When a limited company works for a locum GP: the 60k/80k/100k breakpoints

Whether to run a locum GP practice through a limited company or as a sole trader is a judgement call, not a calculation. The maths varies with gross income, with how much profit you need to draw, and with the Autumn 2025 Budget dividend rate changes. Three breakpoints are useful.

The structure in one paragraph

A sole-trader locum GP pays income tax and Class 4 NI on profit. A limited-company locum GP pays corporation tax on company profit (19% up to £50,000, then marginal rates), then pays income tax and dividend tax when the money leaves the company. The tax efficiency depends on keeping as much as possible inside the company and drawing only what is needed.

The one-line answer

Roughly £60,000 to £70,000 of profit is where the sums start to favour a company, and the answer depends on how much you draw. Below that the overhead beats the saving. Above it, the company only wins if you can leave money inside it. Everything below is the working behind that sentence.

Breakpoint 1: £60,000 profit

Below about £60,000 of profit for the year, the limited-company structure rarely makes sense. The admin overhead is significant, an accountant for a limited company costs £750–£1,500 annually, versus £300–£500 for a sole trader. Insurance, bank account fees, and registration costs add another £200–£400.

The total overhead is at least £1,000 more for a limited company. The tax savings at this level do not justify it.

Stay sole trader below £60,000 of profit.

Breakpoint 2: £70,000 profit, drawing everything

Around £80,000 gross with £65,000–£70,000 profit after expenses is where people expect the company to start paying. On 2026/27 rates, if you draw the lot, it does not.

Worked comparison for £70,000 profit, 2026/27 rules, drawing all:

• Sole trader: income tax £15,432 (£37,700 of basic-rate band at 20% is £7,540, plus £19,730 above £50,270 at 40% is £7,892). Class 4 NI £2,657 (6% on £37,700 is £2,262, plus 2% on £19,730 is £395). Total tax £18,089. Net £51,911.
• Limited company, low salary plus dividends: salary £5,000, which is exactly the employer NI secondary threshold, so no employer NI. Company profit £65,000. Corporation tax is not 19% at this level: it is 25% less marginal relief, so £16,250 minus 3/200 of (£250,000 less £65,000), which is £16,250 minus £2,775 = £13,475, an effective 20.7%. That leaves £51,525 to draw as dividends. The £5,000 salary uses £5,000 of the personal allowance, so £7,570 of allowance and the £500 dividend allowance land on the dividends: £37,200 is taxed at 10.75% (£3,999) and £6,255 at 35.75% (£2,236), giving dividend tax of £6,235. Total tax across the company and personally £19,710. Net £50,290.

The sole trader is about £1,600 better off, before the extra £1,000 or so of company admin. Two things drive it: the April 2026 dividend rise of two points on the basic and higher rates, and corporation tax at the marginal rate rather than 19%.

At £70,000 of profit, drawing everything, stay a sole trader.

Breakpoint 3: £100,000 gross, retain some

A limited company only pays when you can leave profit inside it. At £100,000 gross and £85,000 profit, if you only need to draw £55,000 personally:

• Sole trader: income tax on all £85,000 whether you need it or not. £7,540 at basic rate plus £13,892 on the £34,730 above £50,270 gives £21,432, and Class 4 NI is £2,957 (£2,262 plus 2% on £34,730). Total tax £24,389. Net £60,611, all of it in your hands and all of it taxed now.
• Limited company, all drawn as dividends: corporation tax on £85,000 of profit is 25% less marginal relief, so £21,250 minus 3/200 of (£250,000 less £85,000), which is £21,250 minus £2,475 = £18,775, an effective 22.1%. That leaves £66,225. Draw £55,000 as dividends and the dividend tax is £5,690 (£500 at 0%, £37,200 at 10.75%, £4,730 at 35.75%), with about £11,225 left inside the company. Total tax in the year £24,465.

On those numbers the company costs about the same as the sole trader in the year. What it buys is the £11,225 you have not yet drawn and not yet paid dividend tax on, which you can take in a later, lower-income year.

Paying a salary up to the personal allowance instead of taking everything as dividends improves it, because salary is deductible against corporation tax. On a £12,570 salary, employer NI is £1,136 (15% on the £7,570 above the £5,000 secondary threshold), corporation tax falls to £15,143 on the remaining £71,295 of profit, dividend tax on the £42,430 drawn is £5,690, and the year's total is about £21,970, roughly £2,400 less than the sole trader, with about £13,700 retained.

That is the honest shape of the advantage at this level: a few thousand pounds a year and a timing option, not a transformation. The retained profit is deferred tax, not saved tax. If you draw everything, the sole-trader route is still usually better.

The personal allowance taper

Profits over £100,000 trigger a taper of the personal allowance at £1 reduction for every £2 over. By £125,140 the allowance is zero. The effective marginal rate on income between £100,000 and £125,140 is 60%.

A limited company smooths this: you can hold company profit and draw it in later lower-income years. A sole trader cannot. This is the clearest case where limited-company structure wins regardless of other considerations.

IR35 wipes the advantage

If most of your work falls inside IR35 (most NHS trust engagements for limited-company locums), the tax advantage of the structure is eliminated. PAYE on the invoice means the money is taxed as employment income before it enters the company. See our IR35 for locums guide.

When to definitely stay sole trader

• Profit under £60,000
• All work is with individual GP practices (most are small companies, IR35 does not transfer but IR35 is rarely the issue for a sole trader anyway)
• You need all the money each year
• Admin overhead matters to you

When to definitely go limited company

• Profit well over £70,000 with work mostly outside IR35
• You can leave £10,000+ per year inside the company
• You want to draw down flexibly across tax years
• You have plans to reinvest profits in future property or equipment

When it depends

• Profit of £60,000 to £70,000
• Work mixed between outside and inside IR35
• Modest ability to retain profits

Get this one year-end review with a specialist accountant before the 6 April date. The right structure for last year may not be right for next year.

Sessional works with both structures. See our GP page for tools either way, or try the take-home calculator with your figures.

For information only, not regulated advice. Check with a qualified accountant or adviser.