Going Private: The Complete Financial Guide for NHS Doctors Setting Up a Private Practice in 2026

More NHS doctors are exploring private practice in 2026 than at any point in the past decade. The combination of rising NHS workload pressures, the DDRB 3.5% pay award that has not fully compensated for years of real-terms pay erosion, and a growing private healthcare market with increasing self-pay admissions across England and Wales has created the conditions in which private practice whether as a supplement to NHS employment or as a full transition is attracting serious consideration from consultants, GPs, and hospital doctors at all career stages. For an NHS doctor going private 2026, the financial structure needs to be clear before private income starts.

The financial upside of private practice is real. Private consultation fees, procedure income, medicolegal work, and occupational health engagements can all generate income at rates that far exceed NHS contracted pay for equivalent clinical time. But the financial complexity of moving into private practice is equally real and it is the complexity that trips up most doctors who make the transition without specialist guidance.

The interaction between NHS employment income and private self-employment income, the VAT position of different types of private clinical work, the impact of private income on the NHS pension annual allowance, the IR35 position where private work is delivered through a personal service company, the £100,000 personal allowance taper that catches higher-earning doctors, and the Making Tax Digital quarterly submission obligation that now applies to self-employed doctors above £50,000 these are not abstract tax concepts. They are immediate financial consequences of the decision to go private, and getting them wrong generates HMRC liability that quickly erodes the income benefit of private work.

This guide is the complete financial reference for NHS doctors setting up private practice in 2026. It covers the structural decision, the tax position of private income, the VAT rules, the NHS pension interaction, the MTD obligations, and the allowable expenses available to private practitioners.

The Structure Decision: Sole Trader, Partnership, or Limited Company

The first financial decision any doctor setting up private practice must make is how to structure the business. This choice affects your tax rate, your NHS pension access, your IR35 position, and the administrative burden of running the practice.

Sole trader the default starting position

The simplest structure for a doctor entering private practice is to work as a sole trader providing private services in your own name, invoicing directly, and reporting the income through Self Assessment. There is no company to form, no company accounts to file, and no separate legal entity to maintain.

Income from sole trader private practice is taxed through Self Assessment as self-employment profit after deduction of allowable expenses. You pay income tax at your marginal rate 20% basic, 40% higher, or 45% additional plus Class 4 NIC at 6% on profits between £12,570 and £50,270 and 2% above. Class 2 NIC was abolished from April 2024, though voluntary contributions at £3.50 per week remain available to protect your State Pension record for those with profits below £6,845.

The principal advantage of sole trader status is simplicity. The principal disadvantage is that all profit is taxed at your marginal rate — and for a doctor whose NHS salary already places them in the higher or additional rate band, every pound of private profit is taxed at 40% or 45% from the first pound earned.

Limited company the tax-efficient option with important caveats

Operating private practice through a limited company allows income to be taxed at corporation tax rates first — 19% for profits below £50,000, 25% for profits above £250,000, with marginal relief between — rather than at personal income tax rates. Profit extraction can then be managed through a combination of salary and dividends, with dividends taxed at personal dividend rates rather than income tax rates.

From April 2026, dividend tax rates are: basic rate 10.75%, higher rate 35.75%, additional rate 41.35%. Combined with the corporation tax already paid on the underlying profit, the overall effective rate on profit extracted as a dividend is lower than income tax on equivalent salary for most doctors — though the advantage has narrowed following the April 2026 dividend rate increase.

However, two critical caveats apply specifically to doctors considering incorporation.

Caveat 1 — NHS pension access.

A doctor who channels all income through a limited company and whose private income has no direct NHS contractual link cannot contribute to the NHS Pension Scheme on that private income. NHS pension membership requires a direct contractual relationship between the individual doctor and the NHS body. For a consultant or GP partner with significant NHS pensionable earnings, the NHS pension continues on employed or contractor income regardless of the company structure for private work. But a doctor reducing NHS hours while growing private income needs to model the pension contribution impact carefully before incorporating. As our dedicated guide on whether it is worth staying in the NHS pension scheme explains, the employer contribution of 23.7% of pensionable earnings is a significant benefit that is lost when NHS pension access is severed.

