If you draw everything the practice earns, a company will usually cost you more tax in 2026/27 than being a sole trader or a partner — the dividend rate rise on 6 April 2026 made sure of it. If you need to keep profit inside the business to buy equipment, fund a branch or pay down acquisition debt, a company is likely to win. There is no regulatory obstacle either way, and the arithmetic below is the whole argument.
Guide · Updated August 2026
Incorporation is a cash-retention decision dressed up as a tax question. A company pays corporation tax at 19% to 25% on profit it keeps; an unincorporated practice's owners are taxed at their own marginal rates on the whole profit whether they draw it or not. So a company wins where profit needs to stay in the business, and loses where every pound comes out — because the second tax charge on extraction, at dividend rates that rose on 6 April 2026, more than eats the corporation tax saving.
Unlike several other regulated professions, there is no regulatory approval question at all. There is no ownership restriction on a UK veterinary practice: non-vets have been able to own one since 1999, and the RCVS regulates individual veterinary surgeons and veterinary nurses rather than the businesses they work in. Incorporating a practice raises no authorisation issue with the RCVS. What it does require is that the premises registration stays correct, since that attaches to the premises where medicines are stored or supplied.
For the financial year beginning 1 April 2026, corporation tax is:
| Profits | Rate |
|---|---|
| £50,000 or less | 19% small profits rate |
| £50,000 to £250,000 | Marginal relief, standard fraction 3/200 — an effective 26.5% on the slice between the limits |
| Over £250,000 | 25% main rate |
This structure has applied since 1 April 2023 and has not changed. Extraction is where the arithmetic moved. Salary is deductible for the company but carries employer National Insurance at 15% on earnings above a £5,000 secondary threshold. Dividends are not deductible, and from 6 April 2026 the rates are 10.75%, 35.75% and 39.35%, with a £500 dividend allowance. The basic and higher rates each rose by two percentage points on that date, and for an owner-director vet on a low-salary-plus-dividends profile that is the single most material change of 2026/27.
A sole trader or partner is taxed on their share of the profit, drawn or not. For 2026/27, income tax is 20% on taxable income up to £37,700, 40% from £37,701 to £125,140 and 45% above that, with a £12,570 personal allowance giving a higher-rate threshold of £50,270. Class 4 National Insurance sits on top at 6% between £12,570 and £50,270 and 2% above £50,270, so the marginal cost of profit is 42% above £50,270. Class 2 is voluntary at £3.65 a week, with the Small Profits Threshold at £7,105.
The thresholds are frozen until 5 April 2031, which means more of every future year's profit falls into the higher band by default. HMRC expects the freeze to bring 700,000 individuals into income tax by 2030/31.
Worked example — illustrative. A practice making £120,000 of profit before the owner's remuneration, all of it needed for living costs. One owner, no other income, no associated companies, and every pound taken out.
As a sole trader. Taxable profit £120,000, less the £12,570 personal allowance = £107,430 of taxable income.
As a company, paying a £12,570 salary and the rest as dividends.
On full extraction the sole trader is £6,257.02 better off. That is the honest result on 2026/27 rates, and it is the opposite of what most practice owners were told five years ago, because the dividend rates were lower then.
Worked example — illustrative. The same practice needs to leave £50,000 in the business — to fund new equipment, to cover a quiet quarter, or to service borrowing on a branch.
That advantage is real but it is a deferral, not a gift. If the £36,750 later comes out as a dividend taxed at 35.75%, the tax is £13,138.13 and the owner nets £23,611.87 — against £29,000 for the sole trader who paid 42% once. On full eventual extraction the unincorporated owner is £5,388.13 ahead on the same £50,000.
So the question is not which structure is cheaper in the abstract. It is how much of what this practice earns has to stay in it, and for how long. Money retained for years and spent on assets is where a company wins. Money retained for six months and then drawn is where it does not. Our incorporation calculator will run your own profit figure through the same arithmetic.
The £50,000 and £250,000 limits are not fixed per company. They are divided by one plus the number of associated companies, and reduced proportionately for short accounting periods. Veterinary owners fall into this more often than most, because the common structures produce companies:
Three companies under the same control means each has two associated companies, so the divisor is three: the limits become £16,667 and £83,333. With three other associated companies the divisor is four and the limits are £12,500 and £62,500.
Worked example — illustrative. Take the £106,294.50 of taxable profit from the comparison above. Standalone, the corporation tax is £24,418.04. With two associated companies the upper limit falls to £83,333, the profit exceeds it, and the whole amount is taxed at 25% = £26,573.63. The property company you set up for good reasons has cost £2,155.58 a year in corporation tax, every year, on this level of profit.
