Salary vs Dividends for Doctors

If you run private work through a limited company, the way you take money out can change how much you keep. Salary vs dividends is not a simple choice, because the answer depends on your NHS income, your company’s profits and whether you need the money at all.

This guide compares the two for NHS consultants and other doctors with company income. Figures apply to 2026/27 and use the Income Tax rates for England, Wales and Northern Ireland. Scotland has different bands and rates.

How Salary and Dividends Are Taxed

A salary is a business cost, so it reduces your company’s profit. Dividends come from profit that has already faced Corporation Tax.

	Salary	Dividends
Reduces Corporation Tax	Yes	No
Income Tax	20%, 40% or 45%	10.75%, 35.75% or 39.35%
Employee National Insurance	8% above £242 a week, then 2% above £967	None
Employer National Insurance	15% above £5,000 a year	None
Paperwork	Payroll through PAYE	Meeting minutes and dividend vouchers

The company pays Corporation Tax at 19% on profits of £50,000 or less and 25% on profits above £250,000. Marginal relief applies between those limits, which reduce if the company has associated companies.

Why NHS Consultants Are Different

Many general guides assume your company is your only source of income. They often suggest a salary that uses your Personal Allowance, followed by dividends in the basic rate band.

That approach rarely fits an NHS consultant. Your NHS salary usually uses your Personal Allowance and basic rate band first, so any company income is likely to face higher rate tax. The comparison then depends on which route costs less at that higher rate.

This table shows what a higher rate taxpayer keeps from £100 of company profit. It assumes that the £500 dividend allowance has been used and that the company cannot claim Employment Allowance.

Route	You keep
Salary up to £5,000 a year	£60.00
Salary from £5,000 to £12,570	£52.17
Salary above £12,570	£45.22
Dividend from profit taxed at 19%	£52.04
Dividend from profit taxed at 25%	£48.19

Three points stand out:

• A small salary up to £5,000 can beat a dividend, because it avoids Corporation Tax and sits below the National Insurance thresholds.
• A salary above £12,570 is usually less efficient for a higher rate taxpayer, because employer and employee National Insurance both apply.
• A salary from £5,000 to £12,570 is close to a dividend at 19% and ahead of a dividend at 25%, so your company’s profit level matters.

These figures use the separate National Insurance thresholds for your company job. If you can defer National Insurance, the result for a higher salary improves to £50.43.

Worked Example

This example assumes a consultant in England with £70,000 of taxable NHS pay. Their company makes £30,000 of profit before paying them, and they want to take all of it out this year.

	All dividend	£5,000 salary plus dividend
Salary	£0	£5,000
Corporation Tax at 19%	£5,700	£4,750
Dividend	£24,300	£20,250
Income Tax on salary at 40%	£0	£2,000
Dividend tax	£8,508.50	£7,060.63
Net amount received	£15,791.50	£16,189.37

The second approach leaves the consultant about £398 better off. The saving is modest, and the salary needs to be appropriate for the director’s role in the company.

What About Your NHS Pension?

NHS pensionable earnings come from NHS work. The 2015 Scheme guide lists salary, wages and fees as pensionable for employed staff and excludes non-NHS income for GP and non-GP providers.

This means a salary or dividend from a private practice company will not normally build your NHS pension. GPs and others who hold NHS contracts through a company should check their position separately, because their pensionable income follows different rules.

The choice can still affect your wider pension planning. Your company can make pension contributions for you, but these use your Annual Allowance, so check your NHS pension growth first.

The Effect on the £100,000 Threshold

Salary and dividends both count towards your adjusted net income. If your total passes £100,000, you start to lose your Personal Allowance, and each route becomes more expensive.

This can change the answer. In some years, taking less from the company may be better than choosing between salary and dividends. Our guide to the £100,000 income tax trap explains this further.

Leaving Profit in the Company

You do not have to withdraw all your profit each year. Once your company has paid Corporation Tax, you only face personal tax on what you take out.

Retained profit may suit you if you already have enough income, or expect to pay less tax in a later year. Our article on managing surplus funds covers the options, although dividend rates can change before you take the money out.

If Your Company Is Your Main Income

The answer changes if you have little other income, for example if you work only in private practice. Salary can then use your Personal Allowance, and dividends may fall partly into the basic rate band.

Employer National Insurance on a salary of £12,570 is £1,135.50, unless the company can claim Employment Allowance. A company generally cannot claim if its sole director is the only employee earning above the threshold, or if it does more than half its work in the public sector.

Practical Checks Before You Decide

• Register for payroll: A company must register as an employer before it pays a salary.
• Check your tax code: Your company salary will usually have its own tax code, such as D0 at the higher rate.
• Follow dividend rules: The company needs available profits, meeting minutes and dividend vouchers.
• Plan your tax bill: You may owe tax on dividends through Self Assessment, so set money aside as you take them.
• Consider your status: If you would be an employee of a client without your company, the off-payroll working rules may apply. Our IR35 guide for locums explains how they work.

The best income mix can change from year to year as your NHS pay, private work and pension position change. Our guide to drawing funds from a limited company covers other routes, including director’s loans. Nichols Medical Accountants can review your consultant tax planning before you make a decision. Contact our team to discuss your figures.