One of the most common questions we are asked is whether a dentist should be self employed or limited company. The structure you trade through shapes your tax bill, your NHS pension accrual, your admin and your options when you come to expand or sell. The honest answer in 2026/27 is more nuanced than the old rule of thumb, because two recent changes have shifted the maths against incorporation for full-extraction owners.
This guide compares the two structures across tax, administration, liability and future flexibility, rebuilds the worked example at current rates, and flags the NHS pension trap that most generic comparisons leave out. It is the overview. Where a point deserves a deeper dive, we link to the detailed pieces rather than repeat them here.
Understanding the two structures
As a sole trader dentist you operate as a self-employed individual. You own the practice or hold the associate agreement directly, file a personal Self Assessment return, and pay income tax and Class 4 National Insurance on your profits. There is no separate legal entity and no Companies House filing.
With a limited company you create a separate legal entity. You usually own the shares and act as director and employee. The company pays corporation tax on its profits, and you pay personal tax on whatever you take out as salary or dividends. That two-layer structure is the source of both the potential efficiency and the extra complexity.
Tax comparison: sole trader vs limited company dentist
The tax position is where the old advice has dated badly, so it is worth working through carefully. Two changes matter. First, from 6 April 2025 employer National Insurance rose to 15% and the secondary threshold fell to £5,000, which makes paying yourself a salary through a company more expensive. Second, from 6 April 2026 (Finance Act 2026 c.11 s.4) the dividend ordinary rate rose from 8.75% to 10.75% and the upper rate from 33.75% to 35.75%, which makes taking dividends more expensive too. Both push in the same direction: they erode the tax gap that incorporation used to open up.
The figures that feed the comparison
For 2025/26 the building blocks are: personal allowance £12,570 (tapered away above £100,000), basic rate 20% to £50,270, higher rate 40% to £125,140. Class 4 NIC is 6% between £12,570 and £50,270, then 2% above. There is no Class 2 charge: the weekly Class 2 liability was removed from 6 April 2024, and the self-employed above the small-profits threshold are simply treated as having paid.
On the company side, corporation tax is 19% on profits up to £50,000, 25% above £250,000, with marginal relief tapering between those limits (so the slice from £50,000 to £250,000 carries an effective rate of around 26.5%). On extraction, the dividend allowance is £500, and you should always tag the dividend rate to its year: ordinary 8.75% / upper 33.75% for 2025/26, and ordinary 10.75% / upper 35.75% from 6 April 2026.
Worked example: Dr Patel, £100,000 profit
Take Dr Patel, a dentist whose practice or associate work produces roughly £100,000 of profit after expenses. As a sole trader she pays income tax and Class 4 NIC on the lot. As a company she could pay corporation tax, then extract through a small salary plus dividends. We set the salary at the £5,000 secondary threshold, because a company whose only employee is a single director cannot claim the £10,500 Employment Allowance, so paying above £5,000 simply triggers employer NIC at 15% with no offset. The figures below are 2025/26, with the 2026/27 dividend effect noted underneath.
| Item | Sole trader (2025/26) | Limited company (2025/26) |
|---|---|---|
| Profit before owner tax | £100,000 | £100,000 |
| Director's salary | n/a | £5,000 (CT-deductible) |
| Employer NIC on salary | n/a | £0 (salary at the £5,000 threshold) |
| Corporation tax | n/a | approx £21,800 (on £95,000, marginal relief) |
| Income tax (personal) | approx £27,432 | £0 on salary (covered by allowance) |
| Class 4 NIC | approx £3,257 | n/a |
| Dividend tax (8.75% / 33.75%) | n/a | approx £12,700 |
| Total tax and NIC | approx £30,689 | approx £34,500 |
A few notes on the working, because the precise figures move with the exact salary and dividend split chosen. The corporation tax on the full £100,000 (before any salary) would be £25,000 at the 25% main rate, less marginal relief of £2,250 (calculated as the £150,000 gap up to £250,000 multiplied by the 3/200 standard fraction), giving £22,750. Taking a £5,000 deductible salary reduces taxable profit to £95,000 and the corporation tax to roughly £21,800. That is the correct way to handle it: corporation tax is not a flat 25% on a £100,000-profit dental company, and there is no separate Class 2 charge on the sole trader side.
The headline is that, on a full-extraction basis at 2025/26 rates, the company route is no better than staying a sole trader and on these figures is slightly worse, once you account for the second layer of tax a company suffers (corporation tax and then dividend tax on the same profit). The exact gap moves with the salary and dividend split, but the days of a clear five-figure saving are gone. From 6 April 2026 the dividend rates rise to 10.75% ordinary and 35.75% upper, which adds roughly two percentage points to the tax on the dividend slice and pushes the full-extraction company route further into neutral-to-negative territory. In other words, for a dentist who draws everything out each year, incorporation is no longer the tax win it once was.
