Sole Trader vs Limited Company Calculator: Tax Comparison 2026/27
Whether to stay self-employed or incorporate is one of the most significant financial decisions a growing sole trader faces. Tax is part of the answer. Admin burden, extraction strategy, retained profit, commercial credibility and long-term plans are the rest. This page gives a detailed sole trader vs limited company comparison for 2026/27, with worked examples and a break-even analysis.
Written by James Whitfield · Last reviewed 19 October 2026 · Checked against 2026/27 HMRC rates · Editorial standards · Methodology
- Sole traders are taxed on every pound of profit as it arises; companies let you defer tax by retaining profit.3
- Class 4 NI is 6% between £12,570 and £50,270, then 2% - compulsory Class 2 ended in April 2024 (voluntary if profits are under £7,105).4
- At £50,000 fully extracted the sole trader edges ahead (£40,268 vs £38,862 take-home).1
- Incorporation wins at higher profits, when you retain cash, or when you can split dividends with a spouse.2
Sole traders are taxed on every pound of profit in the year it is earned; a company lets you retain post-tax profit and choose when to draw it. That flexibility, not a bigger headline take-home, is the real reason to incorporate.
On £50,000 fully extracted the sole trader keeps £40,268 against the company's £38,862. In these full-extraction illustrations (sole director, £12,570 salary, the rest paid out as dividends, no Employment Allowance, no other income) the sole trader stays ahead as profit rises; incorporation can win when you leave money in the company, make employer pension contributions, or when dividends can be split with a shareholding spouse.
- ·Sole trader: taxed on all profit yearly
- ·Company: 19-25% CT, then dividend tax on extraction
- ·£50k full extraction: sole trader +£1,406
- ·Company wins higher up and on retention
Contents ▾
- 1. Worked example: limited company vs sole trader on £50,000
- 2. How the two structures are taxed
- 3. National Insurance: the key structural difference
- 4. Break-even analysis: when is a limited company more efficient?
- 5. Worked example at £60,000 profit
- 6. Worked example at £100,000 profit
- 7. Accounting costs: the real-world reduction to the saving
- 8. Administration and compliance
- 9. Retained profit, pensions and other factors
- 10. Running an honest comparison
Worked example: limited company vs sole trader on £50,000
Take the same £50,000 profit through both structures, extracting everything. The sole trader pays income tax plus Class 4 NI; the company director pays corporation tax then dividend tax on a £12,570-salary split.
| Sole trader - income tax + Class 4 NI£7,486 income tax + £2,246 Class 4 at 6% | -£9,732 |
| Sole trader take-home | £40,268 |
| Limited company - corporation tax + dividend tax£6,896 corporation tax + £1,136 employer NI + £3,107 dividend tax | -£11,138 |
| Limited company take-home (full extraction) | £38,862 |
| Difference at £50k (full extraction) | Sole trader +£1,406 |
This surprises people: at £50,000, extracting every penny, the sole trader is actually a touch ahead. The limited company's edge is not the headline full-extraction take-home at this level - it is what you can do that a sole trader cannot. Retained profit sits in the company taxed only at 19% until you choose to draw it, so you can leave money in for a lower-income year, split dividends with a shareholding spouse, or fund a pension from pre-tax profit. Whether the company comes out ahead depends on those choices: in our full-extraction illustrations (sole director, £12,570 salary, the rest paid out as dividends, no Employment Allowance, no other income) the sole trader stays ahead at higher profits too, but retained profit, employer pension contributions, the Employment Allowance (if the company has another employee) or other shareholders can change the result.
How the two structures are taxed
As a sole trader, income tax and Class 4 NI are calculated directly on your taxable profit. There is no legal separation between you and the business. The profit is yours and your personal tax follows from it.
As a limited company director, the company pays corporation tax on its profits: 19% on profits up to £50,000, 25% above £250,000, with marginal relief in between for 2026/27. You then extract income as a combination of director salary and dividends. Salary is subject to income tax, employee NI and employer NI. Dividends are taxed at lower rates (10.75% basic, 35.75% higher, 39.35% additional) and carry no NI, but they can only come from post-corporation-tax profit.
The headline advantage of a limited company is that dividend tax rates are lower than income tax rates at equivalent income levels, and NI does not apply to dividends. But employer NI on the salary, corporation tax on profits and the extra filing and accountancy obligations all reduce the theoretical saving.
National Insurance: the key structural difference
NI is where the structural difference is most visible. A sole trader pays Class 4 NI at 6% on profits between £12,570 and £50,270, and 2% above. At £60,000 profit, Class 4 NI is about £2,457. Class 2 NI is no longer compulsory for 2026/27 — it ended as a compulsory charge from April 2024 (voluntary Class 2, £3.65 a week, remains for profits under £7,105).