Association is not only about shareholdings. It can arise through substantial commercial interdependence — financial, economic and organisational links between the companies. A property company that lets only to the practice, funded by the same people, sharing the same management, is exactly the fact pattern the rules are aimed at. Count the companies before you incorporate, not at the first year end.
| Item | Unincorporated | Company |
|---|---|---|
| Annual Investment Allowance | £1,000,000 | £1,000,000 |
| Full expensing on new and unused plant | Not available | Available, uncapped, 100% on main rate and 50% on special rate |
| Making Tax Digital for Income Tax | In scope by income threshold | Out of scope entirely |
| Tax on undrawn profit | Full marginal rate — 42% or 47% | 19% to 25% |
| Tax on fully extracted profit | Lower on 2026/27 rates | Higher on 2026/27 rates |
| Business Asset Disposal Relief on exit | 18%, on the business owned 2+ years | 18%, subject to the 5% personal company test |
| RCVS approval of the structure | None required | None required |
Two rows deserve a sentence each. Full expensing is companies only and requires assets that are new and unused — so a practice buying new digital radiography or a new in-house analyser has an extra route as a company, while second-hand kit sits within AIA either way. Since the AIA limit is £1,000,000 a year, most practices are fully relieved under AIA regardless, and full expensing matters mainly to a business spending beyond that. The detail is in our capital allowances guide.
Making Tax Digital for Income Tax applies to the unincorporated but not to companies. A sole practitioner with qualifying income over £50,000 tested on the 2024/25 return has been in it since 6 April 2026, with quarterly updates due 7 August, 7 November, 7 February and 7 May. That is an administrative difference, not a reason to incorporate, and it should never be sold as one.
A company is likely to win where the practice retains meaningful profit each year; where it is servicing acquisition or fit-out borrowing; where there is capital expenditure beyond routine replacement; where several owners need different economic entitlements; where a buy-in or succession is planned and shares are an easier currency than partnership capital; and where limited liability genuinely matters to the people involved.
Staying unincorporated is likely to win where every pound of profit is drawn; where profit is below the higher-rate threshold, so the second layer of tax has nothing to offset; where the owner wants their affairs private, since a company files accounts publicly; where the practice is close to a sale and the two-year BADR clocks are already running on the existing structure; and where the compliance cost of a company is disproportionate to what it saves.
What incorporating does not fix: a pricing problem, a staff cost problem, a premises registration gap, or the CMA remedies. Those arrive with the business whatever letterhead it uses. If the pressure to incorporate is coming from cash rather than tax, the structure is probably not the issue — and if it is coming from the compliance load, our guide to buying a practice sets out what that load actually consists of.
Incorporating an existing practice is a transaction, not a form. The trade and assets move, the goodwill has to be dealt with, capital allowances are affected, the VAT registration and the payroll have to be handled in the right order, and the two-year BADR clocks may restart. It needs modelling on your own figures before anything is filed at Companies House. Our incorporation service exists to do exactly that, and no recommendation should be made until the numbers are on the table.
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It depends on whether the profit is drawn or retained. On 2026/27 rates a sole trader pays 42% at the margin above £50,270, counting Class 4 National Insurance. A company pays corporation tax at 19% up to £50,000 and 25% above £250,000, with an effective 26.5% between the limits, but dividends taken out are taxed at 10.75%, 35.75% or 39.35% from 6 April 2026 on top of that. On £120,000 of fully extracted profit the sole trader comes out roughly £6,257 better off. Where profit stays in the business, the company wins clearly.
It moved the arithmetic against incorporating for practices that distribute everything. From 6 April 2026 the basic dividend rate rose from 8.75% to 10.75% and the higher rate from 33.75% to 35.75%, both a two percentage point increase, while the additional rate stayed at 39.35% and the dividend allowance stayed at £500. For an owner-director on a low salary and dividends, that is the most material tax change of 2026/27. The case for a company now rests almost entirely on retaining profit inside the business rather than on the cost of extracting it.
The corporation tax marginal relief limits of £50,000 and £250,000 are divided by one plus the number of associated companies. Veterinary owners are caught unusually often because a practice company, a company holding the premises and a personal service company used for locum work are three companies under common control, giving a divisor of three and limits of about £16,667 and £83,333. On a taxable profit of £106,294 that costs around £2,156 a year in extra corporation tax. Association can also arise through substantial commercial interdependence, meaning financial, economic and organisational links.
No. There is no ownership restriction on a UK veterinary practice and no regulatory approval process for its legal structure. Non-vets have been able to own veterinary practices since 1999, and the RCVS regulates individual veterinary surgeons and veterinary nurses rather than the businesses they work in, because it has no statutory power to regulate practices. What does need attention is registration of the premises where medicines are stored or supplied, which is per premises including branches, and the Practice Standards Scheme, which remains a voluntary accreditation rather than a requirement.
Both, in opposite directions. The Annual Investment Allowance of £1,000,000 is available to companies, sole traders and partnerships alike, so most practices are fully relieved on equipment either way. Full expensing, giving 100% relief on main-rate plant and 50% on special rate with no cap, is available to companies only and requires assets that are new and unused, so second-hand kit is outside it. Making Tax Digital for Income Tax applies to sole traders and landlords but not to companies, so incorporating removes the quarterly update obligation. That is an administrative consequence, not a reason to incorporate.
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