If you are a locum doctor, GP partner, hospital consultant, or private clinician operating through a limited company in the UK, the 2026/27 tax year brings a more complex set of decisions than ever before.
Dividend tax rates have risen. Employer National Insurance has increased. IR35 continues to reshape what the NHS will and will not accept from contractors. And for those approaching the higher tiers of the NHS Pension Scheme, the tapered annual allowance remains one of the most poorly-understood — and most expensive — traps in the tax code.
At CoreAcc Accountants, we act for a number of healthcare professionals operating through personal service companies and medical practices across Hertfordshire and North London. This guide sets out the key planning areas for 2026/27, with worked examples throughout, so you can make informed decisions about your structure, your pay, and your pension.
Disclaimer: This article is for general information only and does not constitute tax or financial advice. Figures are illustrative. Specific advice should always be sought for your individual circumstances.
Is a Limited Company Still the Right Structure?
For healthcare professionals earning above approximately £60,000 per year from private work or locum engagements, a limited company can still offer meaningful tax advantages over operating as a sole trader. But the gap has narrowed considerably in recent years, and incorporation is no longer an automatic win.
The core logic runs like this. A limited company pays Corporation Tax on its profits — at 19% on profits up to £50,000 and 25% on profits above £250,000, with marginal relief in between. A director-shareholder then draws a combination of salary and dividends, keeping their personal income tax exposure lower than it would be if the same amount were taxed as self-employed income. The overall tax rate on profits passing through a company is generally lower than income tax at the higher or additional rate, particularly when pension contributions are factored in.
However, that arithmetic only holds if the income feeding the company falls outside IR35 (see below), if you have genuinely private and commercial income streams to shelter, and if the administrative burden of running a company — including filing accounts, payroll, and corporation tax returns — is manageable.
For healthcare professionals whose work is principally NHS sessional work through a single trust or GP practice, the balance often tips the other way. The NHS pension alone can be worth far more over a career than the corporation tax savings the company achieves. If you are in any doubt, a proper modelling exercise before you incorporate — or before you wind up an existing company — is essential.
Worked Example 1: Sole Trader vs. Limited Company at £90,000 Income
Dr Amara is a locum GP earning £90,000 per year entirely from private GP sessions outside the NHS. All of her work sits outside IR35. She is considering whether to remain a sole trader or incorporate.
As a sole trader (after £12,570 personal allowance, Class 4 NI at 6% on profits between £12,570 and £50,270, 2% above):
Through a limited company (salary £12,570, remaining £77,430 as dividends — no employer NI relief as sole director):
At this income level, with all income outside IR35 and no pension contributions, the sole trader structure is slightly ahead after the 2026 dividend tax rise. The picture changes materially once employer pension contributions from the company are factored in — see the planning section below.
Profit Extraction in 2026/27: What Has Changed
The standard approach for director-shareholders has long been a low salary combined with dividends, keeping the total personal income tax and National Insurance bill below what a pure salary would attract. That approach remains valid in 2026/27, but three changes make it more expensive than it was.
Dividend Tax Has Risen
From 6 April 2026, the basic and higher rates of dividend tax increased by two percentage points. The new rates are:
The dividend allowance has already been cut from £5,000 in 2017 to just £500, meaning the vast majority of dividend income drawn by a typical doctor-director is now fully taxable at the rates above.
Employer National Insurance Increased in April 2025
From 6 April 2025, the rate of Employer's National Insurance rose from 13.8% to 15%, and the secondary threshold — the level at which employers start to pay — fell from £9,100 to £5,000 per employee per year.
Importantly, the Employment Allowance (which offsets the first £10,500 of an employer's NI liability) is not available to companies where the sole employee is also the sole director. Most single-director medical service companies therefore receive no relief from this change.
If your company also employs a spouse or family member in a genuine and commercially reasonable role, the Employment Allowance becomes available and can offset the employer NI cost substantially for smaller payrolls.
The Optimal Salary Level Has Shifted
The most tax-efficient director salary in 2026/27 for a company that cannot claim the Employment Allowance is generally £12,570 — the personal allowance threshold. This means:
- The salary is fully deductible against Corporation Tax
- No employee National Insurance is payable below this level
- Employer NI is payable on the £7,570 above the £5,000 secondary threshold (approximately £1,136) — itself deductible, reducing the effective cost
- No income tax arises on the salary as it sits within the personal allowance
Worked Example 2: The Cost of the Dividend Tax Rise
Dr Ben is a hospital consultant running a limited company for his private practice. He draws a £12,570 salary and £60,000 in dividends each year. Comparing 2025/26 with 2026/27:
That additional £1,190 per year may not sound dramatic in isolation. But for a clinician drawing £60,000 in dividends for 20 years, it represents over £23,000 in cumulative extra tax — all of which could have been directed into a pension instead.
