The Bottom Line
- A limited company can be <strong>tax-efficient</strong> for doctors with significant non-NHS income (private practice, medico-legal, consultancy).
- <strong>IR35 is the critical constraint</strong>: if your locum work is 'inside IR35' (which most NHS locum work is), the tax advantages of a Ltd company largely disappear.
- Running a company has <strong>real costs</strong>: accounting fees, admin time, and regulatory obligations. Don't incorporate for tax savings alone without modelling the numbers.
The question 'should I set up a limited company?' is one of the most asked and worst-answered questions in doctor finance. The answer depends almost entirely on two things: (1) how much of your income is outside IR35, and (2) whether the tax saving exceeds the costs of running a company. For many doctors, the answer is 'not yet'. For some, it is clearly advantageous. This guide helps you figure out which group you are in.
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Step 1 — Understand IR35 first (this gates everything)
IR35 is the tax legislation that determines whether a contractor is 'really' an employee for tax purposes. If your engagement is 'inside IR35', you pay employment-equivalent tax regardless of your company structure — negating most of the tax advantage of operating through a Ltd company. Most NHS locum work is inside IR35. Private practice, medico-legal work, and genuine consultancy are more likely to be outside IR35. Read our IR35 guide for the full picture.
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Step 2 — Map your income streams
List all your income sources: NHS salaried, NHS locum (inside IR35), private practice, medico-legal, teaching/lecturing, consultancy, and any other professional income. The Ltd company is primarily beneficial for income that is outside IR35. If 90% of your income is NHS salaried + NHS locum, a company may not be worth the hassle.
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Step 3 — Model the tax position
With a limited company, you pay: Corporation Tax on company profits (currently 25% for profits over £250K, 19% for small profits), and then Income Tax + NI when you extract money (via salary + dividends). The tax saving comes from the difference between dividend tax rates and employment income tax rates. An accountant can model the exact numbers for your income level — do this before incorporating.
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Step 4 — Account for real costs
Company running costs include: accountant (£1,000–£3,000+/year), Companies House filings, business bank account, professional indemnity (if not covered by NHS), and your admin time (VAT returns if registered, bookkeeping, payroll). If your outside-IR35 income is less than ~£30–40K/year, the admin burden and costs may exceed the tax saving.
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Step 5 — Consider the pension angle
A limited company can make employer pension contributions, which are tax-deductible for the company and do not count as personal income. This can be useful for tax-efficient pension top-up — but interact with NHS Pension annual allowance rules. Get specialist advice if you are in both the NHS Pension and a personal/SIPP pension.
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Step 6 — The decision framework
Incorporate if: you have significant outside-IR35 income (£30K+/year), you are willing to manage company admin, and the modelled tax saving justifies the costs. Do not incorporate if: almost all your income is inside IR35, you dislike admin, or you are doing it based on forum advice without modelling your specific numbers. When in doubt: talk to an accountant who specialises in medical professionals.
The 'everyone says I should' trap
Doctor WhatsApp groups and forums are full of advice to 'go Ltd'. Much of this advice is based on pre-2021 IR35 rules when more locum work was outside IR35. The landscape changed in April 2021 when IR35 determination responsibility shifted to the end client for medium/large organisations (including most NHS trusts). Get current, personal advice — not outdated group chat wisdom.