For years, setting up a limited company was almost a default recommendation for dental associates. Corporation tax was relatively low, taking money out as dividends was taxed more lightly than salary, and there was a generous tax break available when you eventually sold the business.
So, if you are a private dental associate earning around £100,000 and taking almost all of it out to live on, is a limited company still worth the extra administration?
Increasingly, the honest answer is: not necessarily
First, three terms worth knowing
Sole trader means you work in your own name. The profit your dental practice generates is simply your income, and you pay Income Tax and National Insurance on it.
Limited company means you set up a separate company that does the work and receives the fees. The company pays Corporation Tax on its profits. You then take money out of the company, usually a small salary plus dividends, and pay personal tax on that too. There are two layers of tax, not one.
Business Asset Disposal Relief (BADR) is a tax break that can reduce the Capital Gains Tax payable when you dispose of genuine business assets or shares in a qualifying business. From 6 April 2026, the rate is 18% on qualifying gains, subject to the £1 million lifetime limit and the relevant qualifying conditions.
What changed in April 2026?
Two changes matter most.
Firstly, dividend tax rates increased by a further two percentage points for basic and higher-rate taxpayers. Secondly, the amount of dividend income you can receive tax-free is now just £500.
The headline rates for 2026/27 are:
- Dividend tax: 10.75% basic rate, 35.75% higher rate, 39.35% additional rate.
- Corporation tax: 19% on profits under £50,000, 25% above £250,000, with a sliding scale in between.
- Employer National Insurance: 15% on salary above £5,000.
- Class 4 National Insurance for sole traders: 6% between £12,570 and £50,270, then 2% above that.
Corporation tax is only the first bite
The comparison: £100,000 of profit
| Sole trader | Limited company | |
|---|---|---|
| Profit before tax | £100,000 | £100,00 |
| Salary paid to you | - | £12,570 |
| Employer National Insurance | - | £1,136 |
| Corporation tax | - | £19,118 |
| Income tax | 27,432 | None |
On these assumptions, the limited company leaves the associate roughly £4,100 worse off.
And that is before a single accountancy fee. Add the cost of running a company (accounts, payroll, corporation tax returns, confirmation statements, the extra administration) and the gap widens further.
One technical note: at exactly £100,000 of income, the Personal Allowance is still fully available. This example avoids the tapering that starts to bite above that figure. Earn much more and the sums change again.
So why would anyone incorporate?
Because the comparison above rests on one big assumption: that you take every penny out.
Change that assumption and the picture changes.
If you genuinely don’t need all your profit to live on, a limited company lets you leave the surplus money in the company after Corporation Tax, rather than paying dividend tax immediately when you take it out.
For an associate earning £100,000 who needs £60,000 or £70,000 to fund their lifestyle, that retained money could go towards:
- A deposit for buying into a dental practice.
- Expanding the business.
- Building an investment portfolio.
- Equipment or other business assets.
The important caveat is that this is generally a tax delay, not a tax escape. The money will usually face Personal Tax eventually. Deferring that tax while the capital remains invested or is used to grow the business can be genuinely valuable over a number of years.
What about pension contributions?
A company can pay pension contributions for its director, and those contributions are generally deductible against company profits. That is a real advantage, but it is often overstated.
A sole trader can also pay into a pension and get valuable tax relief. For a higher-rate taxpayer, that relief is substantial, and pension contributions can also help with the Personal Allowance taper above £100,000.
So the right question is not “can my company pay into a pension?”
It is “which structure gives me the better overall outcome once pensions and tax are both taken into account?”
If you have NHS work, there is an important extra step.
You need to check how much of your annual allowance, the cap on how much can go into pensions each year with tax relief, has already been used up by your NHS pension before making company contributions.
The interaction between NHS pension benefits, annual allowance and private pension contributions can be complex. Getting this wrong is expensive, so specialist advice is important before making significant contributions.
The exit strategy matters too
BADR has not gone away, but nothing is guaranteed. At 18% on qualifying sales against a main rate of 24%, it can still make selling a genuine business attractive.
There is a crucial distinction here, though, and it catches people out. Selling a business is not the same as taking cash out of a company. If you have simply accumulated cash inside a company, the existence of an 18% BADR rate does not automatically mean you can extract that cash at 18%.
The relief applies to qualifying disposals, and specific conditions need to be met. If you expect to buy into a practice, build a substantial private business, or ultimately sell something a buyer genuinely wants, incorporation may be worth more than the annual arithmetic suggests. If the company is effectively just a cash box for receiving fees and building up cash that you ultimately intend to extract personally, the position is very different.
If you have NHS work, your pension may decide the answer
For a dental associate with meaningful NHS income, the NHS pension is likely to be more important than the difference between the Corporation Tax and Personal Tax rates.
NHS income routed through a company can affect what counts as pensionable. Giving up valuable NHS pension benefits to chase a modest tax saving is a poor trade. It is not usually possible to contribute to the NHS pension if your income has been channelled into a company.
This is why the private-versus-NHS split is fundamental
An associate earning £100,000 entirely privately is in a completely different position from one earning £100,000 with a large NHS component. For the second, the question is not “sole trader or limited company?” but “how does any tax saving compare with the value of the NHS pension benefits I would be giving up?”
Already incorporated? Do not assume you should stay that way
If you already have a limited company, the answer is not automatically to close it. It means it is worth reviewing whether the structure is still doing what you need it to do.
Three questions get you most of the way:
1. How much are you actually taking out?
If you are extracting virtually every pound of profit, the company may now be costing you money rather than saving you tax.
2. Is the retained profit doing a job?
Money deliberately being built up towards a practice purchase or an investment plan is very different from cash sitting idle in a business account.
3. What is the eventual exit?
If you expect to sell a real business, BADR may be relevant. If the company just holds accumulated cash, the extraction and exit analysis is very different.
The bottom line
For a private dental associate earning £100,000 and taking everything out, the traditional case for incorporation is much weaker than it used to be.
That does not mean every associate should close their company.
Incorporation can still make good sense where:
- Profits are genuinely retained.
- There is a credible plan to build or buy a business.
- Pension contributions are being used effectively.
- There is a credible long-term exit strategy.
For associates with NHS income, the pension position may settle on its own.
The real point is this
Do not incorporate because someone told you dental associates should operate through a limited company. And equally, do not stay incorporated simply because it once saved you tax.
Your structure should be reviewed against your current income, how much you draw, your pension position, your investment plans and your longer-term goals.
The question is no longer “is a limited company worth it?” It is “is this still the most efficient way for me to earn, retain, invest and eventually extract my wealth?”
Where to start
If you want to test your own position, it helps to have three things to hand before the conversation:
- Your profit for the year, and roughly how much of it you actually drew out.
- The split between your private and NHS income.
- Where you expect to be in five to ten years – employed, practice owner, or winding down.
Those three answers will tell you more than any calculator. Your specialist financial adviser at Legal & Medical, working alongside your specialist accountant, can help you assess the wider picture.
If you would like to discuss your options, we are here to help.
Are you a dental associate, now questioning if you should stay incorporated? Let us know by adding a comment below.
Tax treatment depends on your own circumstances and personal situation and is subject to change based on UK legislation and the taxation regime. This article is based on our understanding of current legislation and does not constitute personal advice.