It's the most common question we're asked — and the most commonly mis-sold answer in dental finance. Worked at 2026/27 rates, the company loses on money you take out and wins on money you leave in. The NHS pension then decides the rest.
Guide · Updated August 2026
The pitch is familiar. A limited company pays corporation tax at 19% on profits up to £50,000 and 25% above £250,000, with marginal relief in between, instead of income tax at up to 45% plus National Insurance. You take a small salary and the rest as dividends, which carry no National Insurance. Leave profit inside the company and personal tax waits.
Two things have quietly wrecked that pitch for associates who spend what they earn. Dividend tax rates rose by two percentage points on 6 April 2026 — the ordinary rate is now 10.75%, the upper rate 35.75% and the additional rate 39.35% — while the dividend allowance stayed at £500. And corporation tax in the marginal relief band between £50,000 and £250,000 bites at an effective 26.5% on each extra pound of profit.
Stack those two and the arithmetic is unforgiving. A higher-rate associate extracting a marginal pound of company profit as a dividend loses 26.5% to corporation tax, then 35.75% of what survives — a combined 52.8%. The same associate as a sole trader pays 40% income tax plus 2% Class 4 National Insurance: 42%. The company is more than ten points worse on every pound that leaves it.
Illustrative, using rates in force for the tax year beginning 6 April 2026. An associate with profit of £120,000 before tax, no other income, and no spouse in the business. She needs the money to live on, so she takes all of it.
As a sole trader. Her personal allowance is tapered — it falls by £1 for every £2 of income above £100,000, so at £120,000 it is £2,570 rather than £12,570. Taxable income is £117,430: £37,700 at 20% (£7,540) and £79,730 at 40% (£31,892), giving income tax of £39,432. Class 4 National Insurance adds 6% on the band from £12,570 to £50,270 (£2,262) and 2% above (£1,394.60), a further £3,656.60. She keeps £76,911.40.
Through a company. She takes a £12,570 salary; the company pays employer's National Insurance at 15% on the excess over the £5,000 secondary threshold, which is £1,135.50. (It cannot claim the £10,500 Employment Allowance — a company whose sole director is its only employee liable for secondary National Insurance is specifically excluded.) That leaves company profit of £106,294.50. Corporation tax with marginal relief is £24,418, an effective 23.0%. She draws the remaining £81,876 as dividends: £37,200 at 10.75% and £44,176 at 35.75%, a dividend tax bill of £19,792. She keeps £74,654.37.
The picture inverts the moment you stop extracting. Profit left inside the company is taxed once, at 26.5% in the marginal relief band. The same profit in a sole trader's hands is taxed at 42% — and at 62% between £100,000 and £125,140, where the personal allowance taper adds an effective 20 points on top of higher-rate tax and Class 4.
That is the whole case for incorporating, and it is a real one — but it only pays if you genuinely leave the money there. An associate who incorporates and then draws every pound has bought themselves paperwork and a worse tax rate. A company pension contribution is the other genuine win: it is deductible against corporation tax and carries no National Insurance, so profit can reach a personal pension without passing through the dividend rates at all.
This is where the dental answer diverges from the generic one, and it is not a matter of degree. NHSBSA is explicit: dental practitioners or performers who have set themselves up as a limited company cannot contribute to the NHS Pension Scheme. A performer who works at a practice through a company has not reduced their NHS pension — they have stopped building one on that income altogether. This has been the position since 7 November 2011.
What that costs is calculable, and it is usually larger than anything on the tax side.
Illustrative. An associate with £95,000 of NHS pensionable earnings in 2026/27 contributes at the top tier of 12.5% — £11,875. In exchange she banks £1,759 of guaranteed annual pension for life (the 2015 scheme accrual rate is 1/54th of that year's pensionable pay), revalued every 6 April at CPI plus 1.5% until she retires. Alongside her contribution, an employer contribution of 14.38% — £13,661 — is paid on her pensionable pay in 2026/27, with a further 9.4% met centrally by NHS England.
