Sole Trader, Partnership, or Limited Company: Choosing the Right Structure for Your Dental Practice

The structure you operate through shapes almost everything about how your practice is taxed, how much personal risk you carry, and how clean an eventual sale or handover would be. Most dentists end up in the wrong structure for their income level not through bad decision-making but simply because they started somewhere sensible and never revisited it.

This article covers the four main options, when each makes sense, and what you need to know before making any change. It is part of our broader guide to dental accounting and tax. If you want the full picture first, start there.

What this article covers

• How sole trader, partnership, LLP, and limited company actually work for a UK dentist
• The company director rule under the Dentist Act 1984 that catches out practices using a generalist accountant
• What genuinely changes when you incorporate, and what doesn’t
• How incorporating can affect your NHS contract and pension arrangements

Sole trader: the starting point for most dentists

How it works

No legal separation between you and your business. You register for Self Assessment with HMRC, keep records of income and expenses, and submit a tax return each year. Minimal paperwork involved and you can begin trading almost immediately after registering.

You pay Income Tax and National Insurance on your profits, not on your total income. Deducting legitimate business expenses from your earnings reduces the profit figure that tax is calculated on. For current Income Tax and National Insurance rates, check the HMRC website directly. These change with each Budget.

Check the current Income Tax rates.

The main drawback

Unlimited personal liability. If the business faces financial difficulties, a legal claim, or a compliance problem, your personal assets are at risk. That includes your home and savings. This is manageable when you are starting out as an associate with modest assets. It becomes a real concern as the practice and your financial exposure grow.

Sole Trader at a Glance

Best suited to: new associates and part-time practitioners wanting a simple starting point. Worth reviewing once income grows significantly or once you start taking on staff.

Partnership: sharing ownership and its consequences

How it works

Two or more dentists running a practice together. The partnership itself does not pay tax. Each partner declares their share of profits on their own Self Assessment return and pays Income Tax and National Insurance accordingly. A Partnership Tax Return goes to HMRC separately each year.

The joint liability problem

Every partner is personally responsible for the debts and obligations of the whole partnership, not just their own share. If one partner makes a costly mistake or faces a legal claim, all partners are potentially exposed. For dental practices involving expensive equipment, regulatory obligations, and patient complaints, that shared exposure is worth taking seriously.

The LLP alternative

Some dental teams choose a Limited Liability Partnership instead of a standard partnership. An LLP gives each partner limited personal liability for the actions of the other partners, while the tax treatment stays similar to a partnership. The compliance requirements are higher than for a standard partnership but the liability protection can make it worthwhile where the shared exposure concern is material.

The partnership agreement is not optional

Whether you form a standard partnership or an LLP, a written agreement is essential. It needs to cover how profits and losses are shared, each partner’s responsibilities, what happens if someone wants to leave or cannot work, and how disputes are resolved. Without one, UK partnership law applies default rules that almost certainly do not reflect what the partners actually agreed or intended.

Partnership at a Glance

Best suited to: small dental teams with strong mutual trust. Legal advice before setting up is strongly recommended.

Limited company: protection and tax efficiency

What changes

A limited company is a separate legal entity. It can own assets, enter contracts, and pay tax in its own name. Your personal finances are generally protected from business debts and claims. As a dentist running a limited company, you are typically both director and shareholder, which lets you take income as a combination of salary and dividends. That combination is usually more tax-efficient than being taxed entirely as self-employed, particularly once profits reach the point where higher-rate Income Tax consistently applies.

The dental-specific rule most people miss

Here is something a generalist accountant frequently gets wrong when setting up a limited company for a dental practice. Arun Mehra, CEO of Samera, raised this directly in a client meeting the morning this article was being written:

“Time and time again, we see people where they’ve set up a company with a generalist accountant and one director is a dentist and one director is not. That is actually wrong. You cannot do that under the Dentist Act 1984. The majority of the directors have to be on the GDC register, effectively a dentist, dental nurse, or hygienist. And there are many, many companies out there trading with a spouse who’s a dentist and another spouse who’s not. The GDC can fine you up to £5,000 just for that little error.”

Arun Mehra
Samera Founder & CEO

How the tax works

The company pays Corporation Tax on its profits. You then pay tax on what you take out, whether as salary through PAYE or as dividends. The combined tax burden is typically lower than paying higher-rate Income Tax as a sole trader. From April 2026, dividend tax rates are scheduled to increase, which changes the salary-versus-dividend calculation. Review this annually with your accountant rather than setting it once and leaving it.

Corporation Tax rates: gov.uk

Dividend Tax rates: gov.uk

What running a limited company requires

More administration than a sole trader setup. Annual accounts filed at Companies House. A Corporation Tax return each year. A confirmation statement. Directors have legal duties under the Companies Act 2006, filing accurately, paying tax on time, keeping proper records, acting in the company’s interests. Accounting costs are higher, but for established practices with meaningful profits the tax savings typically outweigh them.

Limited Company at a Glance

Best suited to: established practice owners with profits consistently attracting higher-rate Income Tax. The timing and process of incorporation matter, see below.

