Sole trader vs limited company calculator 2026/27
Is it worth becoming a limited company? In 2026/27, if you take all your profit out each year, usually not on tax alone: higher dividend tax and 15% employer National Insurance mean a company pays about the same or more tax than a sole trader at most profit levels. Any gain comes from leaving profit in the company, and that mostly delays tax. Compare both below.
Should I go limited? Compare the tax side by side
Enter your yearly profit before paying yourself. We'll work out the tax as a sole trader and as a one-director limited company, using 2026/27 rates for England, Wales and Northern Ireland. Nothing you enter is stored or sent anywhere.
Thinking of going limited?
Read our guide to setting up a limited company, or see how our accountancy service looks after sole traders and companies alike.
Your comparison
Enter your profit to compare a sole trader with a limited company.
You'll see the total tax, your take-home pay and any profit left in the company side by side, with a plain-English verdict and the assumptions behind it.
Is it worth becoming a limited company in 2026/27?
On tax alone, not usually, if you take all the profit out each year. On this calculator's assumptions, a one-director company paying a £12,570 salary and the rest as dividends pays more tax than a sole trader at almost every profit level. Without the Employment Allowance, it only edges ahead around £60,000 of profit, by about £15. With the allowance, it saves up to about £670 between roughly £54,000 and £67,000 of profit, and under £50 just above £12,570.
Three things drive this. Dividend tax rose by 2 percentage points on 6 April 2026, to 10.75% and 35.75%. Employers pay 15% National Insurance on salaries above £5,000. And sole traders pay Class 4 National Insurance of just 6% on profits between £12,570 and £50,270, with no Class 2 to pay.
Compare the tax on each extra pound of profit:
| Where the extra £1 falls | Sole trader | Company, paid out as a dividend |
|---|---|---|
| Basic rate band | 26% (20% + 6%) | 27.7% (19% Corporation Tax, then 10.75%) |
| Higher rate band | 42% (40% + 2%) | 48.0% to 52.8% (19% or 26.5% Corporation Tax, then 35.75%) |
| Additional rate band | 47% (45% + 2%) | 54.5% to 55.4% (25% or 26.5% Corporation Tax, then 39.35%) |
| Left in the business | Taxed in full, as above | 19% to 26.5% now, dividend tax when you take it out |
These are our calculations from the GOV.UK rates for England, Wales and Northern Ireland. Corporation Tax comes first, then dividend tax on what's left: 19% leaves 81p, and 10.75% of that is 8.7p, so 27.7p in all. Between £100,000 and £125,140 a sole trader also loses Personal Allowance, which pushes their rate higher.
What are the 2026/27 tax rates for each structure?
| 2026/27 | Sole trader | Limited company and director |
|---|---|---|
| Personal Allowance | £12,570, reduced by £1 for every £2 of income over £100,000 | £12,570, set against salary and then dividends |
| Income tax (England, Wales and NI) | 20% on taxable income up to £37,700, 40% up to £125,140, 45% above | The same bands, on salary |
| National Insurance | Class 4: 6% on £12,570 to £50,270, 2% above. No Class 2 to pay | Employee: 8% on £12,570 to £50,270, 2% above. Employer: 15% above £5,000 |
| Employment Allowance | Not applicable | Up to £10,500 a year, but not where the sole director is the only employee |
| Corporation Tax | Not applicable | 19% up to £50,000, 25% above £250,000, marginal relief in between |
| Dividend tax | Not applicable | £500 allowance, then 10.75%, 35.75% or 39.35% |
Sources: income tax rates, National Insurance rates, Employment Allowance eligibility and Corporation Tax rates, all on GOV.UK. Scottish taxpayers have different income tax bands on salary and trading profits.
Worked example: £50,000 of profit
A business makes £50,000 a year. The owner takes everything out and has no employees.
- Sole trader: income tax of £7,486.00 (20% of £37,430) and Class 4 National Insurance of £2,245.80 (6% of £37,430). Total tax £9,731.80, take-home £40,268.20.
- Limited company: a £12,570 salary costs £1,135.50 in employer National Insurance. Corporation Tax at 19% on the remaining £36,294.50 is £6,895.96, leaving £29,398.54 to pay as dividends. After the £500 allowance, dividend tax at 10.75% is £3,106.59. Total tax £11,138.05, take-home £38,861.95.
- Result: the sole trader keeps £1,406.25 more.
A business making £100,000 that only needs £40,000 a year pays £30,688.60 as a sole trader, who is taxed on all the profit. Through a company it pays £23,148.52 this year and leaves £39,746.46 in the business. Part of that £7,540.08 difference is tax put off rather than saved: the money left in the company is taxed as dividends when you draw it out. If the company paid out all its profit instead, it would pay £4,101.77 more tax than the sole trader.
