Choosing the Right Business Structure for a Dental Practice

Before you start thinking about tax planning, buying new dental equipment, or bringing new people onto your team, there’s one key decision every dentist has to make – choosing the right structure for your business.

Your business structure affects almost everything: how you pay tax, how much personal risk you take on, and how your income and profits are handled. It also shapes how banks, insurers, and potential buyers see your practice. Get it wrong, and you could face unnecessary tax bills or legal headaches later. Get it right, and you could save a lot of money and make future growth much smoother.

Most dentists choose one of four main structures:

• Sole trader – ideal for self-employed associates just starting out.
• Partnership – suitable when two or more dentists decide to run a practice together.
• Limited company – a separate legal entity that offers more protection and flexibility.
• Incorporation – when a sole trader or partnership becomes a limited company.

Each setup comes with its own tax rules, paperwork, and levels of liability. For example, a sole trader pays Income Tax and National Insurance on profits, while a limited company pays Corporation Tax and can be more tax-efficient by paying dividends.

Dentistry also has its own financial complexities – from managing NHS contracts and private income to handling capital expenses and pensions. That’s why choosing a structure that aligns with both your professional ambitions and personal circumstances is so important.

This guide explains each business type, compares their tax and liability differences, and helps you understand when incorporation might be the right move. Whether you’re an associate ready to grow or a practice owner planning for the long term, knowing your options will help you make confident, informed choices and keep your business financially secure.

Sole Trader

What It Means: Simple and Flexible, But Comes With Personal Risk

Starting out as a sole trader is often the easiest and most common route for dentists beginning their careers. In this setup, there’s no separation between you and your business – legally, you’re the same person.

Many self-employed dental associates working in NHS or private practices prefer this option because it’s quick to start and easy to manage. You stay in full control of your income, expenses, and business decisions without needing to register a company with Companies House.

All you need to do is register for Self Assessment with HMRC, keep a record of your income and expenses, and submit your tax return each year. There’s very little paperwork involved, and you can begin trading almost straightaway.

Tax Responsibilities

As a sole trader, you pay Income Tax and National Insurance on your profits – not your total income.

Income Tax (2025/2026 rates in England, Wales, and Northern Ireland):

• Personal Allowance: £12,570 – you don’t pay tax on this amount.
• Basic Rate: 20% on income between £12,571 and £50,270.
• Higher Rate: 40% on income between £50,271 and £125,140.
• Additional Rate: 45% on income above £125,140.

National Insurance Contributions (NICs):

• Class 2 NICs: £3.50 per week if profits exceed £6,725. (Note in many cases Class 2 is voluntary from April 2024 but may still be paid to protect state pension entitlement).
• Class 4 NICs: 8% on profits between £12,570 and £50,270, then 2% on profits above that.

You’ll report your income and pay taxes through HMRC’s Self Assessment system. The usual deadline for submitting your return and making payment is 31 January each year.

Unlike limited companies, sole traders don’t pay Corporation Tax or file accounts with Companies House, which keeps things simple. However, this also limits your ability to plan taxes efficiently as your profits grow.

Liability and Risk

Here’s the biggest drawback, as a sole trader, you have unlimited personal liability.

That means you’re personally responsible for any debts, legal issues, or financial losses your business faces.

If your dental practice runs into a dispute, unpaid bill, or legal claim, your personal assets including your home or savings could be at risk. You’re also accountable for any professional mistakes or compliance breaches.

Because dentistry involves expensive equipment, insurance, and strict regulations, this level of personal risk can be significant. That’s why many dentists start as sole traders but later switch to a limited company when their earnings and responsibilities increase.

Pros and Cons

Best Suited For

• New associates in NHS or private practices who want an easy setup.
• Self-employed dentists with moderate income and low expenses.
• Part-time practitioners or those testing the waters before opening their own practice.

Key Takeaway

Being a sole trader is ideal for dentists who want a simple and flexible start. However, as your income grows or your practice expands, it’s worth reviewing your structure. Moving to a limited company can offer better tax benefits and protect your personal assets a sensible step once your business begins to grow.

Partnership

How It Works: Shared Ownership and Shared Responsibility

A partnership is the next step up from being a sole trader. It’s when two or more dentists join forces to run a practice together, sharing profits, responsibilities, and key business decisions.

This setup is quite common in smaller dental practices, especially among colleagues, friends, or family members who trust each other and want to combine their skills and resources.