IR35: The Biggest Risk in Your Structure
IR35 — formally the off-payroll working rules — is the single greatest threat to the tax efficiency of a medical limited company, and it is non-negotiable for NHS engagements.
Since April 2017, NHS trusts, GP practices, and other public sector bodies have been responsible for assessing whether a contractor working through a personal service company is genuinely self-employed or effectively a disguised employee. Since April 2021, large and medium-sized private sector clients have carried the same responsibility.
If a trust or practice issues a Status Determination Statement (SDS) concluding that you are inside IR35, the consequences are severe:
- Income tax and employee National Insurance are deducted from your fees before payment reaches your company
- The fee-payer must also pay employer National Insurance and the Apprenticeship Levy on top of your fee
- You lose the ability to extract that income as dividends
- Most of the tax advantages of operating through a company are eliminated for that engagement
The key factors that tribunals and HMRC use to determine IR35 status include: whether you have a genuine right to send a substitute; the degree of control the client exercises over how and when you work; and whether there is mutuality of obligation — meaning the client must offer work and you must accept it.
For doctors working regular sessions at a single trust, under clinical governance rules, using the trust's facilities and equipment, an inside determination is a realistic outcome and in many cases the correct one.
The practical implication: the company structure is typically most valuable for genuinely independent private work — medico-legal reporting, private clinic activity, consultancy, and education — where the working relationship more closely resembles business-to-business and an outside determination is defensible.
Worked Example 3: Inside vs. Outside IR35 — The Real Cost
Dr Clara works through her limited company and invoices an NHS trust £120,000 per year for locum sessions. The trust determines she is inside IR35.
Inside IR35:
Outside IR35 (same fees, same salary of £12,570, remaining as dividends):
The difference is over £14,750 per year — the real cost of an inside IR35 determination on a £120,000 contract.
The NHS Pension and Your Limited Company: A Hidden Trade-Off
This is the area that most healthcare professionals — and many accountants without specific medical sector experience — get wrong.
The NHS Pension Scheme is a defined benefit scheme. For most career NHS clinicians, it represents one of the most valuable retirement benefits available anywhere in the UK. The problem is that income drawn as dividends from a limited company does not count as pensionable pay. Only salary contributes to your NHS pension entitlement.
If you pay yourself a low salary to minimise income tax and NI, you may be reducing the pensionable earnings that determine your eventual pension. For a consultant or senior doctor with twenty or more years of service ahead, the lifetime cost of a reduced NHS pension can easily exceed £100,000 — far outstripping the corporation tax savings the company achieves in any given year.
The Tapered Annual Allowance
For higher-earning doctors, a separate NHS pension complexity applies even if they remain in full-time NHS employment: the tapered annual allowance.
The standard annual allowance — the amount by which your pension savings can grow in a year before a tax charge applies — is £60,000 for 2026/27. However, for higher earners, this is reduced on a sliding scale:
- If your threshold income (total taxable income minus your own pension contributions) exceeds £200,000, and
- Your adjusted income (threshold income plus the value of your pension growth that year) exceeds £260,000,
…then your annual allowance reduces by £1 for every £2 of adjusted income above £260,000, down to a minimum of £10,000.
For NHS Pension Scheme members, pension growth is not measured by contributions — it is calculated using an HMRC formula. The increase in the annual value of your pension entitlement is multiplied by a factor of 16. A senior consultant receiving a pay award may find that their pension input amount is far higher than expected, triggering a tax charge at their marginal rate — potentially 45%.
Worked Example 4: The Tapered Annual Allowance in Practice
Dr David is an NHS consultant. His NHS pensionable pay for 2026/27 is £130,000. He also draws £40,000 in dividends from his private practice limited company. His pension grows by £5,500 in the year (annual value).
Because adjusted income of £258,000 is below the £260,000 trigger, Dr David is not subject to tapering this year and retains the full £60,000 annual allowance. However, his pension input of £88,000 exceeds that allowance by £28,000, generating a tax charge of approximately £12,600 at 45%.
