Private Practice as a Sole Trader or Through a Limited Company: How to Choose

For most doctors starting private work, stay a sole trader until the money has a job other than being spent. At 2026/27 rates the company pays corporation tax at 19% on profits up to £50,000 and 25% above £250,000 with marginal relief between, and taking that profit out costs dividend tax at 10.75%, 35.75% or 39.35% after a £500 allowance. The same profit taken personally costs income tax at 20%, 40% or 45% above £125,140, plus Class 4 National Insurance at 6% and 2%. The dividend rise on 6 April 2026 narrowed the gap, so drawing everything out of a company saves little. Incorporate when you can retain profit, split shares genuinely, or keep private income out of pensionable pay.

Which structure actually costs less in 2026/27?

Neither, on headline rates alone. The table sets out what each structure charges on the same slice of private profit.

	Sole trader	Limited company
Tax on the profit	Income tax 20%, 40%, 45% above £125,140	Corporation tax 19% to £50,000, 25% above £250,000, marginal relief between
National Insurance	Class 4 at 6% to £50,270, then 2%	None on dividends; employer NIC at 15% above the £5,000 secondary threshold on any salary
Cost of getting the money out	None, the profit is already yours	Dividend tax 10.75%, 35.75%, 39.35% after a £500 allowance
Profit left undrawn	Taxed in full anyway	Taxed once at the corporation tax rate until you draw it
Running cost	Self Assessment only	Accounts, confirmation statement, company tax return, payroll, dividend paperwork

The fourth row is where the real difference sits: a sole trader is taxed on profit whether or not it is spent. A company is not, so money you leave in the business is taxed once at 19% or 25% rather than at your marginal rate. Draw all of it every year and that advantage disappears. GP limited company tax benefits and drawbacks sets the two structures side by side, and the private practice incorporation calculator runs both routes on your own figures.

What does incorporating cost you in NHS pension?

It costs you the accrual on any income that would otherwise have been pensioned, and for a GP that number is often larger than the tax saving. Income routed through a company and taken as dividends is not NHS-pensionable. Accrual in the 2015 section is 1/54th of each year's pensionable earnings, revalued at CPI plus 1.5% while you remain an active member. So every £1,000 of otherwise-pensionable income taken as dividends instead gives up £18.52 a year of pension, payable for life and index-linked. On £30,000 of solo income that is £555.56 a year, for every year you do it.

Which side you sit on depends on your role. A hospital consultant pensions only the NHS employment, so private work was never pensionable and the pension line is zero. A GP with solo, locum or practice-derived income pensions it through the practitioner routes, so the loss is real and calculable. For some doctors that loss is the objective: a high earner already at or over the £60,000 annual allowance for 2026/27, or caught by the taper, may want private income held outside pensionable pay on purpose.

Can any of your NHS work go through the company?

No, and this is the boundary that governs the whole decision. An NHS GMS contract can be held by a company limited by shares, but only where at least one share is legally and beneficially owned by a medical practitioner and every other shareholder is a qualifying person under NHS Act 2006 s.86(3). An ordinary personal service company, or any company with an outside shareholder, does not meet those conditions. PMS agreements are made under a separate provision with the detail left to regulations.

What can move is private and non-NHS work: private consultations and self-pay clinics, insurance medicals, medico-legal work, occupational health, cosmetic clinics, and private locum work outside IR35. Your GMC registration, your licence to practise and a GP's entry on the NHS England Performers List are personal to you and do not transfer. Private practice tax on NHS and private income covers how the two sides sit alongside each other.

Does IR35 change the answer?

It removes the advantage entirely on any engagement caught by it. Where the hirer is an NHS trust or another public body, or a medium or large private hospital, the hirer determines your status and the fee-payer deducts PAYE and National Insurance before the money reaches your company. That income has already been taxed as employment, so routing it through a company gains nothing while still costing you the running expenses. Only a small private client leaves the status decision with your own company. A locum across several hirers can hold a mix of determinations, so count the outside-IR35 share first.

How do you make the switch if the numbers say yes?

In eight steps, three of which are medical and have to be settled before the company sees a patient.

1. Plan the structure and the dates. Directors, shareholders, share classes, and whether a family member holds shares with genuine commercial substance. Pick the transfer date and the year-end together, because the first fixes the capital gains position and the second fixes every filing date after it.
2. Form the company. Identity verification is required for every director and person with significant control and produces the personal code needed to file. Registering online costs £100 and is usually done within 24 hours. Note that "NHS" is a sensitive expression in the name rules.
3. Transfer the private business. The trade, its equipment and any transferable private goodwill move under a written agreement. Where there is chargeable private goodwill, section 162 incorporation relief can defer the gain, but for a transfer on or after 6 April 2026 it must be claimed rather than applying automatically. A GP cannot transfer NHS goodwill at all.
4. Settle indemnity, regulation and contracts. Ask your defence organisation in writing whether your cover extends to work billed through the company, and novate or assign practising privileges, room hire, leases and equipment finance.
5. Open a company bank account and keep company money separate from personal money from day one.
6. Tell HMRC the company is active within three months of the start of its tax accounting period.
7. Register for VAT only if standard-rated work requires it, which for a doctor means cosmetic, medico-legal or some occupational-health work, never genuine medical care.
8. Set up payroll and plan extraction. How you split what you take is worked through on salary and dividends in a medical limited company.

Which route fits you?

Stay a sole trader if your private profit is modest, you draw all of it, most of your locum work is inside IR35, or you are a GP still pensioning that income and want the accrual. Incorporate if you can leave profit in the company, a spouse can hold shares on genuine commercial terms, you want limited liability across a growing clinic, or you are managing an annual allowance taper and want private income outside pensionable pay. Have both routes costed by an accountant who works with doctors, with the pension loss priced in. This guide is general information rather than a personal recommendation.