Incorporation for Vets

Somebody has told you to incorporate. Here is the arithmetic instead

The honest answer to "should my practice be a company" is that it depends on your profit, on how much of it you take out, on how many other companies you own, and on what you intend to do with the business in five years. What it does not depend on is a general preference, and this page does not contain a recommendation. It contains the numbers and the conditions under which each structure wins.

One thing has changed recently enough to be worth flagging before anything else. On 6 April 2026 dividend tax rose by two percentage points on the basic and higher rates. Extraction from a company is now dearer than it was, so any comparison you were shown before that date understated the company's cost — and a fair few still in circulation do.

Two different machines

Transparent against opaque, and why that is the whole difference

A sole trade or partnership is transparent. The business pays no tax of its own. 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% on the 2026/27 bands, plus Class 4 National Insurance at 6% between £12,570 and £50,270 and 2% above. Stacked, the marginal cost of the next pound of profit is 42% above £50,270 and 47% above £125,140.

A company is opaque. It pays corporation tax on its own profit first — 19% up to £50,000, 25% over £250,000, and an effective 26.5% in between under marginal relief with a 3/200 standard fraction. The money only reaches you when it is extracted, as salary or dividends, and each of those is taxed again in your hands.

That single structural difference produces the whole answer. If you need every pound of profit each year, the company adds a layer of tax and a set of filing obligations for a benefit that has narrowed. If you can leave profit in the business — to fund equipment, a second site, a purchase, or working capital for dispensing stock — the company holds it having paid 19% to 26.5% and nothing more, where an unincorporated practice would have paid up to 47% on it before it could be reinvested.

	Sole trader or partnership	Company
Tax on profit	Income tax + Class 4, 42% and 47% at the margin	19% / 26.5% / 25% corporation tax
Taxed on undrawn profit?	Yes — allocated share, drawn or not	No — only on extraction
Extraction	Not a taxable event	Dividends at 10.75% / 35.75% / 39.35%, allowance £500
Marginal relief limits divided by associated companies?	Not applicable	Yes — one plus the number of them
Annual Investment Allowance	£1,000,000	£1,000,000
Full expensing on new and unused kit	Not available	Available
Making Tax Digital for Income Tax	In scope on gross turnover	Out of scope
Accounts publicly filed	No	Yes
Relief on a later sale	BADR on the business, two-year test	BADR on shares, plus the 5% personal company test

The arithmetic

A worked comparison, and then the same one with a property company

Illustrative only, on 2026/27 rates, one owner, no other income, and full extraction each year so the two sides are genuinely comparable. A practice makes £140,000 of profit before any owner's remuneration.

As a sole trader

Taxable profit £140,000. The personal allowance is fully tapered away above £125,140 — at £140,000 of income the taper of £1 for every £2 over £100,000 exceeds £12,570, so the allowance is nil. Income tax: 20% on £37,700 = £7,540; 40% on the next £87,440 up to £125,140 = £34,976; 45% on £14,860 = £6,687. Total income tax £49,203. Class 4: 6% on £37,700 = £2,262, plus 2% on £89,730 = £1,795, total £4,057. Tax and National Insurance £53,260, leaving £86,740.

As a company, one company only

Take a salary of £12,570. Employer National Insurance is (£12,570 − £5,000) × 15% = £1,136. Profit chargeable to corporation tax is £140,000 − £12,570 − £1,136 = £126,294. Corporation tax at 25% is £31,574 less marginal relief of (£250,000 − £126,294) × 3/200 = £1,856, so £29,718 — an effective 23.5%. Distributable profit is £96,576.

Now the step most comparisons skip. Total income is £12,570 of salary plus £96,576 of dividend = £109,146, which is above £100,000, so the personal allowance tapers by £1 for every £2 over: £12,570 − £4,573 = £7,997. That makes £4,573 of the salary taxable at 20% = £915 of income tax, where a comparison that assumed a full allowance would have shown nil. Employee National Insurance is still nil, because the primary threshold is £12,570.

