You've heard other associates say a limited company saves them a fortune in tax. Then your colleague says incorporating cost them their NHS pension, so they switched back. Both can be right, which is exactly why this decision trips people up.
This guide is for self-employed associate dentists weighing up whether to keep trading as a sole trader or run their work through a limited company. We'll look at the real tax difference using current 2025/26 figures, the NHS pension trap that catches a lot of dentists, the extra admin, and a simple way to decide.
There's no single right answer. There's a right answer for your numbers and your NHS work, and we'll show you how to find it.
What's the difference between a sole trader and a limited company dentist?
As a self-employed associate, you're almost always a sole trader. You and your dental work are the same legal person. You keep records, file a Self Assessment tax return each year, and pay Income Tax and National Insurance on your profits.
A limited company is a separate legal entity. The company earns the income, pays Corporation Tax on its profits, and you usually pay yourself with a mix of a small salary and dividends. You become both a director and a shareholder.
The headline appeal is that company profits aren't all taxed at your personal Income Tax rate straight away. But that appeal comes with conditions, and for dentists the biggest one isn't tax at all. It's the NHS pension.
Is a limited company more tax-efficient for a dentist?
Sometimes, and usually by less than people expect.
As a sole trader, your profits are taxed through Income Tax and Class 4 National Insurance. For 2025/26, Income Tax in England, Wales and Northern Ireland runs at 20% on income above the £12,570 personal allowance, 40% once your total income passes £50,271, and 45% above £125,140. (Scotland sets its own Income Tax rates and bands, so the figures here don't apply north of the border.) Class 4 NIC adds 6% on profits between £12,570 and £50,270, then 2% above that.
A company is taxed differently. Profits face Corporation Tax at 19% up to £50,000 and 25% above £250,000, with marginal relief smoothing the rate in between for the financial year 2025. You then extract the money as salary and dividends. Dividends have their own rates for 2025/26: a £500 dividend allowance, then 8.75% in the basic band, 33.75% in the higher band and 39.35% above.
The catch is that you can be taxed twice on the same money: once inside the company through Corporation Tax, then again personally on the dividends you draw. Add employer's National Insurance on any salary you pay yourself (15% above the £5,000 secondary threshold for 2025/26), and the gap between the two structures often narrows to very little at typical associate earnings.
Worked example: associate dentist on 80000 profit
Illustrative example. Sukhi is a self-employed associate dentist in England with £80,000 of profit for 2025/26 and no other income. We'll compare staying a sole trader with running the same work through a company, taking a £12,570 salary and the rest as dividends. The company has no other employees, so the Employment Allowance isn't available.
As a sole trader:
| Item | Amount |
|---|---|
| Income Tax at 20% on £37,700 | £7,540 |
| Income Tax at 40% on £29,730 | £11,892 |
| Class 4 NIC at 6% on £37,700 | £2,262 |
| Class 4 NIC at 2% on £29,730 | £595 |
| Total tax and NIC | £22,289 |
Through a limited company (£12,570 salary, dividends from what's left):
| Item | Amount |
|---|---|
| Employer's NIC at 15% on £7,570 | £1,136 |
| Corporation Tax on £66,294 profit (after salary and employer's NIC), with marginal relief | £13,818 |
| Dividend tax at 8.75% on £37,200 | £3,255 |
| Dividend tax at 33.75% on £14,776 | £4,987 |
| Total tax and NIC | £23,196 |
In this case the sole trader is actually around £900 a year better off once you count Corporation Tax, dividend tax and employer's NIC together. Marginal relief makes the company's effective Corporation Tax rate roughly 20.8% on this profit, and stacking dividend tax on top wipes out the saving.
The point isn't that companies never win. Push profits higher, leave more inside the company instead of drawing it all out, or change how much salary you take, and the maths shifts. The point is that at a fairly typical associate income, the tax saving is small or non-existent, so it rarely justifies incorporating on its own. Want to model your own numbers? Start with our self-employed tax calculator and dividend tax calculator.
What happens to my NHS pension if I incorporate?
This is the deal-breaker for most associates, and it's why the tax comparison above is only half the story.
If you do NHS dentistry as a self-employed associate, you can be a member of the NHS Pension Scheme. You pay both the member and the employer elements of the contribution yourself, and HMRC treats both as relievable member contributions for tax, which is a genuinely valuable benefit (see HMRC's guidance on doctors' and dentists' superannuation).
