Sole trader vs limited company calculator 2026/27
Enter one year's profit and see what you would keep as a sole trader and what you would keep running the same business through a limited company, after Income Tax, National Insurance, Corporation Tax and dividend tax. It uses 2026/27 UK rates and shows the profit level at which the answer changes.
2026/27 UK ratesRates checked 16/09/2026No sign-up required
Your figures
More options
No account. No email required. Your figures stay in your browser.
Side by side
The same profit, two structures.Where the answer changes
Where the profit goes
Built and reviewed by Luvero Accounting
- Reviewed by Dan Edwards FMAAT
- AAT licensed accountancy practice, Bawtry, South Yorkshire
- Tax rates last reviewed 16/09/2026
- How the calculators work
- Income Tax rates and allowances (GOV.UK)
- Self-employed National Insurance rates (GOV.UK)
- Rates and allowances: National Insurance contributions (GOV.UK)
- Corporation Tax rates and allowances (GOV.UK)
- Marginal relief for Corporation Tax (GOV.UK)
- Tax on dividends (GOV.UK)
- Rates and thresholds for employers 2026 to 2027 (GOV.UK)
- Employment Allowance (GOV.UK)
- Making Tax Digital for Income Tax (GOV.UK)
- Set up as a sole trader (GOV.UK)
- Set up a limited company (GOV.UK)
What this calculator works out
It takes one year's business profit and taxes it twice over. First as a sole trader: the profit is your income, so it carries Income Tax and Class 4 National Insurance and the rest is yours. Then as a limited company: the company pays you a salary, pays employer National Insurance on it, pays Corporation Tax on what is left, and pays the remainder to you as a dividend, on which you pay dividend tax. The result card shows what reaches you under each route and the difference between them.
How the calculation works
A sole trader's profit is taxed as ordinary income: nothing on the first £12,570, 20 per cent to £50,270, 40 per cent to £125,140 and 45 per cent above. Class 4 National Insurance adds 6 per cent on profit between £12,570 and £50,270 and 2 per cent above. Class 2 is no longer a cost: from profits of £7,105 it is treated as paid, which protects your State Pension record for nothing.
Through a company the same profit is split. Salary is deductible for the company but carries employer National Insurance at 15 per cent above £5,000, and Income Tax and employee National Insurance in your hands. Whatever is left after salary is charged to Corporation Tax at 19 per cent up to £50,000, 25 per cent from £250,000 and an effective 26.5 per cent on the slice in between. The profit after Corporation Tax comes to you as a dividend, taxed at 10.75, 35.75 or 39.35 per cent after a £500 allowance, with no National Insurance on it at all.
Two layers of tax on the company side against one on the sole trader side means that, on 2026/27 rates, drawing every pound out of a company rarely beats being a sole trader on tax alone. The company comes into its own where profit is left in the business. Retained profit has borne Corporation Tax only, while a sole trader pays Income Tax and Class 4 on all of it whether it is spent or not. It is not tax-free, though: it bears dividend tax when it is eventually drawn, so the calculator nets retained profit at the basic dividend rate, 10.75 per cent, on the assumption that it comes out in a later year inside the basic band. Use the "profit you would leave in the company" box to see that effect on your own figures.
Tax is one factor. Limited liability, how customers and lenders see the business, the paperwork of running a company, and the cost of accounts and filings all bear on the choice and none of them is in the arithmetic. Enter the cost you have been quoted for company accounts if you want it in the comparison.
Worked example: £45,000 profit
One person, no other income, 2026/27 rates. The company pays a £12,570 salary, cannot claim the Employment Allowance, has no extra running costs entered, and pays out everything that is left. Figures are rounded to the nearest pound.
| Sole trader | Limited company | |
|---|---|---|
| Business profit | £45,000 | £45,000 |
| Salary | £12,570 | |
| Employer National Insurance | £1,136 | |
| Profit chargeable to Corporation Tax | £31,295 | |
| Corporation Tax at 19% | £5,946 | |
| Dividend paid | £25,349 | |
| Income Tax | £6,486 | £0 on salary |
| Dividend tax | £2,671 | |
| Class 4 National Insurance | £1,946 | |
| Employee National Insurance | £0 | |
| Total tax and National Insurance | £8,432 | £9,753 |
| You keep | £36,568 | £35,247 |
On these facts the sole trader keeps £1,321 more. The company pays £5,946 of Corporation Tax and then £2,671 of dividend tax on the same money, and the £1,136 of employer National Insurance on the salary has no equivalent on the sole trader side. Class 4 at 6 per cent is cheaper than the two company layers put together.