A limited company director taking £12,570 salary pays zero employee NI on that salary, because the 8% rate only starts above £12,570. Taking salary at or below £5,000 avoids employer NI entirely and still incurs no employee NI.
The company pays employer NI at 15% on salary above £5,000 (the secondary threshold for 2026/27). On a £12,570 salary that is £1,135.50. Dividends attract no NI at all. For a director extracting £60,000 as £12,570 salary plus £47,430 dividends, total NI is £1,135.50 (employer NI only), versus about £2,457 Class 4 NI for a sole trader at £60,000 of profit.
Break-even analysis: when is a limited company more efficient?
For 2026/27, in our illustrated full-extraction scenarios (sole director, £12,570 salary, the rest paid out as dividends, no Employment Allowance, no other income), a limited company does not beat being a sole trader on tax at any of the profit levels shown: 15% employer NI, corporation tax and the higher 10.75% and 35.75% dividend rates close the old gap. Add £1,000–£2,000 a year of extra accountancy and the sole trader is ahead. That is not a general rule that incorporation is tax-inefficient: retained profit, employer pension contributions, the Employment Allowance or other shareholders can change the result.
At £35,000 profit: a sole trader pays £4,486 income tax plus £1,345.80 Class 4 NI, total £5,831.80. A limited company at the same profit, with a £12,570 salary and all £17,248.55 of post-tax profit taken as dividends, pays £4,045.95 corporation tax, £1,135.50 employer NI and £1,800.47 dividend tax, total £6,981.92. The sole trader keeps about £1,150 more.
At £60,000 the two are almost level (the sole trader keeps about £20 more), and at £80,000 to £100,000 full extraction leaves the company owner roughly £1,900 to £4,100 behind. Above about £50,000 of profit the company only pulls ahead if you leave some profit in it or route it into a pension, so the decision turns on how much you need to draw each year.
Worked example at £60,000 profit
Sole trader at £60,000 profit (England, 2026/27): income tax is £11,432 — 20% on the £37,700 basic-rate band plus 40% on the £9,730 above it. Class 4 NI: 6% × (£50,270 − £12,570) = £2,262, plus 2% × (£60,000 − £50,270) = £195, so about £2,457. Total tax: about £13,889. Take-home: about £46,111.
Limited company at £60,000 profit: director takes £12,570 salary. Employer NI: £1,135.50. Taxable profit: £60,000 − £12,570 − £1,135.50 = £46,294.50. Corporation tax at 19%: £8,795.95. Post-tax profit for dividends: £37,498.55. Director takes all as dividends. Dividend tax: £500 allowance, then £36,998.55 at 10.75% = £3,977.34. Total tax: £13,908.79. Personal take-home: £46,091.21.
The difference at £60,000 is tiny: about £20 a year in the sole trader's favour, before extra accountancy costs. The limited company's real advantage at this level is flexibility. If you do not need to extract all profit immediately, the £37,498.55 of post-tax profit can stay in the company and can be extracted in a future year at a lower rate.
Worked example at £100,000 profit
Sole trader at £100,000 profit (England, 2026/27): income tax is about £27,432 (20% on £37,700, 40% on £49,730). Class 4 NI: 6% × £37,700 = £2,262, plus 2% × £49,730 = £995, so about £3,257. Total tax: about £30,689. Take-home: about £69,311.
Limited company at £100,000 profit: director takes £12,570 salary, employer NI £1,135.50. Taxable profit: £86,294.50. Corporation tax at marginal relief: £19,118.04. Post-tax dividends available: £67,176.46. Director takes £37,200 in basic-rate dividends. Total personal income: £49,770. Dividend tax: 10.75% × £36,700 = £3,945.25. Total tax across company and director: £24,198.79. Personal take-home from current income: £45,824.75, with £29,976.46 retained in the company.
If the director takes all available profit as dividends, dividend tax is £14,536.83 because about £29,476 falls into the 35.75% band. Full extraction take-home: £65,209.63. Total tax: £34,790.37. Compared with the sole trader's £30,688.60, the company is about £4,100 worse on full extraction. But if profit is partially retained, the picture changes significantly.
Accounting costs: the real-world reduction to the saving
Sole trader accountancy: a straightforward Self Assessment return typically costs £300–£800 per year. If your finances are simple, you can file your own return at no cost. Basic record-keeping is all you need.
Limited company accountancy: annual accounts to Companies House standard, a corporation tax return, a PAYE payroll and a confirmation statement. Total cost is typically £1,200–£2,000 per year, with some accountants charging more for complex extraction strategies. DIY is possible but carries more risk.
