Sole Trader vs Limited Company Calculator
Should you trade as a sole trader or set up a limited company? Run your profit through both structures and see the take-home difference under UK 2026/27 tax law.
Sole trader wins by (per year)
£251
Sole trader take-home
£46,111
Ltd Co take-home
£45,860
Sole trader
- Gross profit
- £60,000
- Income tax
- -£11,432
- Class 4 NI (6% / 2%)
- -£2,457
- Take-home
- £46,111
Limited company
- Gross profit
- £60,000
- Director salary (taken pre-CT)
- £9,100
- Employer NI on salary
- -£615
- Corporation Tax
- -£9,576
- Dividend distributed
- £40,709
- Personal income tax on salary
- -£0
- Employee NI on salary
- -£0
- Dividend tax (10.75% / 35.75% / 39.35%)
- -£3,949
- Take-home
- £45,860
Why sole trader often wins under 2026/27 rules
Three back-to-back tax changes shifted the sole-trader vs Ltd Co maths against incorporation:
- Class 4 NI dropped from 9% to 6% in April 2024 (cheaper sole trader)
- Employer NI rose from 13.8% to 15% AND the Secondary Threshold dropped from £9,100 to £5,000 in April 2025 (more expensive Ltd Co salary)
- Dividend tax rose by 2pp in April 2026 - basic 8.75% to 10.75%, higher 33.75% to 35.75% (more expensive Ltd Co distributions)
The old rule of thumb that incorporating saves money above £30k-£40k of profit no longer holds in most cases. Even a £9,100 director salary now triggers £615/year of employer NI.
Frequently Asked Questions
Why has the sole-trader vs Ltd Co maths changed so much recently?
Three back-to-back tax changes shifted the equation. Class 4 self-employed NI dropped from 9% to 6% in April 2024, making sole trader status cheaper. Employer NI rose from 13.8% to 15% AND its Secondary Threshold dropped from £9,100 to £5,000 in April 2025, hitting any Ltd Co paying a director salary. Dividend ordinary rate rose 8.75% to 10.75% and the upper rate rose 33.75% to 35.75% in April 2026. The combined effect: the old "incorporate above £30k profit" rule of thumb no longer holds.
What director salary should I take from a Ltd Co?
Since April 2025 there is no longer an "NI-free" salary option. The Employer Secondary Threshold dropped from £9,100 to £5,000, so a £9,100 salary triggers £615/year of employer NI and a £12,570 salary triggers £1,135/year. The £12,570 salary often wins because the income tax saved on the dividend distribution can be greater than the employer NI cost, but this depends on your profit level. Run the numbers for your exact profit, or speak to your accountant.
Does this calculator include accountancy fees?
No - it compares pure tax outcomes only. A typical UK Ltd Co accountant charges £80-£150/month for full bookkeeping, payroll, and filings. A sole trader accountant typically costs £25-£60/month for similar service. If the take-home advantage of Ltd Co is less than the £600-£1000/year extra accountancy bill, sole trader is the better choice.
What other reasons might favour a limited company?
Non-tax reasons that still favour incorporating: limited liability protection from business creditors, professional credibility for B2B clients, the ability to retain profits inside the company (paying CT but not personal tax) for future investment, and pension contributions from the company that exceed personal limits. If you want any of these, the take-home maths is a secondary consideration.
What about IR35?
If you contract through a Ltd Co and your engagement is inside IR35, your client must apply PAYE to your fees and the Ltd Co structure provides almost no tax advantage over being on payroll directly. This calculator assumes a genuinely independent business outside IR35. If you are contracting, use the IR35 calculator instead.
Should I move from Ltd Co back to sole trader?
Possibly. If the calculator shows sole trader saves you meaningful money at your current profit, the mechanical steps are straightforward: stop trading through the Ltd Co, register as a sole trader, and ultimately strike off the company or hold it dormant. Watch out for the Members Voluntary Liquidation route if you have retained profits over about £25k - it can be tax-efficient via Business Asset Disposal Relief at 10% in many cases. Disincorporation also has knock-on effects (loss of limited liability, VAT, contracts in the company name), so take this question to your accountant before acting.
