Should You Put Some of Your Income Through a Limited Company?

In 1696, England needed money. King William III’s government began taxing windows, assuming more windows meant more wealth.

People countered by bricking up their windows. Homes darkened, and poor ventilation increased disease.

Residents acted rationally within a system punishing them for visible wealth. Yet, in optimising for tax, they made life worse.

I see doctors doing something similar today—not turning down income because they don’t want it, but because earning above £100,000 puts them in a tax corridor so brutal it seems hardly worth it.

And they’re not entirely wrong. But the answer isn’t to stop earning. The answer is to understand the structure.

The 60% Tax Trap — And Why It Matters

If you earn over £100,000, you know something is off. Here’s why.

Your personal allowance — the £12,570 of income you receive tax-free — starts to disappear once your adjusted net income crosses £100,000. You lose £1 of allowance for every £2 you earn above that threshold. By the time you reach £125,140, your personal allowance is gone entirely.

The result? On every pound you earn between £100,000 and £125,140, you’re effectively paying 62% in combined tax and National Insurance. That’s 40% income tax, plus the 20% effective rate from the personal allowance taper, plus 2% employee NICs.

Read that again. 62%.

For a consultant earning £120,000 from their NHS contract alone — before any locums, private work, or side income — this isn’t a hypothetical. It’s their reality every single month.

With this context in mind, let’s transition to exploring whether a more effective approach could exist for those facing the 60% trap.

The Limited Company Option — What It Actually Means

A limited company (or Ltd) is a separate legal entity. You own it, you direct it, but it is not you. Income that flows into the company is taxed at Corporation Tax rates — currently 19% on profits up to £50,000, rising to 25% on profits over £250,000, with marginal relief in between.

Compare that to the 40–62% you’d pay personally on the same income, and the arithmetic looks compelling.

Typically, you perform private work through your Ltd company, which invoices for the work and pays Corporation Tax on profits. You then extract money as a small salary (around the NIC threshold) and dividends.

Dividends are taxed at lower rates than employment income: 8.75% at the basic rate, 33.75% at the higher rate, and 39.35% at the additional rate in 2025/26. Dividend tax rates are changing from April 2026, with the basic rate increasing from 8.75% to 10.75% and the higher rate from 33.75% to 35.75%. Despite these increases, dividend tax rates remain lower than employment income tax rates.

The dividend allowance is just £500 per year. But even with dividends taxed, the combined Corporation Tax plus dividend tax rate is often lower than paying income tax directly — especially if you’re in the 60% trap.

The Case For: Why an Ltd Company Can Work

1. Tax efficiency in the 60% corridor

This is the headline benefit. If you’re earning £100,000 from your NHS salary and doing £20,000–£40,000 of additional work (private clinics, medico-legal, teaching, consultancy), routing that additional income through an Ltd company means it’s taxed at 19% Corporation Tax rather than 40–62% personal tax. You control when and how much you extract as dividends, possibly spreading income across tax years to stay below key thresholds.

2. Legitimate business expense deductions

Your Ltd company can claim expenses not available to employees, such as professional subscriptions, courses, equipment, part of home office costs, travel to non-regular workplaces, indemnity insurance, and accountancy fees—reducing taxable profit before Corporation Tax.

3. Pension contributions from the company

Your company can make employer pension contributions directly into a personal pension (like a SIPP). These are treated as a business expense — they reduce your Corporation Tax bill — and they don’t count as personal income. For a doctor already maxing out NHS pension contributions, this is a powerful way to build additional retirement wealth tax-efficiently.

4. Income smoothing and timing control

Unlike PAYE, where tax is deducted at source, an Ltd company gives you control over when you take income. Had a high-earning year? Leave profits in the company and extract them next year when your income might be lower. This approach is highly valuable for doctors whose income fluctuates — due to parental leave, sabbaticals, or reduced clinical work while pursuing portfolio careers.

5. Building assets inside the company

Retained profits can be invested within the company—for example, in investment portfolios or property (though this adds complexity). Importantly, money in the company isn’t taxed again until withdrawn.

The Case Against: Why It’s Not For Everyone

1. IR35 — the elephant in the room

This is the single biggest issue, and it’s the reason most NHS-employed doctors can’t simply “put their salary through a Ltd company.”