A partnership does not create a separate legal entity – the business and its partners are legally connected. Because of this, it’s highly recommended to have a written partnership agreement in place. This agreement should clearly set out:

• Each partner’s role and responsibilities
• How profits and losses will be shared
• The decision-making process
• What happens if a partner leaves, retires, or passes away

Without such an agreement, UK partnership law assumes all partners share profits and liabilities equally. This can lead to disagreements later if partners have different expectations.

Tax Structure

In a UK partnership, the business itself doesn’t pay tax. Instead, each partner pays tax on their share of the profits through their individual Self Assessment.

Here’s how it works:

1. The partnership submits a Partnership Tax Return (SA800) to HMRC.
2. Each partner then declares their share of the profits on their personal tax return.
3. Partners pay Income Tax and National Insurance Contributions (NICs) just like sole traders.

2025/26 Tax Rates:

• Income Tax: 20%, 40%, or 45%, depending on total income.
• National Insurance:
  • Class 2: £3.50 per week if profits exceed £6,725
  • Class 4: 8% on profits between £12,570 and £50,270, then 2% above that

This setup is straightforward, which is why partnerships remain a popular choice among dental professionals. However, profits are taxed personally, even if the money is kept in the business rather than withdrawn.

Liability and Risk

The biggest disadvantage of a partnership is shared liability.

All partners are jointly and individually responsible for the business’s debts and legal obligations. In practice, this means that if one partner makes a financial mistake or faces a legal issue, all partners can be held responsible, even if they were not directly involved.

For dentists, this can be risky. Problems such as CQC compliance issues, staff disputes, or lease disagreements could affect everyone in the partnership.

To reduce personal exposure, some dental teams choose to form a Limited Liability Partnership (LLP). This structure offers similar flexibility but limits personal liability. However, LLPs do involve more paperwork and higher compliance costs.

Pros and Cons

Best Suited For

• Small dental teams or colleagues who share mutual trust and goals
• Family-run practices looking for shared control and ownership
• Established associates planning to open a private practice together

The Importance of a Partnership Agreement

A strong partnership agreement is more than just formal paperwork, it’s essential protection. It should clearly outline:

• Each partner’s capital contribution and profit share
• Roles, working hours, and management duties
• Rules for adding or removing partners
• Terms for retirement, incapacity, or death
• A fair method for resolving disputes

Without this, disagreements or sudden exits can create major problems. A detailed, legally drafted agreement helps ensure fairness, stability, and continuity for the practice.

Key Takeaway

A partnership can be a great option for dentists who want to collaborate and combine expertise, but it also carries shared risks. It works best when there’s strong trust, good communication, and a clear written agreement.

Before setting up a partnership, it’s always wise to seek professional legal and financial advice. A well-prepared agreement can prevent future disputes and keep your dental practice running smoothly for years to come.

Limited Company

What It Means: Professional, Protected and Tax-Efficient

A limited company is a separate legal entity from you as an individual. It can earn money, own assets, take on contracts and debts, all in its own name. This separation means your personal finances are generally protected, one of the main reasons many dentists decide to incorporate their practices.

As a dentist, you usually act as both the director (responsible for running the company) and the shareholder (entitled to profits). This allows you to pay yourself through a combination of salary and dividends, which can often be more tax-efficient than being taxed as self-employed.

Setting up a limited company involves registering with Companies House, keeping accurate financial records and filing annual accounts. While it requires more paperwork, it also gives your practice a professional, trustworthy image, something that can make a big difference when applying for finance, signing leases or planning to sell the business in the future.

Tax Structure

The main financial benefit of running a limited company is how profits are taxed.

Corporation Tax (2025/26 UK rates):

• 19% on profits up to £50,000
• 25% on profits over £250,000
• A tapered rate between 19% and 25% for profits in between

These rates are often lower than the higher Income Tax rates paid by sole traders or partners (40% or 45%).

As a company director, you can take money out in two ways:

• Salary – taxed under PAYE, usually kept modest to reduce Income Tax and National Insurance.
• Dividends – paid from post-tax company profits, taxed at lower rates than salary.

Dividend Tax Rates (From April 2026):

• Basic-rate dividend tax increases from 8.75% → 10.75% (from 6 Apr 2026).
• Higher-rate dividend tax increases from 33.75% → 35.75% (from 6 Apr 2026).
• Additional-rate dividend tax remains 39.35%.

Using a blend of salary and dividends allows many practice owners to reduce their overall tax burden legally and effectively. This is one of the main attractions of incorporation for higher-earning dentists.

Liability and Risk

A key benefit of forming a limited company is limited liability.