Had he not drawn the £40,000 of dividends, his threshold income would have been £130,000 — safely below £200,000 — and no tapering would ever apply. But crucially, the annual allowance charge would still arise from the pension growth alone. This illustrates why carry-forward from the three previous years must be checked before assuming a charge is unavoidable.
Key planning points:
- Request a pension savings statement from NHSBSA each year — statements are typically issued in October for the prior tax year
- Carry forward unused allowance from the previous three years (on a first-in, first-out basis) to absorb a one-off spike
- Where a charge is unavoidable, Scheme Pays allows the NHS scheme to settle it on your behalf, in exchange for a reduction in your eventual benefits — the mandatory deadline is 31 July following the January in which the charge is declared
- Retaining private income in your company rather than distributing it as dividends in years of high pensionable pay can keep your threshold income below £200,000 and prevent the taper applying at all
Allowable Expenses: What You Can Legitimately Claim
One of the genuine advantages of a limited company or self-employed structure is the ability to claim allowable business expenses, reducing the profits on which Corporation Tax or income tax is charged. HMRC's test is that expenses must be incurred "wholly and exclusively" for business purposes.
For healthcare professionals, the following are commonly allowable:
Professional subscriptions and registrations
- GMC annual retention fee
- Medical Defence Union, Medical Protection Society, or other indemnity insurance premiums
- BMA membership fees
- Royal College subscriptions
Continuing professional development
- Course fees for CPD relevant to your practice
- Conference registration fees where the subject is directly relevant to your specialty
- Clinical journals and specialist publications
Business travel
- Travel to temporary workplaces (locations that are not your regular base of work) at HMRC's approved rate of 45p per mile for the first 10,000 business miles, 25p per mile thereafter
- Travel from home to a regular, permanent place of work is not allowable
Equipment and technology
- Medical equipment used in your practice
- Laptop, phone, and software used for business purposes (with apportionment where there is personal use)
- Accounting software subscriptions
Accountancy and professional fees
- The cost of preparing your company's accounts, tax returns, and payroll is itself deductible
One category requiring care is clothing. Scrubs and clinical clothing required specifically for work may be deductible; general professional attire is not.
Worked Example 5: How Expenses Reduce the Tax Bill
Dr Elena runs a limited company for her medico-legal reporting practice, generating £80,000 in fees per year. Before claiming any expenses, Corporation Tax on £80,000 (at 25% marginal rate) would be approximately £17,000.
After claiming the following legitimate expenses:
Taxable profit falls to approximately £67,144. Corporation Tax (marginal rate) falls to approximately £13,600 — a saving of around £3,400 purely from claiming the expenses she was already entitled to.
Key Planning Opportunities for 2026/27
Drawing together the above, the most impactful planning actions for healthcare professionals in 2026/27 are as follows.
1. Employer Pension Contributions from the Company
Making pension contributions directly from your limited company is one of the most powerful tax levers available. Employer pension contributions to a personal pension or SIPP are generally deductible against Corporation Tax, attract no income tax or NI in the hands of the director, and do not reduce NHS pensionable pay. They also reduce taxable company profits, potentially moving you below the £250,000 threshold where the 25% Corporation Tax rate applies.
The annual allowance (£60,000 in 2026/27, subject to tapering) applies to all pension inputs across all schemes combined, so NHS pension growth must be counted first before planning additional private contributions.
Worked Example 6: The Pension Contribution Turnaround
Returning to Dr Amara from Example 1, who earns £90,000 from private GP sessions through her limited company. We saw that without pension planning, the sole trader structure produced a slightly better net outcome (£63,511 vs. £60,764).
Now suppose the company makes a £15,000 employer pension contribution to her SIPP:
The £15,000 pension contribution costs Dr Amara approximately £10,200 in real terms after Corporation Tax relief — she retains £15,000 in her pension while reducing her combined tax bill by over £10,000 compared to the sole trader scenario. The pension contribution transforms the limited company from a marginal option into the clearly superior structure.
2. Income Smoothing and Profit Retention
Unlike a sole trader, a limited company allows you to control the timing of your personal income. If you anticipate a high-income year in the NHS — perhaps due to a pay award, additional sessions, or a new consultant appointment — retaining profits in the company rather than distributing them can prevent an unnecessary shift into the additional rate of income tax or a sharper taper of the annual allowance. Those retained profits can be extracted in a future, lower-income year at a more favourable personal rate.