Comparing the Structures

Structures summary:

Liability Summary:

The Right Structure for You

A worked tax example (illustrative only – always check current rates)

Say your practice makes £100,000 profit in a year. As a sole trader, that profit is taxed entirely through Income Tax and National Insurance. As a limited company, the same profit is split between Corporation Tax on what the company keeps, and dividend or salary tax on what you draw out personally – typically landing at a lower combined figure once profits reach this level.

The exact gap depends on the tax year, your salary/dividend split, and your personal circumstances – it can be several thousand pounds either way, and it narrows as dividend tax rates rise. This example is illustrative only, based on current bands at the time of writing. Model your own numbers with a specialist accountant before deciding – don’t rely on a figure from an article that may be a tax year or two old by the time you read it.

For current Income Tax, Corporation Tax, NI, and dividend tax rates, check the HMRC website directly. These change with each Budget and figures in articles can go out of date.

Tax rates and allowances: gov.uk

When a structure goes wrong: a real example

“I had a call with a client literally this very morning. They hadn’t structured it right. They had a holding company above their existing company and then got a loan in their personal name, which they loaned to the dental clinic. That had a knock-on effect when they had to refinance, they ended up suffering something called Section 455 tax, which was completely unexpected. It created quite a big cash flow issue. That is a common problem and it always comes from the structure not being set up correctly from the start.”

Arun Mehra
Samera Founder & CEO

Incorporating an existing practice

What it involves

Incorporation converts an existing sole trader or partnership into a limited company. All business assets transfer to the company. HMRC treats this as a disposal, which can trigger Capital Gains Tax on any increase in value. Incorporation Relief under Section 162 of the Taxation of Chargeable Gains Act 1992 can defer this CGT until shares are eventually sold, provided qualifying conditions are met.

Goodwill needs a proper valuation, not a guess

Goodwill – your practice’s patient list, reputation, and brand value – transfers to the company as part of incorporation, and it has to be valued correctly. Undervalue it and you risk missing legitimate relief; overvalue it and you risk an inflated CGT bill or an HMRC challenge. This is specialist territory – a dental accountant familiar with HMRC’s approach to goodwill in dental practices should handle the valuation, not a generalist.

Why an incorporation assessment matters

Natasha Gnanapragasam, Director of Operations, Accountancy and Tax at Samera, on why the decision cannot be made casually:

“Incorporation is a big decision. Before, it was more straightforward because the tax savings were clearer. But now the rules have changed, taxes have increased, everything has shifted. So what we do is highly recommend that associate dentists, before they incorporate, do a proper incorporation assessment. So they know exactly what they’re going to face afterwards. No surprises. Because some of them just come to us and say ‘I want to incorporate’ without realising what’s going to happen once they do. The assessment puts them in a much better position.”

Natasha Gnanapragasam
Director of Operations

When to think about incorporating

• Profits are consistently attracting higher-rate Income Tax as a sole trader.
• Personal asset protection has become genuinely important as the practice takes on more risk.
• You are planning to expand, hire more staff, or open additional locations.
• You want a cleaner structure for an eventual sale or for bringing in a co-owner.
• More efficient use of employer pension contributions is a priority.

Steps involved in incorporation

• Register the new company with Companies House and receive the Certificate of Incorporation.
• Transfer all business assets to the company at market value.
• Register for Corporation Tax with HMRC within three months.
• Open a business bank account in the company name.
• Notify NHS England, suppliers, and landlords of the change.
• Re-register for VAT under the new company name if your previous business was VAT-registered.
• Transfer or re-register PAYE and payroll under the company before running your first payslip through it.
• Close the old Self Assessment account once final personal returns are submitted.

Register a company: Companies House

NHS contracts and what dentists typically do not know

This is the part of incorporation that gets overlooked most often. Arun on what NHS dental clients typically do not know when this question comes up:

“The big thing they don’t know is that incorporating could potentially lead to them having to renegotiate the contract value with the local area team, because it could be seen as a fundamental change to the contract. This is why we always say get a lawyer involved early in the process, because they’ll understand the contract implications. Tax-wise it might be better to incorporate. But if they lose the contract or it gets renegotiated, it may not be worth doing it at all. That’s what they typically don’t know going in.”

Arun Mehra
Samera Founder & CEO

NHS contract information: NHS England

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.

Business Structure FAQs

Glossary

• LLP (Limited Liability Partnership): A partnership where each partner is protected from the others’ mistakes, unlike a standard partnership where one partner’s error can expose everyone.
• Section 455 tax: An unexpected Corporation Tax charge that can hit when a director borrows from their own company through a loan structured incorrectly – the kind of thing that creates a real cash flow problem if nobody saw it coming.
• Incorporation Relief: The relief that lets you defer Capital Gains Tax when you transfer your practice’s assets into a company, rather than paying it immediately at the point of transfer.
• Goodwill: Your practice’s patient list, reputation, and brand value – one of the assets that transfers to the company on incorporation, and one of the hardest to value correctly.
• Dentist Act 1984: The law behind the director rule most generalist accountants miss – the majority of a dental company’s directors must be GDC-registered.
• GDC (General Dental Council): The regulator that can fine a dental company up to £5,000 for having the wrong mix of directors.
• Confirmation statement: The annual filing to Companies House that comes with running a limited company, alongside your accounts and Corporation Tax return.