Dividend tax: the £500 allowance covers the first £500 but still uses band room, and £4,573 of salary has already used basic-rate band, so £32,627 of dividend falls in the basic band at 10.75% = £3,507 and the remaining £63,450 is higher rate at 35.75% = £22,683 — £26,191 in total. Personal tax is £915 + £26,191 = £27,106, and cash in hand is £12,570 + £96,576 − £27,106 = £82,040.

So on full extraction the sole trader keeps £86,740 and the company owner keeps £82,040 — the unincorporated position is about £4,700 a year better. Note what the dividend rise did to that. On the old rates of 8.75% and 33.75% the dividend tax on the same £96,076 of taxable dividend would have been £24,269 rather than £26,191, so the company owner would have kept £83,963 and the sole trader's advantage would have been about £2,800. Two percentage points on £96,076 is £1,921, and it nearly doubled the gap.

Now retain rather than extract

Same £140,000, same salary, but the owner draws only £40,000 of dividend and leaves the rest in the business to fund equipment. The company has still paid £29,718 of corporation tax and £1,136 of employer National Insurance. Total income is now £52,570, comfortably below £100,000, so the full £12,570 personal allowance is available and there is no income tax on the salary at all. Dividend tax on £40,000: the £500 allowance covers the first £500 but still uses band room, so £37,200 falls in the basic band at 10.75% = £3,999 and the remaining £2,300 is higher rate at 35.75% = £822 — total £4,821. The owner draws £52,570 gross and keeps £47,749 of it, while £56,576 stays in the company having borne tax at 23.5%. The sole trader could not do that: they would have paid £53,260 on the whole £140,000 regardless of what they drew, leaving nothing inside the business that had been taxed at less than 40%.

That is the entire case for a company, stated plainly. It is not a lower rate on the money you spend. It is a lower rate on the money you do not.

And the divisor that undoes it

Add a property company holding the premises, owned by the same people. The divisor becomes two, so the marginal relief upper limit falls to £125,000 — below the £126,294 of chargeable profit — and the whole amount is taxed at the main rate: £31,574 instead of £29,718. That is £1,856 a year of extra corporation tax for a structure decision that had nothing to do with tax. Association can arise through substantial commercial interdependence under HMRC's guidance at CTM03950, not only through a shareholding chart, and a property company letting premises to the practice is precisely that pattern.

Run it on your own figures with the incorporation calculator, which takes profit, salary, the number of associated companies and whether you retain or draw.

Beyond the rate

Four things a company changes that the arithmetic does not show

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 £30,000 from April 2027 and £20,000 from April 2028 — measured on gross turnover before expenses. Quarterly updates on the cumulative periods and a final declaration replace the return. Making Tax Digital for VAT applies to every VAT-registered business either way.
Full expensing. Companies only, and only on new and unused plant and machinery — 100% on main-rate expenditure, 50% on special rate, uncapped. In practice this matters where a practice is investing more than the £1,000,000 Annual Investment Allowance covers, or where it wants uncapped relief on a new digital imaging suite. Second-hand kit 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 are actively acquiring, publishing your margin is a real consideration and one worth deciding rather than discovering.
The eventual sale. A shareholder can look to Business Asset Disposal Relief at 18% from 6 April 2026 on a share disposal, subject to being an employee or office holder, the company being a trading company, and the personal company test of 5% of shares and voting rights plus a 5% economic entitlement. Every condition looks back two years, so incorporating shortly before a sale achieves nothing — and a buyer may want assets rather than shares anyway. See selling a practice.

No regulatory consequence

Nothing about incorporating changes your regulatory position. The RCVS regulates individual veterinary surgeons and veterinary nurses, not the businesses they work in, and non-vets have been able to own a practice since 1999 — so there is no authorisation consequence to incorporating, unlike in several other regulated professions. What does not change either: 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.

When each one works

The conditions, without a recommendation

A company tends to work where

You can genuinely leave profit in the business, because that profit bears 19% to 26.5% rather than up to 47%.
The practice is funding growth — equipment, a second site, an acquisition, or working capital for dispensing stock.
Profits are volatile, because a company lets you smooth extraction across years rather than being taxed on every peak as it happens.
You are bringing in a partner or an assistant on an equity path, where shares are a cleaner instrument than a partnership share.
You intend to sell shares in a trading company in more than two years' time.