IR35 (the off-payroll working rules) exists to prevent people who are effectively employees from disguising their employment through a company to pay less tax. For public sector engagements — which includes the NHS — the client (your Trust) determines whether your contract falls inside or outside IR35.

The reality: almost all regular NHS clinical work, including most locum shifts arranged through agencies, will be assessed as inside IR35. When a contract is inside IR35, the tax advantages of an Ltd company largely disappear. Tax and NICs are deducted at source as if you were an employee, and employer NICs at 15% are also due.

An Ltd company is typically only useful for work genuinely outside NHS employment: private practice, medico-legal work, consultancy, teaching, speaking engagements, or independent locum work with control and substitution rights.

2. Costs and admin

Running an Ltd company isn’t free. You’ll need a specialist accountant — expect to pay £1,000–£2,000 per year. There’s annual filing with Companies House, Corporation Tax returns, VAT registration if turnover exceeds the threshold (currently £90,000), payroll administration, and the general mental effort of running a business entity alongside a demanding clinical career.

If your company’s additional income is modest—under £10,000—the tax savings may not justify the costs and hassle.

3. NHS pension implications

Income earned through your Ltd company does not count toward NHS pensionable pay, which is based on your employed salary. While you can use your company to fund a separate personal pension, weigh this against the loss of NHS pension benefits, which include a 23.7% employer contribution and may outweigh tax savings.

4. Dividend tax is rising

From April 2026, dividend tax rates will increase: the basic rate rises by 1.25 percentage points from 8.75% to 10.75%, and the higher rate rises by 2 percentage points from 33.75% to 35.75%. The gap between employment and dividend tax is narrowing. The Ltd company structure remains advantageous, but margins are shrinking — and future budgets may narrow them further.

5. You’re on the record

A limited company’s accounts are filed publicly at Companies House. Your name is listed as a director. For most doctors, this is irrelevant. But it’s worth knowing — this is a public record of your business activity.

After reviewing both sides, your decision should be guided by your unique situation and goals. Here’s how to approach that choice:

Not every doctor earning over £100,000 should rush to incorporate. Here’s a simple framework.

A Ltd company probably makes sense if:

• You earn significant income (£15,000+ per year) from work that’s genuinely outside your NHS employment — private practice, medico-legal, consultancy, teaching, content creation.
• That income would otherwise push you into or further through the 60% tax trap.
• You’re comfortable with company administrative and operational costs.
• You have a good accountant who understands doctors’ tax positions.

An Ltd company probably doesn’t make sense if:

• All your income comes from NHS employment or agency locum work that falls inside IR35.
• Your additional non-NHS income is under £10,000 per year.
• You don’t want the administrative burden.
• You’d be reducing NHS pensionable pay to channel income through the company.

The grey area:

• You’re doing a mix of NHS and non-NHS work, and you’re not sure what falls inside or outside IR35 — you need specialist advice.
• You’re in the early stages of building a private practice or consultancy, and the income is growing — it may make sense to set up the structure now, even if the numbers are marginal today.

What To Do This Week

1. Know your number. Check your overall income for this tax year — NHS salary, locums, private work, everything. If you’re above £100,000 and have income from outside your NHS contract, the Ltd company question is worth exploring.
2. Map your earning sources. Write down every income stream and mark whether it’s NHS-employed, agency locum, or genuinely independent/private. This determines what can realistically go through a company.
3. Get specialist advice. Find an accountant who specialises in working with doctors. This isn’t a job for a generalist. The interaction between NHS pension, annual allowance, IR35, and personal tax is complex. A good specialist accountant will typically save you multiples of their fee.
4. Don’t let tax drive clinical decisions. The worst outcome is turning down valuable work because of tax fear. A £1,000 locum shift taxed at 62% still leaves you with £380 in your pocket. Structure your finances intelligently — but don’t let the tail wag the dog.
5. Think long-term. An Ltd company is a vehicle, not a goal. It fits into a wider financial strategy alongside your NHS pension, ISAs, property, and other investments. Make sure you’re building the whole picture, not just optimising one corner.

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This post is for educational purposes only and does not constitute financial advice. Always do your own research and, if needed, ask for advice from a qualified financial adviser regulated by the FCA.