Are the tax bands frozen?
Yes - the Personal Allowance (£12,570), higher-rate threshold (£50,270), and additional-rate threshold (£125,140) are all frozen until April 2028. With wage growth and inflation, more sole traders and director-shareholders will drift into higher bands each year. This is sometimes called fiscal drag and is the biggest stealth tax in UK personal finance.
Is it better to be a sole trader or a limited company in 2026?
For many single-director businesses earning under £80,000 of profit, sole trader is now the cheaper and simpler choice in 2026-27 on a pure tax basis. The April 2024 Class 4 NI cut, the April 2025 employer NI hike, and the April 2026 dividend tax rises shifted the balance materially toward sole-trader status. Above roughly £80k of profit, a Ltd Co tends to pull ahead by a few thousand a year, mostly because of the ability to retain profit and route pension contributions through the company. Run your exact number through the calculator and speak to your accountant before committing either way.
Do I save tax by incorporating?
Not automatically. At £30,000 of profit, a sole trader is materially cheaper. At £50,000, the two structures land within about £1,000 of each other before accountant fees, so the £600-£1,000 extra Ltd Co compliance bill typically wipes out the tax saving. At £80,000 and above, a Ltd Co usually wins on tax alone, before you even count the pension and retained-profit advantages. The honest answer is "it depends on your profit, your need for pension contributions, and what your accountant costs".
When should I switch from sole trader to Ltd?
Common triggers are one of three things: profit pushing past £80,000 (where tax savings start to outpace compliance cost), wanting to put £20,000+ a year into a pension via the company, or being asked by a client to operate as a Ltd Co for the contract to proceed. If none of those apply, staying sole trader is often the right call in 2026-27 on the tax maths alone. Switching is sticky in practical terms (you can strike off a Ltd Co but it is paperwork), so think twice before incorporating speculatively. Confirm with your accountant before committing.
What about Scotland?
The Scottish income tax bands apply to sole trader profit (and to the salary portion of a Ltd Co director's income). Scottish bands hit higher rates earlier than English ones, which can worsen the sole-trader number for Scottish residents on profit above the Scottish higher-rate threshold. National Insurance and corporation tax are UK-wide and unchanged. The current calculator uses England, Wales and NI bands - if you pay Scottish income tax, treat the sole-trader figure as an upper bound on your take-home and run the bands manually.
Related reading
Sole trader cash management UK
How to handle the gap between client payment and tax bill without panic.
What is IR35?
The contractor rule that flips the sole-trader vs Ltd Co maths on its head.
UK dividend tax guide
The April 2026 rate rises that hit director-shareholders hardest.
Salary sacrifice pension UK
The pension lever that works inside a Ltd Co but not a sole trader.
How sole trader vs limited company tax actually differ in 2026-27
A sole trader pays income tax (20%, 40%, 45%) and Class 4 National Insurance (6% from £12,570 to £50,270, then 2% above) on all business profit, plus a flat weekly Class 2 NI. A limited company pays corporation tax first (19% on profit up to £50,000, marginal relief in the £50k-£250k band, 25% above), and the director then draws income via a low salary and dividends.
The conventional Ltd setup takes a £9,100 director salary (just below the employer NI Secondary Threshold) and the rest of company income as dividends taxed at 8.75%, 33.75%, and 39.35% above the £500 dividend allowance. The calculator runs both structures side-by-side at your stated profit using the 2026-27 rates and shows the take-home delta net of typical Ltd compliance overhead (accountant, Companies House filings).
Rough rule of thumb on those 2026-27 figures: below ~£25,000 of annual profit, sole trader is usually cheaper and is materially less paperwork. Between £30,000 and £50,000 the two structures tend to land within roughly £1,000 of each other after fees. Above ~£80,000, Ltd often pulls ahead by several thousand pounds per year, mostly because of the ability to retain profit, time dividend extraction, and salary-sacrifice into a pension from the company. Your own answer depends on profit level, pension goals, and accountant fees - the calculator gives you the tax delta, not a recommendation.
Educational calculator only. Not personalised tax or legal advice. UK tax rates, allowances, and thresholds can change, and Scotland sets its own income tax bands. Speak to a qualified accountant before changing your business structure.