Your personal assets, such as your home, savings or car are protected if the business faces financial problems. You’re only personally responsible for the amount you have invested in shares or guaranteed on business loans.

However, limited liability doesn’t cover everything. As a company director, you still have legal duties under the Companies Act 2006, which include:

• Submitting accurate annual accounts and confirmation statements.
• Paying Corporation Tax and other liabilities on time.
• Keeping proper accounting records.
• Acting responsibly and in the best interests of the company.

Failing to meet these obligations can lead to fines or, in serious cases, personal liability.

Advantages and Disadvantages

Best Suited For

• Established dental practice owners with profits above £60,000 to £70,000.
• Dentists expanding their operations, hiring staff or opening multiple clinics.
• Practitioners who want to protect personal assets while growing long-term business value.

Building a Professional Image

Incorporating a dental practice doesn’t just offer tax savings it also enhances credibility. Many banks, landlords and even patients see a limited company as more established and trustworthy.

It also makes future business plans easier, such as:

• Selling the practice (transferring shares is simpler than selling a sole trader business).
• Bringing in new partners or investors as shareholders.
• Passing ownership to family members in the future.

For dentists looking to expand, attract investment or grow across multiple locations, a limited company offers a secure and scalable structure.

Key Takeaway

Setting up a limited company gives you solid legal protection and can be highly tax-efficient, but it also comes with extra responsibility. It’s often the best choice for experienced or high-earning dentists who want to protect their personal finances and build a more sustainable business.

Before incorporating, speak to a specialist dental accountant to calculate potential tax savings and ensure compliance with Companies House and HMRC rules.

Choosing the right structure can make your dental practice stronger, more professional and better prepared for future growth.

Incorporation: When and Why to Take the Next Step

What Is Incorporation?

Incorporation means changing your dental business from a sole trader or partnership into a limited company. It’s an important milestone that changes how your practice is taxed, owned, and legally recognised.

Once incorporated, your business becomes its own legal entity. This means the company, not you personally, owns the assets, earns the income, and pays taxes. You’ll act as both the director (who runs the business) and a shareholder (who receives profits).

Many dentists choose to incorporate when their practice grows, their income increases, or their financial risk rises. It can make your business more tax-efficient, more secure, and more appealing to banks or potential buyers. However, choosing the right time to do it is crucial.

When Should Dentists Consider Incorporating?

Not every dentist needs to incorporate straight away. It becomes worthwhile when your business reaches a point where the potential tax savings and legal protection outweigh the extra administration involved.

Here are a few situations where incorporation is usually beneficial:

When profits increase

If your profits consistently exceed around £60,000 to £70,000 per year, you’re probably paying 40% Income Tax as a sole trader or partner. Running your practice as a limited company can lower your tax bill, since Corporation Tax (between 19% and 25%) is generally lower, and dividends are taxed more favourably than regular income.

When you’re expanding

If you plan to hire more staff, open another clinic, or invest in new equipment, incorporation can help reduce financial risk and make it easier to attract investors or bank funding.

When you want to protect personal assets

A growing practice brings greater responsibility and higher exposure to risks such as legal claims or debt. Incorporation protects your personal assets, as the company takes on the liability rather than you personally.

When planning for the future

If you’re considering selling your practice or adding partners, a limited company structure makes ownership transfers smoother. Shares can be sold or gifted without disrupting how the business runs.

When professional image matters

Many experienced dentists prefer the credibility that comes with a limited company. It reassures patients, suppliers, and lenders that your business is stable and professionally managed.

Tax Implications of Incorporation

While incorporation can reduce your tax burden in the long run, it’s important to handle the transition carefully. Here’s what to keep in mind:

Transferring Assets

When you move assets like equipment, goodwill, or property into your new company, HMRC treats it as if you sold them. This can trigger Capital Gains Tax (CGT) on any increase in value.

However, Incorporation Relief (under Section 162 of the Taxation of Chargeable Gains Act 1992) can defer CGT until you sell your shares in the company.

Goodwill Valuation

Goodwill refers to your practice’s reputation, patient list, and brand value. It’s vital to value this correctly, as it can affect both tax reliefs and future profits. A dental accountant who understands HMRC’s rules can help with this.

Corporation Tax

After incorporation, your profits are subject to Corporation Tax (currently 19% to 25%), which is usually lower than higher-rate Income Tax.

VAT and Payroll

If your previous business was VAT-registered, you’ll need to register again under the new company name. The same applies to PAYE – your payroll must be transferred or re-registered.