3. Structuring Mixed NHS and Private Income
Where your income is split between NHS and private work, the structure of each engagement matters. NHS income that falls inside IR35 is best managed outside the company. Private income from medico-legal work, private outpatient activity, or independent clinical consultancy is more likely to sit outside IR35 and can be channelled through the company legitimately.
4. Spousal or Civil Partner Shareholding
If your spouse or civil partner has unused personal allowance or sits in a lower tax bracket, allocating a shareholding to them (subject to careful compliance with HMRC's settlement provisions) can mean that dividends are taxed at a lower rate. This must be properly documented and the shares must carry genuine economic rights. If done correctly, a spouse with no other income could receive up to £13,070 in dividends (personal allowance £12,570 + dividend allowance £500) entirely free of tax.
5. EV Salary Sacrifice
If your company employs you and potentially other staff, an electric vehicle salary sacrifice arrangement remains highly efficient. The company car benefit-in-kind rate for zero-emission vehicles is just 3% for 2026/27. Exchanging a portion of gross salary for an electric vehicle reduces your NI and income tax exposure while the company benefits from lower employer NI on the reduced salary. CoreAcc covered this in detail in our separate article on EV salary sacrifice schemes.
Frequently Asked Questions
Should I set up a limited company as a locum doctor?
It depends on three things: the level and source of your income, your IR35 status across your engagements, and the value of your NHS pension. A limited company can be tax-efficient if you earn above approximately £60,000 per year from private or locum work that sits outside IR35. For doctors working primarily with NHS trusts, where an inside IR35 determination is common, the advantages are significantly reduced. We strongly recommend a formal modelling exercise before incorporating rather than assuming a company will automatically save tax.
What is IR35 and does it apply to me as a locum doctor?
IR35 (the off-payroll working rules) determines whether a contractor working through a personal service company is genuinely self-employed or is effectively an employee of their client. For NHS and public sector work, the NHS trust, GP practice, or agency assesses your status and issues a Status Determination Statement (SDS). If your SDS says you are inside IR35, tax and NI are deducted from your fees before payment, removing most of the tax benefits of your company for that engagement. The assessment is contract-by-contract — being outside IR35 for one engagement does not mean you are outside for all of them.
Can I still contribute to the NHS Pension Scheme through my limited company?
No. NHS pension contributions are based on pensionable pay, which means your salary from NHS employment. Dividends drawn from a limited company do not count as pensionable pay and do not build NHS pension entitlement. This is one of the most significant trade-offs of the limited company structure for healthcare professionals with ongoing NHS roles. If you operate exclusively through a company and draw a low salary, you are likely building little or no NHS pension benefit during that period.
What is the tapered annual allowance and could it affect me?
The tapered annual allowance reduces the amount of pension savings that attract tax relief for higher earners. For 2026/27, if your threshold income (broadly, total taxable income before pension contributions) exceeds £200,000 and your adjusted income (threshold income plus pension growth) exceeds £260,000, your standard £60,000 annual allowance is reduced by £1 for every £2 above £260,000, to a minimum of £10,000. Consultants and senior clinicians receiving pay awards or working additional sessions are particularly at risk, because NHS pension growth is calculated using a ×16 multiplier on the annual increase in pension value — not simply what you pay in contributions. Drawing dividends from a private company adds to your threshold income and can trigger or worsen the taper.
How does the NHS Pension Scheme calculate my annual allowance usage?
Unlike a private pension where the input is simply your contributions, NHS pension growth is a defined benefit calculation. HMRC requires you to multiply the annual increase in your pension entitlement by a factor of 16. For example, if your annual pension entitlement increases by £4,000 over the year, your pension input amount is £64,000 — exceeding the £60,000 annual allowance even with no additional contributions made. NHSBSA issues pension savings statements each October for the prior tax year. If you believe you may be affected, you should request this statement proactively rather than waiting to receive it.
What is Scheme Pays and how do I use it?
Scheme Pays is a mechanism that allows the NHS Pension Scheme to pay an annual allowance tax charge on your behalf, in exchange for a permanent reduction in your pension benefits at retirement. Mandatory Scheme Pays applies where your charge exceeds £2,000 and your pension input to the NHS scheme alone exceeds £60,000. Voluntary Scheme Pays is available where the charge arises from the tapered allowance rather than a breach of the standard limit. The election deadline is 31 July following the January in which the charge must be declared on your Self Assessment return. Missing this deadline means you must pay the charge in cash.
What salary should I pay myself from my medical limited company?