The complete guide
Sole Trader vs Limited Company: 2026-27 UK Tax Guide
Sole trader vs limited company UK tax comparison for 2026-27. Worked example at £50k profit, why the old "incorporate above £40k" rule is dead, and when Ltd Co still wins.
Most UK self-employment advice on the internet was written before April 2024. It tells you to incorporate the moment your profit crosses £30,000 or £40,000 because the tax saving will more than cover the accountant. Run the actual 2026-27 numbers and that advice no longer holds for the majority of single-director consultancies and trades.
Our sole trader vs limited company calculator runs your profit through both structures using current rates and shows you the take-home delta in cash. This guide explains what the calculator is doing, why the maths shifted, and the non-tax reasons a Ltd Co might still be the right call even when sole trader looks cheaper on paper.
Contents
- The structural difference between the two
- Why sole trader often wins in 2026-27
- How the calculator runs the comparison
- Worked example: £50,000 profit
- When a limited company still wins
The structural difference between the two
A sole trader and their business are the same legal entity. HMRC taxes every pound of profit as your personal income. You pay income tax at 20%, 40% or 45% above the £12,570 personal allowance, plus Class 4 National Insurance at 6% on profit between £12,570 and £50,270 and 2% above. There is also a small flat Class 2 NI contribution (now collected through self-assessment) which counts toward state pension entitlement. You file one self-assessment return a year and that is the entire compliance load.
A limited company is a separate legal person. The company earns the revenue, pays its costs, and is left with a profit. That profit is taxed at corporation tax rates: 19% on the first £50,000, marginal relief tapering up to 25% between £50,000 and £250,000, and 25% above £250,000. The director then needs to extract that money to live on, and they do that in two ways: a small salary (taxed as employment income and subject to employer plus employee NI above the relevant thresholds) and dividends (paid out of post-corporation-tax profit and taxed at 8.75% basic, 33.75% higher, and 39.35% additional, with a £500 tax-free allowance).
Crucially, money inside the Ltd Co has only been hit once (corporation tax) until you pay it out. That is what makes the structure useful for income smoothing and pension contributions. But every pound you want to spend personally has to make it through both layers.
Why sole trader often wins in 2026-27
Three back-to-back tax changes broke the conventional wisdom.
April 2024: Class 4 NI cut from 9% to 6%. A sole trader making £50,000 of profit now pays £2,262 in Class 4 NI instead of £3,393. That is over £1,100 a year of pure sole-trader savings versus the old regime.
April 2025: Employer NI rose from 13.8% to 15% and the Secondary Threshold dropped from £9,100 to £5,000. The Secondary Threshold is the salary level above which the employer (in our case, the Ltd Co you own) starts paying employer NI. Pre-April 2025, a £9,100 director salary triggered zero employer NI. Now that same £9,100 salary triggers £615 a year, and the higher £12,570 salary triggers £1,135 a year. There is no longer any salary level that escapes the charge entirely.
April 2026: Dividend ordinary rate up from 8.75% to 10.75%, upper rate up from 33.75% to 35.75%. Layered on top of an already-reduced £500 dividend allowance (down from £2,000 in 2022/23), every pound of distributed dividend is more expensive than at any point since the modern dividend tax regime was introduced.
Stack those three and the maths against incorporation got materially worse at exactly the same time the maths for sole trader status got better. The old "incorporate above £30k-£40k" rule of thumb assumed 9% Class 4 NI on the sole trader side and zero employer NI on the Ltd side. Both numbers have moved several percentage points in the sole trader's favour.
How the calculator runs the comparison
You give the calculator two inputs: your annual profit before any owner draw, and your preferred director salary (£9,100 or £12,570). It then runs both structures in parallel using 2026-27 rates.
On the sole trader side it calculates income tax across the bands on profit above £12,570, adds Class 4 NI at 6% / 2%, and returns take-home pay. Simple, because the structure is simple.
