Sole trader against a limited company on 2026/27 rates — including the dividend rise that took effect on 6 April 2026 and the associated companies divisor that most comparisons leave out. It shows what changes when you retain profit rather than draw it.
The profit the owner lives on: before drawings, before any director's salary, after every other cost.
£12,570 keeps the salary inside both the personal allowance and the employee National Insurance primary threshold, which is the usual starting point. Raise it to see the trade-off against dividends.
Other companies under common control — a property company holding the premises, a second practice company, a locum company. The corporation tax limits are divided by one plus this number.
A company's advantage is concentrated in retained profit, so this choice changes the answer more than the profit figure does.
Illustrative figures on 2026/27 rates and simplified assumptions. This is information, not advice, and it is no substitute for a proper calculation on your practice's real numbers. Ask us for the accurate version — it's free.
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A sole trade or partnership is transparent. The business pays no tax of its own and you are taxed personally on the whole profit whether you take it out or leave it in, at income tax rates of 20%, 40% and 45% plus Class 4 National Insurance at 6% and then 2%. A company is opaque. It pays corporation tax on its own profit first, and the money only reaches you when it is extracted as salary or dividends, each taxed again in your hands.
That is the whole difference, and it produces the whole answer. Corporation tax is 19% on profits up to £50,000 and 25% over £250,000, with marginal relief between the two at a 3/200 standard fraction — an effective 26.5% on every pound in that band. So profit left inside a company has borne between 19% and 26.5% and no more, where an unincorporated practice would have paid up to 47% on it before it could be reinvested. If you draw everything each year, the company adds a layer of tax for a benefit that has narrowed considerably. If you can leave profit in, it is a genuinely different proposition.
The comparison above uses full extraction of whatever you choose to draw, and shows the retained figure separately when you draw less. Employer National Insurance is charged at 15% on salary above the £5,000 secondary threshold. The £10,500 Employment Allowance is deliberately not applied: a company with only one director cannot claim it where that director is the only employee liable for secondary Class 1 National Insurance, and a practice with nursing and reception staff will already be using it against that payroll rather than against a director's salary.
This is the input most comparisons leave out, and it changes the answer more than people expect. Both corporation tax marginal relief limits are divided by one plus the number of associated companies. One associated company means dividing by two: £25,000 and £125,000. Two means dividing by three: £16,667 and £83,333. Three means £12,500 and £62,500.
The veterinary shape that triggers it is ordinary rather than exotic. A practice company with the premises held in a separate property company is two associated companies. Add a locum personal service company owned by the same people and it is three. Association does not require a shareholding chart: HMRC's guidance at CTM03950 treats substantial commercial interdependence — financial, economic and organisational links — as capable of creating it, and a property company letting premises to the practice at a rent is precisely that pattern. The limits are also reduced proportionately for an accounting period shorter than twelve months.
Dividend tax went up. The ordinary rate moved from 8.75% to 10.75% and the upper rate from 33.75% to 35.75%. The additional rate stayed at 39.35% and the dividend allowance stayed at £500. Two percentage points does not sound like much until it is applied to an owner's whole income: on £96,000 of taxable dividend it is £1,920 a year more for taking out exactly the same money.
For a practice weighing up incorporation that is the single biggest change to the arithmetic in years, because dividends are how the money actually gets out of a company. Any comparison prepared before that date understates the company's cost, and any calculator still using 8.75% and 33.75% is giving you last year's answer. The direction of travel is that full extraction from a company and a sole trader's profit now land close together at most profit levels, with the company's advantage concentrated in retained profit.
Making Tax Digital. A company is out of scope for Making Tax Digital for Income Tax, which applies to sole traders and landlords. An unincorporated practice with qualifying income over £50,000 has been in scope since 6 April 2026, with over £30,000 from April 2027 and over £20,000 from April 2028 — measured on gross turnover before expenses.
Full expensing. Companies only, and only on new and unused plant and machinery: 100% on main-rate expenditure and 50% on special rate, uncapped. Both structures get the £1,000,000 Annual Investment Allowance, so this matters mainly where investment exceeds that. Second-hand equipment is Annual Investment Allowance either way.
Public accounts. A company files at Companies House and those accounts are public. A sole trade or partnership of individuals files nothing. In a market where six groups own over 60% of practices and are actively acquiring, publishing your margin is a real decision.
The eventual sale. Business Asset Disposal Relief is 18% from 6 April 2026, and a share disposal requires you to be an employee or office holder of a trading company plus the personal company test of 5% of shares and voting rights and a 5% economic entitlement. Every condition looks back two years, so incorporating shortly before a sale achieves nothing. See selling a practice.
Nothing about incorporating changes your regulatory position, which is unusual and worth stating: the RCVS regulates individual veterinary surgeons and veterinary nurses rather than the businesses they work in, and non-vets have been able to own a practice since 1999. Premises registration is still per premises at £38 a year in England and Wales, and the CMA's obligations attach to the veterinary business whatever its legal form. Incorporation for vets sets out when each structure works, and the incorporation guide covers the mechanics of actually doing it. For the version on your real numbers, ask us.
These tools use sensible simplifications. A free conversation gets you the accurate version — and usually two or three things worth fixing before your year end.
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