Change one assumption and the answer moves. Leave £15,000 of profit in the company and the director's take-home falls to £21,860. The £15,000 sits in the company after Corporation Tax, but it will bear £1,613 of dividend tax at the basic rate when it comes out, so the combined position is £35,247 and the sole trader is still £1,321 ahead. At the basic rate, retaining profit defers the dividend tax rather than removing it; retention pays off where drawing everything now would push the director into the higher rate. If the company had another employee and could claim the Employment Allowance, the £1,136 disappears and the gap narrows to £500 in the sole trader's favour. Add a £1,200 accountancy fee for the company and the sole trader's lead widens again. None of these is the right answer; they are the moving parts.
Sole trader and limited company questions
At what profit does a limited company pay less tax than a sole trader?
There is no single figure. The breakeven often quoted, somewhere around £30,000 to £35,000, dates from years when dividend tax was lower and employer National Insurance started higher. On 2026/27 rates, a sole director who pays a £12,570 salary, cannot claim the Employment Allowance and draws out every pound is behind the sole trader at almost every profit level. The calculator above works out the crossing points on your own figures rather than quoting a rule of thumb.
The company can move ahead when profit is retained, because retained profit has paid Corporation Tax at 19 to 25 per cent and nothing more until it is drawn, whereas a sole trader pays Income Tax and Class 4 on all of it. The calculator nets retained profit at the basic dividend rate, so retention only helps where drawing everything now would reach the higher rate. It also moves ahead where the Employment Allowance is available. Both are shown under "More options".
Do I pay National Insurance as a sole trader?
Class 4 is the one that costs money: 6 per cent on profit between £12,570 and £50,270 and 2 per cent above £50,270, worked out with your Self Assessment. Class 2 is different. Since April 2024 a sole trader with profit at or above the Small Profits Threshold, £7,105 for 2026/27, is treated as having paid Class 2 without paying anything, and that treatment protects your State Pension record. Below £7,105 you can pay Class 2 voluntarily at £3.65 a week, £189.80 a year, to keep the year qualifying.
The calculator deducts Class 4 and notes the Class 2 position. A company director builds the same State Pension record through a salary at or above the Lower Earnings Limit of £6,708, again with no National Insurance actually paid at that level.
What does a limited company cost that a sole trader does not pay?
A company has to file annual accounts and a confirmation statement at Companies House (£50 a year for the statement) and a Corporation Tax return with HMRC, run a payroll if it pays a salary, and keep board minutes and dividend vouchers. Most owners pay an accountant for the accounts, the Corporation Tax return and the payroll, and pay for their own Self Assessment on top. The going rate for a small company varies widely, which is why the calculator asks you to enter the figure you have been quoted rather than assuming one.
Incorporation itself is a one-off £100 online at Companies House. A sole trader files a Self Assessment return and, from April 2026, keeps digital records and sends quarterly updates under Making Tax Digital if income is over £50,000.
Can I switch from sole trader to limited company part way through a year?
Yes, and many people do. The sole trader business stops on the day the company takes over, and that final period goes on your Self Assessment return, with any stock, equipment and goodwill transferred to the company at the right value. The company starts its own accounting period and registers for Corporation Tax and, if it pays a salary, as an employer. Any VAT registration can usually be transferred. Timing the change to your accounting date and to the tax year keeps the number of returns down.
What the calculator cannot show is the transfer itself. Moving assets into a company, the treatment of goodwill, the position of existing losses and any capital gains on the transfer are questions for your accountant before you change anything.
Does Making Tax Digital for Income Tax affect the choice?
From 6 April 2026 sole traders and landlords with qualifying income over £50,000 must keep digital records and send HMRC quarterly updates through compatible software, with the threshold falling to £30,000 from April 2027 and £20,000 from April 2028. It does not change the tax you pay. It does change the amount of routine work, and some people find that once they are paying for bookkeeping software and quarterly filing the extra cost of a company looks smaller than it did.
Companies are not in Making Tax Digital for Income Tax. They file an annual Corporation Tax return and have their own set of filing obligations, described in the question above.
Why does the calculator not tell me which to choose?
Because the tax difference is only one input into the decision, and on 2026/27 rates it is often smaller than the non-tax factors. Limited liability matters if the business could face a claim it cannot pay. Some customers, particularly larger companies and public bodies, will only contract with a company. Lenders and landlords take a view either way. A company can pay an employer pension contribution out of pre-tax profit, which is outside this calculator. Against all that, a company means more filings, public accounts at Companies House and a stricter line between the business's money and yours.
The calculator shows what the arithmetic says on your figures. Whether to incorporate, and when, is a decision to take with your accountant once the rest of the picture is on the table.