Run that same NHS work through a limited company and you lose it. NHS Business Services Authority is clear that dental practitioners or performers who've set themselves up as a limited company cannot contribute to the NHS Pension Scheme. A company can't be a scheme member, and the NHS income routed through it can't be pensioned.
For an associate doing meaningful NHS work, that lost pension accrual and the employer contribution that comes with it can easily be worth more than any tax saving a company might deliver. In practice, this single point sends most NHS-heavy associates back to sole trader status.
What extra admin comes with a limited company?
A company isn't just a tax wrapper. It's a separate entity with its own legal duties, and the running costs and paperwork are real.
As a sole trader you keep business records and file one Self Assessment return a year.
As a company director you'll typically need to:
- File annual accounts with Companies House and a confirmation statement.
- Prepare and file a Company Tax Return and pay Corporation Tax.
- Run a payroll to pay yourself a salary, reporting it to HMRC in real time.
- Keep statutory registers and minute key decisions.
- File your own Self Assessment return on top, for salary and dividends.
None of that is hard with the right support, but it costs more in accountancy fees and takes more of your attention. That extra cost has to be set against any tax saving, which at typical associate profits often leaves little or nothing in it.
Can I use both a company and sole trader status?
Some dentists do split their work. They keep NHS performer income as a self-employed sole trader so it stays pensionable, and run separate private or non-clinical income through a company.
It can work, but it adds complexity. You'd be filing for two structures, keeping the income streams cleanly separated, and making sure nothing that should be pensionable NHS work ends up in the company by mistake. It only tends to make sense when the private side is large enough to justify the extra cost and admin. This is firmly a "get advice first" situation rather than a default move.
How do I decide whether to incorporate?
Work through these in order. The first two usually decide it before tax even enters the room.
- Do you do significant NHS work you want to pension? If yes, incorporating that income loses your NHS Pension Scheme membership. For most NHS associates, that alone settles it: stay a sole trader.
- Are your profits comfortably above the basic-rate band? Below roughly £50,000 of profit, there's usually little or no tax case for a company. The saving tends to appear, if at all, at higher profits where you don't need to draw everything out.
- Do you need to extract every penny, or can you leave funds in the company? Companies look better when you can retain profit rather than drawing it all as dividends each year.
- Are you comfortable with the extra admin and cost? Accounts, Corporation Tax, payroll and dividend paperwork all add up.
- Is most of your income private rather than NHS? A predominantly private associate has far more freedom to incorporate, because there's little or no NHS pension to protect.
If you answered "yes" to NHS pensioning, you're very likely better off as a sole trader. If you're a high-earning, mostly-private associate who can leave money in the business, a company is worth modelling properly.
Talk it through before you switch. Incorporating is easy to do and a pain to unwind, especially once your NHS pension is involved. Our dental accounting team will model your actual numbers, NHS and private, and tell you straight whether a company helps or hurts. Book a free call with a Zmartly accountant.
Frequently asked questions
Is it worth being a limited company as a dentist?
It depends on your profits and your NHS work. At typical associate earnings the tax saving is often small once Corporation Tax, dividend tax and employer's National Insurance are counted, and incorporating NHS income costs you your NHS pension. It tends to suit higher-earning, mostly-private associates who can leave profit in the company.
Will I lose my NHS pension if I trade through a limited company?
Yes, for the income you route through the company. NHS Business Services Authority confirms that dental performers operating as a limited company cannot contribute to the NHS Pension Scheme. A self-employed associate can be a scheme member; a company can't.
At what profit does incorporating start to make sense for a dentist?
There's no fixed figure, but below around £50,000 of profit there's usually little tax case for a company. Any saving tends to appear at higher profits, particularly where you can leave money in the company rather than drawing it all out. Even then, the NHS pension question often outweighs the tax.
What's the difference in tax between a sole trader and a limited company dentist?
A sole trader pays Income Tax and Class 4 National Insurance on profits. A company pays Corporation Tax, then you pay personal tax on the salary and dividends you take out, plus employer's National Insurance on salary. The two can be surprisingly close at typical associate income.
Can I keep my NHS work self-employed and run private work through a company?
Some dentists do exactly that, keeping pensionable NHS income as a sole trader and putting private income through a company. It adds admin and complexity, so it's worth getting advice before setting it up.