For most sole-director medical service companies that cannot claim the Employment Allowance, the optimal salary for 2026/27 is £12,570 — the personal allowance threshold. At this level, no income tax is payable, no employee NI is due, and employer NI is only payable on the £7,570 above the £5,000 secondary threshold (approximately £1,136). The salary is fully deductible against Corporation Tax. However, if you have other employment income, are a member of the NHS Pension Scheme with pensionable pay considerations, or your company employs others, the optimal figure may differ. A remuneration review specific to your circumstances will give you the right answer.
Are my GMC fees and indemnity insurance tax-deductible?
Yes, provided they are incurred wholly and exclusively for business purposes, which for most practising healthcare professionals they clearly are. Your GMC annual retention fee, MDU or MPS indemnity premiums, BMA membership, and Royal College subscriptions are all allowable expenses. These reduce the profits on which Corporation Tax is charged if paid through a limited company, or the profits on which income tax is charged if you are a sole trader. Keep receipts and ensure the payments are made through the business rather than personally to simplify record-keeping.
Is my travel to different hospitals or clinics tax-deductible?
Travel to temporary workplaces — locations that are not your regular base of work — is generally allowable at HMRC's approved mileage rate of 45p per mile for the first 10,000 business miles and 25p per mile thereafter. If you work at multiple NHS trusts or private hospitals on a rotational or ad hoc basis, travel to each may qualify. Travel from home to a single, regular workplace does not qualify. For locum doctors covering a wide geography, this deduction can be substantial — a doctor travelling 12,000 business miles per year saves approximately £4,975 in tax compared to claiming nothing.
What is the impact of Making Tax Digital on healthcare professionals?
From April 2026, Making Tax Digital for Income Tax (MTD for IT) applies to self-employed individuals and landlords with gross income above £50,000 per year. As a locum or private practice professional operating as a sole trader, if your gross income exceeds this threshold you are required to keep digital records and submit quarterly updates to HMRC using MTD-compatible software, in addition to your annual Self Assessment return. If you operate through a limited company, MTD for IT does not currently apply to your corporate filing (MTD for Corporation Tax has not yet been extended). Healthcare professionals who are sole traders should ensure they are using compatible software — Xero and QuickBooks, both of which CoreAcc supports, are MTD-compliant.
When should I review my medical company structure?
At least annually — and certainly at any of the following trigger points: a change in your income level (up or down), a new NHS or private contract, a change in IR35 determination on an existing contract, a pay award or promotion affecting your NHS pension growth, approaching or passing any key income threshold (£50,270, £100,000, £125,140, or £200,000), a change in family circumstances such as a spouse returning to work or retiring, or any change in HMRC legislation affecting corporation tax, dividend tax, or NI. The tax landscape for healthcare professionals is unusually dynamic — what was optimal three years ago may no longer be correct today.
What CoreAcc Accountants Can Help You With
Healthcare professionals face a tax position that is genuinely more complex than most small business owners. The interaction between NHS employment, private limited company income, the NHS Pension Scheme, and IR35 means that a decision that looks straightforward — "should I incorporate?" or "how much should I pay myself?" — can have consequences that run for decades.
At CoreAcc Accountants, we provide:
- Structure reviews: Modelling whether a limited company, sole trader structure, or hybrid approach produces the best net outcome for your specific income mix
- Remuneration planning: Calculating the optimal salary and dividend combination for 2026/27 given the updated NI thresholds and dividend rates
- IR35 contract reviews: Assessing your engagements against the key status tests and advising on working practices to support an outside determination where appropriate
- Annual allowance planning: Working through your NHS pension growth alongside your company income to identify taper risk and plan around it
- Corporation Tax returns and year-end accounts: Ensuring full compliance with HMRC and Companies House requirements
- MTD compliance: Ensuring your digital record-keeping meets the April 2026 requirements if you operate as a sole trader above the £50,000 threshold
Get in Touch
Whether you are a locum GP considering incorporation, a consultant reviewing an existing company, or a private clinician looking to ensure your tax affairs are as efficient as they can be, CoreAcc Accountants is here to help.
We work with healthcare professionals across Hertfordshire and North London, including clients from NHS trusts, GP practices, and private medical groups.
Contact us today for a confidential initial conversation about your circumstances.
CoreAcc Accountants is an ACCA-accredited firm of Chartered Certified Accountants based in Borehamwood, Hertfordshire. This article was last reviewed in June 2026 and reflects legislation in force for the 2026/27 tax year. It does not constitute personalised tax or financial advice.