For the detailed post-2026 breakeven, including where retained profits change the answer, see is dental incorporation still worth it after the 2026 dividend rise. For the most efficient salary and dividend mix once you have decided to incorporate, see the optimal salary and dividend split for 2026/27, and for the mechanics of getting money out of the company, how to pay yourself as a dental practice owner and our guide to dental practice profit extraction.
The NHS pension trap that changes the answer
Tax is only half the comparison, and for NHS dentists it is often not the half that matters most. For a sole trader practitioner, pensionable earnings derive from net NHS-derived income, and that income builds 2015-scheme accrual at 1/54th a year. Incorporate and take salary plus dividends, and the picture changes sharply: only the PAYE salary is pensionable, and dividends are not pensionable.
That is the incorporation pension trap. An incorporated associate is treated as an officer, so converting a large slice of NHS-derived profit from pensionable income into non-pensionable dividends quietly switches off accrual on that slice. Over a ten to fifteen year run to retirement, the lost defined-benefit accrual can dwarf any annual tax difference. Whether an incorporated contract-holding principal can still pension NHS-derived profit through the practitioner route is genuinely contested and case-specific, so we do not assert it either way: confirm your own position with NHSBSA before restructuring.
The rule for any dentist weighing incorporation is to model the tax and the pension together, never the tax alone. We cover this in depth in the NHS pension incorporation trap and in what counts as pensionable pay for dentists.
Beyond tax: the other deciding factors
Administrative burden
Sole trader administration is relatively light. You complete a Self Assessment return annually and keep records of income and expenses. Most dentists can manage the bookkeeping with support, and Making Tax Digital for Income Tax now applies to sole traders with qualifying income above £50,000 from 6 April 2026, which raises the record-keeping bar.
A limited company carries more. You file annual accounts at Companies House, file a corporation tax return, maintain statutory registers and document every dividend with a board minute and voucher. The compliance load is real and ongoing, and it should be a genuine factor in the decision rather than an afterthought.
Legal protection
This is where the word "limited" earns its place. As a sole trader you have unlimited personal liability, so business debts can reach your personal assets. A company limits your liability to your investment in the shares, which gives a layer of protection against commercial debts and contractual claims.
The protection is not absolute. Directors can still face personal liability in some circumstances, lenders and landlords routinely require personal guarantees for borrowing and leases, and the corporate veil does not answer a clinical negligence claim. That is why professional indemnity cover remains essential whatever structure you choose.
Future flexibility and sale planning
A company is easier to grow into. Bringing in a co-owner, issuing shares to reflect changing stakes, or structuring a multi-site group all sit more naturally inside a company than across a sole trade. It also matters at exit: a share sale of a trading company can access Business Asset Disposal Relief on qualifying gains, and a sole trader who wants to reach that position later can use section 162 incorporation relief (TCGA 1992 s.162) to transfer the whole business to a company for shares while deferring the capital gains tax on the transfer.
Sole traders face more friction when expanding. You cannot easily admit an equity partner, and incorporating later involves its own tax and contractual steps, including the consent needed to novate an NHS contract. None of this rules out staying a sole trader; it just means structure and exit plans should be considered together rather than in sequence.
Practical scenarios
The new graduate associate
An associate in the early years, with profits in the £40,000 to £60,000 range, will usually find sole trader status the better fit. The tax difference at that level is minimal, the company admin is not justified, and full NHS pensionability on NHS-derived income is valuable while accrual is building.
The established associate or principal
Higher profits make the comparison worth modelling, but they do not settle it. The pure tax saving is small at 2025/26 rates and the 2026/27 dividend rise erodes it further, so the case for incorporating tends to rest on retained profits for reinvestment, a genuinely employed spouse on a market-rate wage, liability cover and sale planning. Each of those needs to be weighed against the NHS pension accrual you would give up on the dividend portion.
The owner planning to grow or sell
Where the plan is multiple sites, equity partners or a future sale to a group, a company structure often makes sense for the flexibility and the BADR route on a share sale, even when the year-to-year tax difference is marginal. Here the structure decision is really a strategy decision, and the pension and tax modelling sits alongside it rather than driving it.
Making your decision
The choice between sole trader and limited company is not permanent, but switching has costs and consequences, so it is worth getting right. Useful questions to work through are:
- What are your current and projected profits, and how much do you draw versus retain?
- How much of your income is NHS-derived and therefore potentially pensionable?
- Do you have a genuinely employed spouse, or plans to expand or sell?
- How comfortable are you with company filing and dividend administration?
- What is your appetite for personal financial and legal risk?
The old shorthand that a dentist should incorporate above a fixed profit figure no longer holds in 2026/27. The right answer turns on the full picture: the tax position at current rates, the NHS pension accrual you would keep or lose, and what you want the business to do over the next five years. Model the tax and the pension together for your own numbers, and let the structure follow the plan rather than the other way round.