The Three Options
- Partnership
- Simple, flexible and private. Partners are taxed on their profit share whether or not it is drawn, and they carry unlimited liability for the partnership obligations.
- Limited liability partnership
- Partnership flexibility with limited liability. Accounts are filed publicly. Members are still taxed as self-employed on their profit share.
- Limited company
- Separate legal entity, corporation tax on profits, and owners taxed on what they extract as salary or dividends. More administration, more public filing, and more control over the timing of extraction.
What Actually Decides It
Not the headline tax rate. The decision usually turns on four things: how much profit is retained rather than drawn, how many owners there are and how they want to be rewarded, whether the practice is likely to be sold and how, and how much administration the practice can absorb.
A practice retaining profit to fund equipment or expansion generally benefits from a company. A practice where every pound is drawn each year benefits far less, because the money is taxed on extraction regardless.
The Points Practices Miss
- Associated companies
- Where owners hold more than one company, the corporation tax marginal relief limits of £50,000 and £250,000 are divided between them. Group structures frequently produce a higher effective rate than expected.
- Property
- Whether the premises are inside or outside the trading entity has long-term consequences for tax on a sale and for retirement planning. Moving property later is expensive.
- Incorporation is not easily reversed
- Transferring a trade into a company has tax consequences at the point of transfer, including on goodwill, and unwinding it later is worse. This is a decision to model rather than to try.
- Bringing in owners
- Issuing shares to an employee is a different and more complicated event than admitting a partner, because of the employment-related securities rules.
When to Revisit
When profits move by a material amount in either direction. When an owner joins, retires or dies. When you buy premises. When a sale becomes a realistic prospect within five years. And every few years anyway, because the rules change.
Written by Veterinary Accountants UK editorial team. Published 3 August 2026.
Last reviewed 3 August 2026. [REVIEWER DETAILS REQUIRED BEFORE PUBLICATION]