Benefits of Incorporating at the Right Time

How to Incorporate Your Dental Practice

The process of incorporating involves several steps:

1. Register your new company with Companies House (you’ll receive a Certificate of Incorporation).
2. Transfer all business assets to the company at market value.
3. Register for Corporation Tax with HMRC within three months.
4. Open a new business bank account in the company’s name.
5. Notify suppliers, landlords, and the NHS (if relevant) about the change.
6. Close your old Self Assessment account once your final tax returns are submitted.

Because this process affects tax, ownership, and legal obligations, it’s important to get professional guidance. Errors in valuation or timing can result in unexpected tax bills or compliance problems.

Possible Drawbacks to Consider

While incorporation brings many advantages, it also comes with added responsibilities:

• More paperwork and costs – You’ll need to file annual accounts and confirmation statements with Companies House.
• Professional advice required – Accountants or solicitors may be needed to handle valuations and setup.
• Less flexibility with profits – You can’t freely withdraw company money; income must come through salary or dividends.
• Capital Gains Tax risk – If Incorporation Relief doesn’t apply, you could face CGT on transferred assets.
• Timing complications – Incorporating mid-year can create overlap in your accounting and tax reporting.

Always base your decision on your profit levels, long-term plans, and risk tolerance not just the potential for lower taxes.

Key Takeaway

Incorporation can be one of the most beneficial financial decisions for a dentist but only if done for the right reasons and at the right time.

If your profits are rising, your practice is growing, or your financial risk is increasing, switching to a limited company can bring both tax savings and peace of mind.

Before taking the leap:

• Review your current and projected profits.
• Seek advice from a dental accountant.
• Understand the full tax and legal impact.

With proper planning, incorporation can turn your dental business into a secure, scalable, and professional operation setting you up for long-term success.

Tax and Liability Made Simple

Choosing how to structure your dental business is not just a formality it directly impacts your taxes, record-keeping, and how much personal risk you carry.

Here’s a clear comparison of the main business types used by UK dentists. It highlights how each structure works, the taxes involved, and which type of dentist it best suits.

Quick Comparison Table

Understanding the Tax Differences

Sole Trader and Partnership

As a sole trader or partner, you pay Income Tax on profits after allowable expenses through Self Assessment.

• You move into the 40% tax band once your income exceeds £50,270.
• You also pay National Insurance (Class 2 and 4), adding roughly 9% on mid-level profits.

Pro: Straightforward to manage and report.
Con: No flexibility – all profits are taxed immediately, even if you leave them in the business.

Example:

If your practice makes £100,000 in profit, you could pay around £33,000 to £35,000 in tax and National Insurance.

Limited Company

A limited company pays Corporation Tax on profits before you take your income. You can then draw a small salary (under the NIC threshold) and take the rest as dividends, which are taxed at lower rates.

Pro: Often more tax-efficient once profits exceed £60,000–£70,000.
Con: More administration and higher accountancy costs.

Example:

If your dental practice earns £100,000 profit:

• As a sole trader, total tax could be £33,000–£35,000.
• As a limited company, combined Corporation Tax and dividend tax may be £25,000–£27,000.
  That’s a saving of several thousand pounds per year.

Incorporation

Incorporation means switching from being a sole trader or partnership to a limited company. Once incorporated, you’ll pay Corporation Tax instead of Income Tax.

However, transferring business assets (like equipment or goodwill) can trigger Capital Gains Tax (CGT). With the right advice, you may qualify for Incorporation Relief, which delays or reduces this tax until you sell your company shares.

Liability and Legal Protection

Your business structure also decides how much personal risk you face if things go wrong.

In short:
If your business is growing and your financial exposure is increasing, moving to a limited company gives you stronger protection and peace of mind.

Administration and Compliance

Each structure comes with different levels of paperwork and reporting:

If you hold NHS contracts, you must also inform NHS England or Scotland about any change in your business structure so your contracts, pensions, and provider numbers remain valid.

Practical Guidance on Business Structures for Dentists

Here’s a simple way to decide which structure fits your career stage:

Each structure has a role to play in your dental career:

Key Takeaway

• Begin as a sole trader if you’re starting out or working part-time.
• Move into a partnership if you’re teaming up with other dentists.
• Transition to a limited company once profits and responsibilities grow.

There’s no single answer that fits everyone, but reviewing your setup regularly with a specialist dental accountant ensures you’re making the most of tax benefits while protecting your assets.

As your practice develops, your business structure should evolve too helping you save tax, reduce risk, and build a secure foundation for the future.