On the Ltd Co side it takes the director salary out of company profit first (this is a deductible expense and reduces corporation tax). It calculates employer NI on the portion of salary above the £5,000 Secondary Threshold. It applies corporation tax to whatever profit remains. It distributes the post-tax profit as a dividend. Then on your personal side it applies income tax and employee NI to the salary, and dividend tax to the distribution (using your remaining personal allowance against the salary first, then the £500 dividend allowance, then the dividend bands).
The two numbers at the bottom are like-for-like: the cash that ends up in your personal account after every layer of tax has been paid. The "winner" pill above shows which structure delivers more, and by how much. Try a few profit levels: £30k, £50k, £80k, £150k. The relative advantage shifts as you climb the bands.
Worked example: £50,000 profit
Take a single-director business earning £50,000 of pre-tax profit. Director salary set at £9,100 on the Ltd Co side.
Sole trader: Income tax on the £37,430 between the personal allowance (£12,570) and £50,000 at 20% = £7,486. Class 4 NI at 6% on the £37,430 above £12,570 = £2,246. Total tax: £9,732. Take-home: £40,268.
Limited company: Salary of £9,100 leaves £40,900 of company profit. Employer NI on the £4,100 of salary above £5,000 at 15% = £615. Corporation tax at 19% on the remaining £40,285 (£40,900 minus £615) = £7,654. That leaves £32,631 to distribute as a dividend. On the personal side: the £9,100 salary uses part of the personal allowance, leaving £3,470 of allowance to set against the dividend; then the £500 dividend allowance; then the basic-rate dividend band at 10.75% on roughly £28,661 = £3,081 of dividend tax. No employee NI on the salary (it is below the Primary Threshold). Take-home: roughly £38,650.
That is a sole-trader lead of around £1,600 a year on tax alone. A sole trader accountant typically charges £25-£60 a month, while a Ltd Co accountant charges £80-£150 a month for the extra payroll, Companies House, and statutory accounts work. That is another £600-£1,000 a year of advantage to the sole trader once you net off the compliance overhead.
At £50k of profit, on the conventional setup, the Ltd Co structure currently costs you money.
When a limited company still wins
The take-home delta is not the only thing that matters. Several scenarios still tip clearly toward incorporation.
Pension contributions paid by the company. A Ltd Co can pay an employer pension contribution direct from company profit. That contribution is a deductible expense for corporation tax, reduces the dividend tax you would otherwise have paid, and does not eat your £60,000 personal annual allowance in the same restrictive way (it is the employer paying, not you). For a single-director Ltd Co putting £20,000 a year into a pension, this lever alone can reverse the sole-trader advantage shown above. See our salary sacrifice optimiser for the employed equivalent and how the maths compare.
Retained profit for income smoothing. A sole trader is taxed on every pound of profit in the year it is earned, whether they spend it or not. A Ltd Co director can leave profit inside the company (paying only corporation tax), then time dividend extractions to fall in lower-income years (sabbatical, parental leave, switch to part-time). This is a real structural advantage for anyone with lumpy income.
Limited liability. If your work carries any material risk of being sued (consultancy with high-value advice, trades involving property, anything regulated), the limited company sits between your business creditors and your personal assets. A sole trader's house is on the table; a Ltd Co director's typically is not.
B2B credibility. Larger corporate clients sometimes require their suppliers to be limited companies before they will sign a contract. If you are pitching to enterprise buyers, the £200/month accountant is a cost of entry, not a tax-optimisation question.
Contracting through IR35. If you contract through a Ltd Co and your engagement is inside IR35, the deemed-payment rules largely strip out the dividend advantage. Run the numbers through our IR35 calculator before assuming the Ltd is doing anything for you. The take-home pay calculator covers the inside-IR35 PAYE equivalent for comparison.
For freelancers thinking about applying for a mortgage as a sole trader, our self-employed mortgage guide explains how lenders treat SA302s and net profit, and SA302 form explained walks through what HMRC produces and how brokers read it.
Educational guide only. Not personalised tax, legal, or financial advice. UK tax rates, thresholds, and reliefs can and do change between Budgets, and Scotland sets its own income tax bands. The figures above were correct for the 2026-27 tax year at time of writing; verify against gov.uk and speak to a qualified accountant before changing your business structure.