Caveat 2 — IR35.

Where a private practice limited company provides the services of the individual doctor to a dominant single client — a private hospital group, a clinic, or any organisation representing the majority of turnover — HMRC may determine the arrangement falls inside IR35. An inside-IR35 determination means income is taxed as employment income regardless of the company structure, eliminating the tax advantage of incorporation entirely. The IR35 analysis for private practice doctors is fact-specific and should be reviewed before the company is established.

Registering for Self Assessment: Your First Compliance Obligation

Whether you operate as a sole trader or through a limited company, private practice income creates immediate Self Assessment obligations.

If you are an employed NHS doctor on a trust payroll whose only income has historically been PAYE salary, you are not currently registered for Self Assessment. The moment you receive any untaxed income from private work — a single private consultation fee, a medicolegal report payment — you become obligated to register and declare that income.

Registration must be completed by 5 October following the end of the tax year in which private income was first received. For private income received in 2025/26 (year-end 5 April 2026), the registration deadline is 5 October 2026. Missing this deadline generates an automatic penalty.

Register at gov.uk/register-for-self-assessment. Alternatively, our team at Kudos Accounting for doctors can manage this process for you alongside the setup of your accounting structure from day one.

Income Tax on Private Practice Income: The Key Interactions

The marginal rate problem

Most NHS doctors entering private practice are already higher rate taxpayers from their NHS salary alone. A consultant on a Band 8C or 8D salary, a GP partner drawing a share of NHS income, or a senior registrar with additional locum income may already be paying 40% income tax on their marginal NHS earnings. Every pound of private practice profit — after allowable expenses — is taxed at 40% from the first pound.

This does not make private practice financially unattractive — fee rates in private medicine are typically high enough that after-tax income still significantly exceeds the NHS equivalent. But it does mean that gross fee income is not the right measure of private practice value. Net after-tax income is the number that matters, and it requires knowing your marginal rate before setting private fees.

The £100,000 personal allowance taper

For doctors whose total income NHS salary, private practice profit, rental income, savings interest, dividends exceeds £100,000, the personal allowance begins to taper. The allowance reduces by £1 for every £2 of income above £100,000, disappearing entirely at £125,140. In the band between £100,000 and £125,140, the effective marginal income tax rate is 60% 40% income tax plus 20% from the loss of personal allowance.

This is a critical planning consideration for NHS consultants and senior GPs who add private income on top of existing high NHS earnings. A consultant earning £110,000 from NHS employment who adds £20,000 of private practice profit is in the £100,000 to £125,140 taper band for the majority of their private income — paying an effective marginal rate of 60% on those earnings.

The most effective mitigation is pension contributions. A contribution into a private SIPP or through a company employer contribution reduces adjusted net income below £100,000, restoring the personal allowance and producing a tax saving of approximately 60p per £1 contributed in this band.

Payments on account

Once private practice generates a Self Assessment liability, the payments on account system applies. Payments on account are advance payments of 50% of the current year’s tax liability, due in January and July. For a doctor whose first year of private practice generates a £20,000 tax liability, the following January requires payment of £20,000 (balancing payment) plus £10,000 (first payment on account) simultaneously — a £30,000 combined payment that catches many new private practitioners entirely unprepared.

Setting aside 30% to 40% of net private income as a monthly tax reserve throughout the year is the most effective way to manage this cash flow event. Our locum doctor Self Assessment guide covers the payments on account mechanics in full — the same system applies to private practice doctors.

VAT in Private Practice: What Is Exempt and What Is Not

The VAT position of private medical income is one of the most important and most frequently misunderstood financial issues for doctors setting up private practice.

The healthcare VAT exemption

Medical services provided by a registered health professional for the purpose of protecting, maintaining, or restoring the health of the patient are exempt from VAT under Group 7 of Schedule 9 to the Value Added Tax Act 1994. This exemption applies to private clinical consultations, private surgical procedures, and private follow-up care in the same way it applies to NHS services — the funding source does not affect the VAT treatment, only the clinical purpose does.

For the vast majority of private clinical work, the position is straightforward — exempt. You do not charge VAT on clinical consultation fees.