Making the Right Choice

Why Your Business Structure Needs Careful Thought

For dentists, choosing a business structure is far more than a legal formality. It’s a financial decision that can affect your tax bill, your personal liability, and even how easily you can expand, sell, or hand over your practice in the future.

Your ideal setup depends on several key factors:

• The stage of your dental career – are you just starting out, or already managing multiple clinics?
• The income and profits you’re currently generating.
• How much personal financial risk you’re willing to take.
• The level of administration you’re comfortable with.
• Your long-term goals – whether that’s growth, partnership, or retirement.

Getting this choice right from the start can save you time, money, and future headaches. But remember, your first decision doesn’t have to be permanent. As your practice evolves, your structure can change too.

Key Factors to Consider

Tax Efficiency

If you’re paying higher-rate Income Tax (40% or 45%) as a sole trader, becoming a limited company might help you save on tax. This can be done by taking a mix of salary, dividends, and pension contributions.
However, if your profits are relatively small, the extra admin costs of running a company might not be worth it.

Risk and Liability

Dentistry naturally comes with risks, from patient complaints to expensive leases on dental equipment.
A limited company can help protect your personal assets by separating them from your business liabilities.

Administrative Burden

Limited companies must handle more paperwork, such as annual accounts, Corporation Tax returns, and Companies House filings.

If you want to keep things simple, you might prefer to remain a sole trader or form a partnership, at least in your early years.

Growth Potential

If you plan to grow your team, open new locations, or attract investors, incorporating can make it easier to expand and transfer ownership later.

Professional and Public Image

An incorporated practice often appears more established and credible which can make a difference to patients, banks, and potential buyers.

The Role of Specialist Advice

The UK tax system for healthcare professionals can be tricky, especially with NHS contracts, pension schemes, and practice valuations.

That’s why it helps to have a specialist dental accountant who can:

• Compare how different structures affect your tax now and in future.
• Calculate potential savings and admin costs.
• Handle incorporation correctly to avoid Capital Gains Tax issues.
• Advise on VAT registration, payroll setup, and pension planning.

Think of your accountant as your “financial treatment planner” someone who diagnoses your situation and prescribes the best business structure for your needs.

When to Review Your Structure

Your business structure shouldn’t be a once-and-done decision. Dentists should review it:

• Every 2 to 3 years, or after a big jump in income.
• When expanding, hiring, or buying new equipment.
• When forming partnerships or purchasing new practices.
• Before selling or retiring, to ensure a smooth and tax-efficient exit.

As your practice and life change, your structure should adapt too.

Final Thought

Your business structure is more than just paperwork, it’s the foundation of your financial wellbeing as a dentist.
The right setup offers:

• Better tax efficiency.
• Legal protection.
• Flexibility to grow or exit smoothly.

Just as every patient’s treatment plan is unique, your business structure should suit your goals, finances, and risk level.

Before making any big changes, speak to a qualified dental accountant who understands both the numbers and the dental industry. With expert advice, your structure will support your practice today and set you up for future success.

Key Takeaway:

Your business structure should grow with your career. Start simple, adapt as you expand, and always protect yourself financially. With the right professional guidance, you’ll stay strong – legally, financially, and professionally.

Need Professional Help Choosing the Right Business Structure?

Choosing whether to remain a sole trader, start a partnership, or turn your dental practice into a limited company is a big step. It’s not just about paperwork, it affects your taxes, profits, and how your business can grow in the future.

At Samera, we work closely with dentists to help them set up the most suitable business structure, safeguard their assets, and plan confidently for what lies ahead.

Our team of dental accounting specialists understands the specific tax rules, NHS contract details, and compliance challenges that dental professionals face. Whether you’re opening your first clinic or expanding an existing one, we’ll explain your options clearly and guide you towards the structure that suits your goals and circumstances.

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About the Author

Neha Jain

Neha Jain is a skilled content writer with a rich background in business and financial knowledge. With a bachelor’s degree in English Literature and Psychology, Neha has honed her writing skills, furthering her expertise with the Content Writing Master Course (CWMC) at IIM SKILLS and a Content Marketing Certification from HubSpot Academy.

Working alongside our business development experts, Neha specialises in helping accountants, dentists and other healthcare professionals start, scale and sell their businesses.

Read more of Neha’s articles.

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Reviewed by:

Arun Mehra

Samera Founder & CEO

Arun, founder and CEO of Samera, is an experienced accountant and dental practice owner. He specialises in accountancy, building businesses, financial directorship, squat practices and practice management.

Follow Arun on LinkedIn.