Sole trader vs limited company
Should you stay a sole trader or incorporate? This compares your take-home both ways on the same profit — Income Tax and Class 4 NI against the company route of salary, corporation tax and dividends — and shows where the crossover sits.
Your business
As a sole trader
Through a limited company
Where the crossover sits
The 2026/27 answer has changed
For years the standard advice said incorporate somewhere around £30,000 of profit and bank the NI saving. The April 2026 dividend tax rise, to 10.75% at basic rate and 35.75% at higher, has quietly buried that rule of thumb. Run the numbers today and a sole director keeps more staying self-employed at £30,000 of profit (£1,715 more), at £60,000 (£671), at £90,000 (£3,449) and even at £120,000 (£2,682), once realistic accountancy costs for a company are in the picture. The old crossover point hasn't moved. It has, for the one-person business, largely disappeared.
What still tips it towards a company
The comparison flips in specific circumstances rather than at a magic profit level. A company with two or more people on payroll claims the £10,500 Employment Allowance, wipes out employer NI on directors' salaries, and at £60,000 of profit that alone nudges the company £150 ahead. Retaining profit changes everything: money left in the company suffers only Corporation Tax, so directors who don't need to draw it all can compound the difference. Add limited liability, employer pension contributions paid gross from the company, and the commercial polish of a Ltd on the invoice, and there are still good reasons to incorporate. Pure take-home on fully-drawn profit is just no longer one of them.
Digging further
The company route's moving parts each have their own tool: the director's pay planner for the salary, dividend and pension mix, the corporation tax calculator for the company's own bill, and the self-employed tax calculator for the sole-trader side of the ledger.
Common questions
Is it worth going limited in 2026/27?
Less clear-cut than it used to be. Higher dividend tax rates and 15% employer National Insurance have narrowed the gap, so at modest profits a sole trader often keeps as much or more once you allow for the extra accountancy and filing costs. A company tends to win at higher profits, when you can claim the Employment Allowance, or — most powerfully — when you leave profit in the company or pay it into a pension rather than drawing it all.
What does this calculator assume about the company route?
It assumes you take all profit out personally each year using the best standard mix of a small salary plus dividends, with corporation tax (including marginal relief) on the rest. It does not model pensions, student loans, retained profit or IR35 — all of which can change the answer, usually in the company’s favour if you can retain or pension profits.
What are the non-tax differences?
A company gives limited liability and can look more established to clients, but brings Companies House filing, statutory accounts, a separate bank account and typically £600–£1,500 a year in accountancy. Sole traders have simpler admin and easier access to their money, but are personally liable for business debts.
Can I switch from sole trader to limited company later?
Yes — incorporating an existing business is common and usually straightforward, and you can time it for the start of a tax year. Moving the other way (disincorporating) is messier. Many people start as sole traders and incorporate once profits are consistently above the crossover point.
These results are estimates for general information only and are not financial advice. Incorporation has consequences beyond tax — liability, admin, mortgage applications, pensions — so take proper advice before deciding. Read the full disclaimer.