Staying unincorporated tends to work where

You take out essentially all the profit each year, in which case a company adds a layer of tax and a set of filings for very little.
Profit is modest, and the compliance cost of a company is a real proportion of the benefit.
You do not want your margin published at Companies House.
You already own other companies, so the divisor would cut your 19% band before you started.
The practice is a partnership that works, and repapering it would cost more in goodwill and disruption than the tax saves.

The incorporation guide covers the mechanics of actually doing it — the transfer of the business, goodwill, capital gains on incorporation, the change of VAT registration and what happens to the premises. Your wider tax position is on practice accounts and tax, and if you are a locum rather than a principal, locum vet accounts deals with the version of this question that turns on IR35 as well.

Structure questions

Common questions about incorporating

Should a veterinary practice be a limited company?

There is no general answer, which is why this page sets out when each structure works rather than recommending one. A company pays corporation tax at 19% up to £50,000 and 25% over £250,000, with an effective 26.5% between the two, and the money is then taxed again on extraction — dividends at 10.75% or 35.75% from 6 April 2026. A sole trader or partner pays income tax and Class 4 National Insurance on the whole profit whether drawn or not, at a combined 42% above £50,270. Where a company tends to win is retained profit; where it tends to lose is full extraction of every pound each year.

What did the April 2026 dividend increase do to the arithmetic?

It made extraction from a company meaningfully more expensive. From 6 April 2026 the ordinary dividend rate rose from 8.75% to 10.75% and the upper rate from 33.75% to 35.75%, with the additional rate unchanged at 39.35% and the allowance still £500. Two percentage points does not sound like much until you apply it to the whole of an owner's income: on £60,000 of higher-rate dividends it is £1,200 a year more for taking out exactly the same money. Any comparison prepared before April 2026 understates the cost of a company, and a calculator still using 8.75% and 33.75% is giving you last year's answer.

How many companies is too many?

It is not the number that matters, it is the divisor. The corporation tax marginal relief limits of £50,000 and £250,000 are divided by one plus the number of associated companies. A practice company with a property company beside it divides by two, giving £25,000 and £125,000. Add a locum personal service company held by the same people and it divides by three: £16,667 and £83,333. Association can arise through substantial commercial interdependence — financial, economic and organisational links — rather than only through a shareholding, which is exactly what a property company letting premises to the practice looks like. So the second company should be a deliberate decision.

Does incorporating get me out of Making Tax Digital?

Yes, on the income tax side, and that is a genuine practical difference rather than a technicality. Making Tax Digital for Income Tax applies to sole traders and landlords, not to companies, so a limited company is out of scope: no quarterly updates on the cumulative periods, no final declaration. Mandation began on 6 April 2026 for qualifying income over £50,000, extending to over £30,000 from April 2027 and over £20,000 from April 2028, measured on gross turnover before expenses. Making Tax Digital for VAT is separate and applies to every VAT-registered business whatever its structure.

What about capital allowances on new equipment?

Both structures get the Annual Investment Allowance of £1,000,000, which has been in place since 1 January 2019 and is available to companies, sole traders and partnerships. Full expensing is the one that is structure-dependent: 100% first-year relief on main-rate plant and machinery and 50% on special-rate expenditure, uncapped, but available to companies only and only where the asset is new and unused. For a practice spending under £1,000,000 a year on equipment the Annual Investment Allowance covers it either way, so full expensing is a real advantage mainly for a company making unusually large new-equipment investment.

Will incorporating help when I eventually sell?

It changes what you are selling and therefore how the gain is taxed. A shareholder disposing of shares in a trading company can look to Business Asset Disposal Relief at 18% from 6 April 2026, subject to being an employee or office holder, the company's main activities being trading, and the personal company test of 5% of shares and voting rights plus a 5% economic entitlement. All the conditions look back two years, so incorporating on the eve of a sale achieves nothing. A buyer may also prefer to buy assets rather than shares, which puts the decision back in their hands rather than yours.