When can a limited company still make sense?
- You'll leave profit in the business to fund growth, equipment or a cash buffer. That profit has only had Corporation Tax taken off.
- You want limited liability. Company owners are responsible for its debts only up to what they've invested; a sole trader is personally responsible for all of them.
- You want flexibility over when you're paid, such as timing dividends across tax years, or paying pension contributions from the company.
Against that, set the extra costs and admin: higher accountancy fees, a payroll for your director's salary, and every year accounts at Companies House, a Company Tax Return with HMRC and a confirmation statement (£50 online). Directors must also verify their identity with Companies House. Dividends over £10,000 in a tax year mean a Self Assessment return too. And anyone can see your company's officers and filed documents for free.
If you contract through your own company and would be an employee if the client took you on directly, the off-payroll working rules (IR35) mean you pay broadly the same income tax and National Insurance as an employee. Planning a mortgage? Talk to your broker first, as lenders assess directors differently from sole traders.
What this calculator doesn't cover
- Scottish income tax rates on salary and trading profits.
- Other income (a job, rent, savings or a pension), student loans, pension contributions and Gift Aid.
- A spouse or partner as a shareholder or employee: see our guide to paying your spouse and children.
- Other salary levels, associated companies, periods shorter than 12 months, and losses.
- Set-up and running costs, and any tax on moving an existing business into a company.
- Tax on profit drawn out later or on closing the company, and when each tax falls due.
For help with the decision itself, our business advisory service looks at your plans as well as the tax. If you're already a director, our tax savings calculator checks your mix of salary and dividends.
Related services, tools and guides
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Accountancy
Year-end accounts and tax returns for sole traders and limited companies, with George as your one point of contact.
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Business advisory
Help choosing the right structure for your plans, and planning ahead so there are no surprises.
Guide
Setting up a limited company
Ten tips for a new company, from shares and identity checks to registering for Corporation Tax and VAT.
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Tax savings calculator
Already a director? Compare how you pay yourself now with a £12,570 salary plus dividends, pension and your spouse.
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Self-employed tax calculator
Work out your income tax and Class 4 National Insurance as a sole trader in more detail.
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How to pay yourself as a director
Salary, dividends and pension for company directors at the 2026/27 rates.
Free white paper
Sole trader or limited company?
The strengths and weaknesses of each, and what each leaves in your pocket, with take-home figures at £30,000, £60,000 and £100,000 of profit. Free to download.
Frequently asked questions
Is it worth becoming a limited company in 2026/27?
Not on tax alone if you take all your profit out each year. With a £12,570 salary and the rest paid as dividends, a one-director company pays about the same or more tax than a sole trader at most profit levels, because of 15% employer National Insurance and the higher 2026/27 dividend tax rates. A company can still make sense if you leave profit in the business or want limited liability.
At what profit should I go limited?
There is no longer a simple profit figure. On our 2026/27 figures, a company that pays out all its profit saves at most about £670 a year, between roughly £54,000 and £67,000 of profit, and that is with the Employment Allowance. Without it, the two are roughly level at best. The case for a company rests more on how much profit you can leave in the business and on non-tax reasons.
Does leaving profit in a limited company save tax?
It mostly puts tax off. Profit left in a company only bears Corporation Tax, at 19% to 25%, or an effective 26.5% on profits between £50,000 and £250,000. A sole trader pays income tax and Class 4 National Insurance on all their profit, at up to 47% on each extra pound in England, Wales and Northern Ireland, or more where the Personal Allowance is being withdrawn. When you take money out of a company, you pay dividend tax at the rates for that year.
Why does the calculator use a £12,570 director's salary?
£12,570 is both the Personal Allowance and the threshold for employee National Insurance, so a director with no other income pays no income tax or employee National Insurance on it. The company pays employer National Insurance of 15% above £5,000, which is £1,135.50, unless it can claim the Employment Allowance. A sole director with no other employees can't claim it.
What extra costs and admin does a limited company bring?
Expect higher accountancy fees, plus Companies House fees such as £50 a year for an online confirmation statement. The company must file annual accounts at Companies House and a Company Tax Return with HMRC, run a payroll for your salary and keep proper records, and directors must verify their identity with Companies House. The company's details and its directors' names are on the public register.
Written and reviewed by George Nicholson BFP ACA, ICAEW Chartered Accountant. Last reviewed 20 October 2026. This page is general information, not personal advice.
Not sure whether to go limited?
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