Incorporate and all of that stops. The £13,661 of employer money is not redirected to her; it simply is not paid. To match the £1,759 of index-linked, government-backed pension she would have banked in that single year, she has to fund it herself, out of income that has already been through corporation tax and dividend tax. Set that against a tax comparison that, on the figures above, is already negative, and the answer for a predominantly NHS associate is not close.
Notice what is missing from that list: a headline income figure. There is no threshold at which incorporation starts to work, because the variable that decides it is what you do with the money and what proportion of your earnings is NHS. Our 2026 review of the incorporation question works through the same arithmetic for practice owners.
You need last year's figures and about twenty minutes.
Get the associate agreement into the company's name — practices vary in whether they will contract with a company at all, and finding out after incorporation is the wrong order. Open a company bank account and keep it genuinely separate; money drawn without a dividend voucher or a payroll entry is a director's loan, and an overdrawn one attracts a section 455 charge if it is still outstanding nine months and a day after the year end. That charge tracks the dividend upper rate, so it rose with it: 35.75% on loans made on or after 6 April 2026, against 33.75% on loans made before that date.
Every director and person with significant control must also verify their identity with Companies House, including a shareholding spouse who has never attended a board meeting — the deadline is driven by your confirmation statement, not by the November 2026 backstop most people are watching. Our article on ID verification for dental companies sets out who is caught and when.
Then re-test it annually. Rates move, your NHS and private mix moves, and a structure that earned its keep in one year can quietly stop doing so in the next. If you are new to self-employment, start with our associate tax guide and what you can actually claim; for the other side of the scales, read the NHS pension guide.
Deadlines coming up, rule changes that affect dentists, and one number worth checking — once a month, no spam.
No. NHSBSA states plainly that dental practitioners or performers who have set themselves up as a limited company cannot contribute to the NHS Pension Scheme, a position that has applied since 7 November 2011. This is not a reduction in benefits — it is a full stop on that income. You forfeit both your own accrual of 1/54th of pensionable pay a year and the 14.38% employer contribution paid alongside it in 2026/27. On £95,000 of pensionable earnings that is £1,759 of guaranteed annual pension and £13,661 of employer money given up every year.
Not on money you take out. Dividend rates rose two points on 6 April 2026 to 10.75% and 35.75%, and corporation tax in the marginal relief band runs at an effective 26.5%. A higher-rate associate extracting company profit therefore loses 52.8% against a sole trader's 42%. On profits of £120,000 fully extracted, the company leaves you £2,257 a year worse off before extra accountancy fees. The saving now lives entirely in profit you retain, where the company pays 26.5% against a sole trader's 42%.
There is no income threshold, and anyone who quotes one is selling something. The two variables that decide it are what proportion of your earnings is NHS pensionable, and how much profit you will genuinely leave inside the company rather than spend. A wholly private associate who retains half her profit can win comfortably at £90,000, because retained profit is taxed at 26.5% instead of 42%. A predominantly NHS associate who draws everything she earns loses at £90,000, £120,000 and £160,000 alike, by £3,024, £2,257 and £3,797 respectively — before fees and before any pension is forfeited. Run the split before you run the income figure.
In principle yes, and for a mixed associate it is often the only version that makes sense — the private income gets the company treatment while your NHS performer income stays personal and pensionable. It has to be real rather than presentational: separate contracts, the practice's agreement to both arrangements, private fees genuinely paid to the company, and NHS income never routed through it. Get the paperwork wrong and you risk the NHS pension on the whole lot, which is the outcome the structure existed to avoid.
Annual accounts in statutory format, a corporation tax return, director payroll with real-time submissions, dividend vouchers and board minutes, a confirmation statement, Companies House identity verification for every director and person with significant control, and your personal tax return on top. Budget £1,200 to £2,000 a year more than sole trader compliance. There is also a discipline cost: company money is not your money, and drawing it without the paperwork creates a director's loan. Left outstanding more than nine months after the year end, that attracts a section 455 charge of 35.75% on loans made on or after 6 April 2026.
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