Standard-rated activities doctors commonly undertake

Several categories of work frequently undertaken by doctors in private practice are not covered by the healthcare exemption and are standard-rated at 20%.

Medicolegal reports — including expert witness reports, personal injury reports, and occupational health assessments prepared for third parties such as insurers, solicitors, or employers — are standard-rated. The primary purpose is to assist a third party in making a decision, not to treat the patient. HMRC’s position on this is long-established and unambiguous.

Training and education provided to other healthcare professionals or organisations is standard-rated unless specific educational exemption conditions are met.

Cosmetic treatments performed purely for aesthetic reasons with no documented clinical health indication are standard-rated. The health purpose test determines the VAT treatment, not the clinical technique used.

Administrative reports and certificates — fitness to fly certificates, insurance medical reports, driving licence assessments — are generally standard-rated as their primary purpose is administrative.

The VAT registration threshold

The VAT registration threshold is £90,000 of taxable (standard-rated) turnover in any rolling 12-month period. Exempt clinical income does not count toward this threshold. A doctor with £200,000 of private clinical consultation income and £60,000 of medicolegal income has taxable supplies of £60,000 — below the threshold.

A doctor whose medicolegal and non-clinical income exceeds £90,000 in a rolling 12-month period must register for VAT within 30 days of the end of the month in which the threshold was exceeded. Failure to register generates a retrospective liability for all VAT that should have been charged from the date registration was required — a material debt for a busy medicolegal practice.

Monitor your rolling 12-month taxable turnover every month, not annually. The threshold can be crossed at any point in the year.

The NHS Pension: The Most Financially Significant Interaction

For NHS doctors considering private practice, the interaction between private income and the NHS pension is the single most financially significant planning consideration — and the one most frequently overlooked until a large annual allowance charge arrives unexpectedly.

The annual allowance

The standard annual allowance for 2025/26 and 2026/27 is £60,000. For NHS doctors in the 2015 CARE scheme, the annual allowance is measured by the increase in pension entitlement during the year — calculated as pension benefit growth multiplied by 16 — plus any contributions to money purchase schemes.

A consultant with NHS pensionable earnings of £120,000 accrues pension benefit of approximately £2,222 per year (£120,000 ÷ 54 under the CARE 1/54th accrual rate). Multiplied by 16, annual allowance usage is approximately £35,556. For most consultants this does not breach the £60,000 allowance in isolation.

However, when private practice income is added, the total adjusted income figure becomes relevant for the tapered annual allowance.

The tapered annual allowance

Where adjusted income broadly total income including employer NHS pension contributions — exceeds £260,000, the annual allowance tapers down from £60,000 by £1 for every £2 above that threshold, down to a minimum of £10,000 at £360,000 of adjusted income.

A consultant earning £180,000 of NHS income whose employer NHS pension contribution is 23.7% of pensionable pay (approximately £42,660) already has adjusted income of approximately £222,660 before any private work. Adding £50,000 of private practice profit takes adjusted income to £272,660 — above the £260,000 taper threshold. For every £2 above £260,000, the annual allowance reduces by £1, meaning the allowance is reduced by £6,330 to approximately £53,670 in this example.

At higher NHS earnings or larger private practice income, the tapered annual allowance can reduce well below £60,000 generating a tax charge on NHS pension growth that exceeds the reduced allowance. Annual Allowance Pension Savings Statements for 2025/26 are issued by NHSBSA from July 2026. If you have added private practice income in 2025/26, review your annual allowance position before that statement arrives — planning options including carry forward and Scheme Pays elections are much easier to implement prospectively than retrospectively.

Making Tax Digital: The Quarterly Obligation for Private Practitioners

Making Tax Digital for Income Tax became mandatory from 6 April 2026 for self-employed individuals with gross qualifying income above £50,000. For doctors in private practice, this is a current compliance requirement, not a future consideration.

If your private practice gross income exceeded £50,000 in 2024/25:

You are within the Phase 1 MTD mandate from 6 April 2026. You must maintain digital records in HMRC-recognised software, submit four quarterly updates to HMRC for each quarter of 2026/27, and file a final annual declaration in place of the traditional SA100 return for 2026/27 onwards.