The net saving from incorporation must be calculated after deducting the extra accountancy cost. On this site's 2026/27 full-extraction figures the company is already behind before fees (about £1,406 at £50,000 and £1,946 at £80,000), so the extra accountancy cost widens the gap. Any saving has to come from retaining profit in the company or paying it into a pension, and it needs to be bigger than the extra fees.
Administration and compliance
Sole trader obligations are light: register as self-employed with HMRC, file a Self Assessment return each year, pay tax on time and keep basic business records. No Companies House involvement, no company accounts.
A limited company requires registration at Companies House, annual confirmation statements, annual accounts, a corporation tax return, a PAYE payroll and consistent separation of company and personal finances. These are legal obligations, not optional.
The extra accountancy cost of a limited company versus a sole trader is typically £1,000–£2,000 per year. That must be included in any comparison. A £500 annual tax saving that comes with a £1,500 additional accountancy bill is not a saving.
Retained profit, pensions and other factors
Retained company cash is one of the most powerful features of a limited company, and it is one that sole trader comparisons often miss. If you do not need every pound of profit immediately, the company retains it after paying corporation tax. You can extract it later, possibly at a more favourable personal tax rate, or reinvest it.
Company pension contributions reduce company profit before corporation tax and carry no NI. The same retirement saving made via a limited company costs less in total tax than an equivalent personal contribution as a sole trader. A £10,000 company pension contribution saves £1,900–£2,500 in corporation tax with no NI cost. A sole trader making the same contribution gets income tax relief but still pays Class 4 NI on the full underlying profit.
Some clients and public sector contracts require limited company status, which removes the tax comparison as the deciding factor. If your target work requires a company, the question becomes one of timing and transition planning rather than whether to incorporate.
Running an honest comparison
Use SoleTraderTaxCalculator.co.uk for the sole trader result and this calculator for the limited company model. Enter the same profit on both.
Keep the commercial inputs identical: same profit, same pension, same other income. Change only the structure. That way the comparison shows a real structural difference rather than two different businesses.
If you are seriously considering incorporating, talk to a qualified accountant before acting. The comparison changes depending on your extraction needs, pension strategy, household cash requirements and whether you have an accountant who can handle the extra compliance efficiently.
Frequently asked questions
Does a limited company always save tax?+
No. The saving depends on profit level, extraction strategy, admin cost, retained profit plans and personal income. For 2026/27, if you draw out all the profit each year, a sole trader usually pays less tax at every common profit level. The company only saves tax when part of the profit is retained, paid into a pension or shared with another shareholder.
What profit level is typically worth incorporating at?+
There is no single profit level. In our 2026/27 full-extraction illustrations (sole director, £12,570 salary, the rest paid out as dividends, no Employment Allowance, no other income) the sole trader keeps more at every profit level shown. A company can come out ahead when you do not need to extract everything, make employer pension contributions, can use the Employment Allowance, or have other shareholders — so run your own figures.
How do I run a fair comparison?+
Use the same profit assumption on both. SoleTraderTaxCalculator.co.uk for the sole trader figure, this calculator for the limited company. Compare personal take-home and total tax on identical commercial inputs.
What NI does a sole trader pay compared to a director?+
A sole trader pays Class 4 NI at 6% on profits between £12,570 and £50,270, and 2% above. A director taking salary at or below £5,000 pays zero NI personally and the company pays no employer NI. A director at £12,570 salary pays no personal NI, and the company pays £1,135.50 employer NI (covered by the Employment Allowance if eligible). Dividends attract no NI for either structure.
Can I incorporate mid-year?+
Yes. An accountant can plan the transition to minimise disruption and handle the correct treatment of any overlap period between sole trader and limited company phases.
Is the sole trader vs limited company calculator comparison available on this site?+
Yes. Use the main calculator here for the limited company estimate and SoleTraderTaxCalculator.co.uk for the sole trader figure. Enter the same profit on both to get a like-for-like comparison.
Where these figures come from
The rates and rules on this page are drawn from the official UK government sources below, using the confirmed 2026/27 figures. Each link opens the relevant HMRC, GOV.UK or Companies House page in a new tab.
- Corporation Tax rates and reliefs www.gov.uk/corporation-tax-rates
- Tax on dividends www.gov.uk/tax-on-dividends
- Set up as a sole trader www.gov.uk/set-up-sole-trader
- Set up a limited company www.gov.uk/limited-company-formation
Estimate your limited company tax
The limited company tax calculator turns this guidance into a concrete estimate for corporation tax, dividends and personal take-home, based on 2026/27 HMRC rates.