Sole trader vs limited company calculator
Compare both routes on the same profit, with the 2026/27 dividend rates and the traps that most comparisons leave out.
Rates for 2026/27, verified 7 August 2026 against Corporation Tax rates and reliefs
- Sole trader take-home
- £46,111
- Company take-home
- £46,091
- Running costs
- £1,200
Taking every penny out of a company is expensive in 2026/27.Profit above £50,000 bears corporation tax at 26.5% at the margin, and what is left is taxed again as a dividend at 35.8% — 52.8% combined. A higher rate sole trader pays 42%. Try "only what I need" above: the company advantage comes from leaving profit in, not from taking it all out.
The Employment Allowance does not help you.It is worth up to £10,500, but a company whose sole employee is also a director cannot claim it. Your company pays £1,136 of employer National Insurance on the salary. Many comparison tools quietly apply the allowance anyway and overstate the case for incorporating.
| Sole trader | Limited company | |
|---|---|---|
| Salary | — | £12,570 |
| Employer NI | — | £1,136 |
| Corporation tax | — | £8,796 (19%) |
| Income tax | £11,432 | £0 |
| Class 4 / employee NI | £2,457 | £0 |
| Dividend tax | — | £3,977 |
| Total tax | £13,889 | £13,909 |
| Cash in hand | £46,111 | £46,091 |
The answer changed in April 2026
For years the standard advice was simple: past about £30,000 of profit, incorporate. Three changes have undermined that, and the last one landed this tax year.
- Employer National Insurance rose to 15% and its threshold fell to £5,000. A director on a £12,570 salary now costs the company £1,136 in employer NI alone.
- Corporation tax is 26.5% at the margin between £50,000 and £250,000 of profit — higher than the 25% headline, because marginal relief is clawed back.
- Dividend rates rose 2 points on 6 April 2026, to 10.75% and 35.75%.
Why full extraction is now the expensive route
Stack those together and taking the next pound of profit out of a company in the marginal corporation tax band costs 26.5% in corporation tax, then 35.75% on what is left — 52.78% combined. A higher rate sole trader pays 40% income tax plus 2% Class 4 National Insurance — 42%.
So if you need every penny of profit each year, a limited company is now usually the more expensive option. That is the opposite of the conventional wisdom, and it is why the calculator above defaults to showing you both.
Where the advantage actually lives
The company wins when you do not need to draw everything. Profit left inside the company has borne corporation tax but no dividend tax, and that tax is deferred until you take it out — in a later year, at a lower rate, spread across two tax years, or eventually through a members' voluntary liquidation. A sole trader has no such choice: all profit is taxed in the year it is earned, whether or not it is spent.
Set the calculator to "only what I need" to see this. It is also why a company suits a business with lumpy profits, and why the honest answer to "should I incorporate?" depends far more on your spending than on your turnover.
The Employment Allowance trap
The Employment Allowance is worth up to £10,500 of employer National Insurance. A company whose only employee is also a director cannot claim it. Most one-person companies therefore pay employer NI in full, and a great many comparison tools quietly apply the allowance anyway, overstating the case for incorporating by over a thousand pounds.
Full extraction compared, 2026/27
| Profit | Sole trader keeps | Company keeps | Difference |
|---|---|---|---|
| £30,000 | £25,468 | £24,403 | − £1,065 |
| £50,000 | £40,268 | £38,862 | − £1,406 |
| £60,000 | £46,111 | £46,091 | − £20 |
| £80,000 | £57,711 | £55,765 | − £1,947 |
| £100,000 | £69,311 | £65,210 | − £4,102 |
| £150,000 | £92,040 | £86,759 | − £5,281 |
| Profit | Rate |
|---|---|
| Up to £50,000 | 19% |
| £50,000 to £250,000 | 26.5% at the margin |
| Above £250,000 | 25% |
| Band | 2025/26 | 2026/27 |
|---|---|---|
| Ordinary (basic) | 8.75% | 10.75% |
| Upper (higher) | 33.75% | 35.75% |
| Additional | 39.35% | 39.35% |
| Dividend allowance | £500 | £500 |
What the numbers leave out
Tax is only part of this decision, and the non-tax factors often matter more.
- Limited liability. A company is a separate legal person. A sole trader is personally liable for business debts. For anything with real risk attached this can outweigh every tax consideration here.
- Pension contributions. A company can contribute to your pension as an allowable expense with no NI and no income tax, which is often the most efficient extraction route of all and is not modelled here.
- IR35 and off-payroll working. If you contract through a company for a single client, the rules may treat you as an employee for tax. That changes everything and this calculator does not assess it.
- Splitting income with a spouse. A genuine shareholding can use a second personal allowance and basic rate band. It must be a real commercial arrangement, not a paper one.
- Admin and disclosure. A company means statutory accounts, a confirmation statement, a corporation tax return, PAYE, and your accounts and address publicly visible at Companies House.
- Getting out is not free. Closing a company with retained profit means a striking-off or a liquidation, each with its own cost and tax treatment.
This is a tax comparison, not advice. Incorporating is difficult to unwind and interacts with IR35, VAT, pensions and your personal circumstances. Speak to an accountant before deciding.
Frequently asked questions
At what profit is it worth going limited in 2026/27?
There is no longer a clean threshold. If you draw all the profit each year, a sole trader is usually cheaper at almost every level once the 2026/27 dividend rates and 15% employer NI are counted. A company pulls ahead when you can leave profit inside it, when you want limited liability, or when company pension contributions are part of the plan.
What salary should a director take?
Usually the personal allowance of £12,570. It uses the allowance in full and the whole salary plus the employer NI on it is deductible against corporation tax, which more than offsets the NI cost. A lower salary of £5,000 avoids employer NI but wastes allowance and, being below the £6,708 Lower Earnings Limit, does not earn a State Pension year.
Can I claim the Employment Allowance as a one-person company?
No. A company whose only employee is also a director is specifically excluded. Taking on a second employee earning above the secondary threshold can make the company eligible, but only if that is a genuine employment.
Why is corporation tax 26.5% and not 25%?
Between £50,000 and £250,000 of profit, marginal relief is withdrawn as profits rise. The company pays the 25% main rate less a relief of 3/200 of the gap to £250,000, so each additional pound of profit in that range is effectively taxed at 26.5%. Above £250,000 the rate settles back to a flat 25%.
Do I have to take dividends every year?
No, and that flexibility is the main advantage. Profit can stay in the company indefinitely, having borne only corporation tax. You choose when to draw it — a later year, spread across two tax years, or eventually on winding the company up.
How much do accountants charge for a limited company?
Typically £900 to £2,000 a year for a small company, against £250 to £600 for a sole trader Self Assessment return. The calculator defaults to £1,200 of extra cost, which you can change. A tax saving smaller than the fee is not a saving.
Does this work for Scottish taxpayers?
Partly. Scottish rates apply to salary but not to dividends, which are taxed at UK rates everywhere. A Scottish sole trader pays Scottish rates on all profit, which shifts the comparison — usually making incorporation slightly more attractive there than elsewhere in the UK.
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Tax year 2026/27 · How we calculate · All rates and sources · What changed