The quarterly deadlines for 2026/27 are: 5 August 2026 (Q1 covering 6 April to 5 July), 5 November 2026 (Q2), 5 February 2027 (Q3), and 5 May 2027 (Q4). If you started private practice in 2025/26 and your income exceeded the threshold, your Q1 submission is due in less than two months.

If your private income is between £30,000 and £50,000:

You come within the MTD mandate from April 2027. Set up HMRC-recognised software — Xero, QuickBooks, or FreeAgent — now so the transition in April 2027 is straightforward rather than a compliance crisis.

For doctors combining NHS PAYE income with private self-employment income, the MTD quarterly submissions cover only the self-employment income. Both income streams must be reconciled at the final annual declaration.

Allowable Expenses in Private Practice

Getting your expense claims right materially reduces the tax cost of operating private practice. HMRC allows deduction of costs wholly and exclusively incurred for the purposes of the trade.

Professional registration and indemnity

GMC registration and annual retention fees are fully deductible — they are unavoidable costs of practising. Medical Defence Organisation or specialist medical indemnity premiums for private practice are fully deductible. Where separate NHS and private indemnity cover is held, both are deductible against their respective income streams.

Consulting room and premises costs

Room hire at a private hospital, clinic, or consulting suite is fully deductible as a direct cost of generating income. Where a room at home is used for administrative work, HMRC’s flat rate of £6 per week (£312 per year) can be claimed without calculating actual costs, or an apportioned share of actual running costs can be claimed where home working is more substantial.

Medical equipment

Clinical equipment purchased for private practice qualifies for the Annual Investment Allowance, providing 100% tax relief in the year of purchase up to £1,000,000. A stethoscope, ophthalmoscope, portable diagnostic instrument, or specialist clinical tool is qualifying plant and machinery. A laptop used primarily for clinical work and administration is deductible with a private use adjustment where it is also used personally.

CPD and professional subscriptions

Specialist college memberships, royal college subscriptions, and professional society memberships are deductible. CPD course fees, conference registration, and clinical training costs are deductible as expenses of maintaining professional competence. Travel to CPD events is deductible at HMRC’s approved mileage rate of 45p per mile for the first 10,000 business miles.

Travel between clinical locations

Travel from home to private consulting locations — which are temporary workplaces for most private practitioners attending different clinics and hospitals — is deductible business travel. A contemporaneous mileage log is essential. HMRC scrutinises mileage claims in healthcare professional enquiries and reconstructed year-end logs are significantly weaker than daily records.

Accountancy fees

The cost of your Self Assessment return preparation, MTD quarterly submissions, and tax planning advice is fully deductible as a business expense.

What cannot be claimed

Ordinary clothing, food and drink consumed during the working day, travel from home to a permanent workplace, and parking fines all fail the wholly and exclusively test. The HMRC test is absolute — not mostly, not mainly, but wholly and exclusively.

IR35 in Private Practice: When Does It Apply?

For private practitioners operating through a limited company, IR35 is a live risk that must be assessed before the company structure is established.

IR35 applies where a doctor provides their personal services to a client through an intermediary (the company) in circumstances where, absent the company, they would be regarded as an employee. HMRC’s three key tests are control (does the client control how, when, and where the work is done?), substitution (can the doctor send a substitute?), and mutuality of obligation (is there an ongoing obligation to provide and accept work?).

In the public sector NHS trusts and NHS bodies the responsibility for IR35 determination sits with the engager, not the company. An NHS trust engaging a consultant through a personal service company must issue a Status Determination Statement. If determined inside IR35, the income is subject to employment-level tax and NIC regardless of the company structure.

For purely private sector engagements private hospital groups, private clinic companies, insurance providers — the off-payroll working rules apply where the engager is a medium or large business. Smaller private clinics that do not meet the medium or large threshold place the IR35 determination responsibility back with the personal service company.

A diversified private practice multiple private hospital sessions, medicolegal work, private outpatient clinics, and direct-to-patient work across several organisations — is typically in a stronger outside-IR35 position than a doctor contracted exclusively to a single private hospital group. The specific facts of each engagement determine the IR35 position and a blanket assessment covering all engagements is not sufficient.