taxed as a dividend is usually the most efficient move.
Employer pension contributions: often the best route
An employer pension contribution made by the company is one of the most efficient ways to extract value. The company takes a corporation tax deduction on a paid basis (Finance Act 2004, section 196), there is no employer or employee National Insurance, and there is no dividend or income tax at the point of contribution. The pound goes into your pension without the corporation-tax-then-dividend-tax double charge that a dividend carries.
The contribution must sit within the £60,000 annual allowance, with up to three prior years of unused allowance available by carry-forward. The allowance tapers for high earners: it reduces once threshold income exceeds £200,000 and adjusted income exceeds £260,000, down to a £10,000 floor. For practice owners already in the NHS pension scheme, model the combined pension input before contributing, because NHS defined-benefit growth counts towards the same annual allowance and has caught many dentists with unexpected charges. We cover the mechanics in detail in our guide to employer pension contributions as a profit-extraction route.
The NHS pension consequence of taking dividends
For an incorporated principal who takes a PAYE salary, the dentist is treated as a scheme officer: only the salary is pensionable, and dividends are not pensionable. A principal who replaces a large slice of pensionable NHS-derived profit with a small salary plus dividends cuts pensionable pay to the salary figure. Over a ten to fifteen year run to retirement, the lost accrual can be substantial. Always weigh the extraction tax saving against the pension accrual you give up: the two have to be modelled together, never the tax in isolation.
Director loan accounts: useful but trapped
A director loan account lets you take money from the company as a loan rather than as income. It is flexible for short-term cash management, but a dental company is a close company, so an overdrawn loan account carries two specific charges.
- The Section 455 charge. If an overdrawn loan is still outstanding nine months and one day after the company year-end, the company pays corporation tax at the dividend upper rate on the outstanding balance: 33.75% for loans made in 2025/26 and 35.75% for loans made on or after 6 April 2026. The charge is temporary and is repaid (under section 458) once the loan is cleared, but the relief is deferred to nine months and one day after the end of the period in which repayment happens. It is not an instant refund.
- The benefit-in-kind charge. A loan balance over £10,000 at any point in the year is a taxable benefit in kind unless interest is paid at HMRC's official rate (3.75% from 6 April 2025). The benefit is reported on a P11D and carries Class 1A NIC.
Anti-avoidance rules block repaying then redrawing around the year-end, so you cannot game the timing. Use a director loan as a short-term bridge, not a permanent extraction strategy. Clear it before the nine-month deadline wherever possible. Our deep dive on overdrawn director loan accounts walks through the s455, s458 and BIK mechanics with numbers.
Timing extraction around capital spend
Dental practices face lumpy capital expenditure: a new chair, digital imaging, a surgery refurbishment. Timing extraction around these investments can improve tax efficiency. Profit retained in the company has already borne corporation tax at 19% to 25% and can be spent on equipment that attracts capital allowances. If you extract the cash personally first and then lend it back or buy the kit yourself, you pay income or dividend tax on the way out and lose the benefit of spending pre-tax company funds. As a rule, fund practice assets from inside the company and extract what is genuinely surplus.
Documentation and compliance
HMRC risk rises when transactions between the company and the director are informal. Dividends need a board minute and a dividend voucher, and they must be supported by distributable reserves at the date of declaration. Salary must run through PAYE. Loan movements need to be recorded as they happen, not reconstructed at year-end. Clean records protect both the company and the people behind it, and they are the first thing an enquiry looks at.
If you are weighing a significant investment, a squat practice, a merger or a large equipment package, model the next three years before fixing your extraction policy. For the practical step-by-step on running your own pay, see how to pay yourself as a dental practice owner.
When to review your extraction strategy
Review annually at a minimum, and trigger an extra review when any of these change:
- Practice profits move significantly, up or down.
- Tax rates or thresholds change. The 2026/27 dividend rate rise is a current example.
- Your personal circumstances change: marriage, children or 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 open these conversations rather than wait for you to ask. The figures in this guide reflect the 2026/27 tax year. Always confirm current rates before acting, because thresholds and rates are reviewed each year.