BusinessCalculator.co.uk

Sole Trader vs Limited Company Calculator

Compare estimated personal take-home from the same business profit as a sole trader and through a limited company.

Using 2026/27 UK tax rates

A common choice is a salary around the Personal Allowance, with the rest taken as dividends.

Advanced options

Not available where the only employee paid above the Secondary Threshold is a single director.

Sole trader is ahead by

£20.20

Sole trader take-home
£46,111.40
— Income Tax
£11,432.00
— Class 4 National Insurance
£2,456.60
Limited company take-home
£46,091.20
— Corporation Tax
£8,795.96
— Employer NI
£1,135.50
— Income Tax and employee NI
£0.00
— Dividend tax
£3,977.34

Based on the assumptions entered, the limited-company structure produces approximately £20.20 less estimated net income. Tax is only one consideration when choosing a business structure.

What this means

Based on the assumptions entered, the limited-company structure produces approximately £20.20 less estimated net income than trading as a sole trader. Tax is only one consideration when choosing a business structure.

A limited company also brings filing obligations, public accounts at Companies House, director duties, separate business banking and usually higher accountancy fees. Limited liability, credibility with certain clients and the ability to leave profit in the company can all matter more than the tax difference.

Quick answers

Is a limited company more tax efficient than a sole trader?
Often, once profit is comfortably above the Personal Allowance, because dividends avoid National Insurance — but the gap varies with your profit, other income and the extra costs of running a company. There is no fixed profit level at which incorporating automatically becomes worthwhile.
Do sole traders pay Corporation Tax?
No. Sole traders pay Income Tax and Class 4 National Insurance on their profit through Self Assessment. Corporation Tax only applies to limited companies.
Do limited companies pay Class 4 National Insurance?
No. Class 4 National Insurance is a sole trader and partner charge on trading profit. A limited company pays Corporation Tax on profit instead, and its director pays Income Tax and employee National Insurance only on the salary they draw.
Is tax the only reason to incorporate?
No. Limited liability, credibility with some clients and lenders, and the ability to leave profit in the company to smooth income between years all matter, alongside extra filing duties, public accounts and generally higher accountancy fees.

Tax is only part of the decision

Incorporating also affects administration, annual accounts, payroll, banking, liability and how you take profit out of the business.

A lower estimated tax figure on its own is not a reason to incorporate. Weigh the running costs and the extra filing against the difference shown here.

You may also find useful

How we calculated it

Sole trader: profit is charged to Income Tax after the Personal Allowance, plus Class 4 National Insurance at 6% between £12,570.00 and £50,270.00, then 2% above that.

Limited company: the salary and employer National Insurance reduce profit; Corporation Tax is charged on what remains; the profit after tax is paid as dividends and taxed personally after the Dividend Allowance. Take-home is salary plus dividends less Income Tax, employee National Insurance and dividend tax.

Assumptions

One owner taking all available profit each year, a full 12-month period, no pension contributions, no student loan, and no allowance for the extra running costs of a company. Class 2 National Insurance and any voluntary contributions are not included. Scottish rates apply to trading profit and salary, not to dividends.

How this calculator works

As a sole trader you and the business are the same legal person: all profit is yours as it is earned, and it is taxed through Self Assessment whether you withdraw it or not. Through a limited company the profit belongs to the company, and you decide how and when to take it — usually as a small salary plus dividends, as covered on the salary vs dividend calculator.

The tax difference tends to grow with profit, because dividends escape National Insurance, but it narrows once the additional costs of running a company and the extra admin are taken into account. At lower profit levels the two are often close enough that other factors should decide. Directors also take on extra duties — filing accounts and a confirmation statement at Companies House, keeping a separate business bank account, and usually paying higher accountancy fees than a sole trader.

Once trading through a company, you'll also want the Corporation Tax calculator to check the company's own tax bill in more detail.

Worked examples

£40,000 profit

As a sole trader, £40,000 of profit is taxed as £5,486 Income Tax plus £1,645.80 Class 4 National Insurance, leaving £32,868.20 take-home. Through a company with a £12,570 salary, employer NI of £1,135.50 and Corporation Tax of £4,995.96 apply, leaving £31,632.70 take-home — around £1,235 less than trading as a sole trader once the extra Corporation Tax and dividend tax are accounted for.

£80,000 profit

At £80,000, a sole trader take-home is £57,711.40 after £19,432 Income Tax and £2,856.60 Class 4 NI. The limited-company route gives £55,764.88 take-home after employer NI, Corporation Tax at the main rate with marginal relief, and dividend tax. The gap between the two is still fairly small at this profit level.

£150,000 profit

At £150,000, a sole trader keeps £91,411.90 after £54,331.50 Income Tax and £4,256.60 Class 4 NI. Through a company, take-home is £85,109.79. Here the sole trader comes out ahead in this specific comparison, partly because the calculator only pays out a fixed £12,570 salary and distributes the rest as dividends in the same year — a company can instead retain profit and draw it down more gradually across years, which this simple comparison does not model. Change the numbers above to see how your own profit and salary choice affects the result.

Key terms explained

Class 4 National Insurance
A National Insurance charge on a sole trader's or partner's trading profit, at 6% between £12,570.00 and £50,270.00, and 2% above that. It has no limited-company equivalent.
Distributable reserves
Accumulated company profit after Corporation Tax that can legally be paid out as dividends. A company cannot pay dividends beyond this amount.

Common mistakes

  • Assuming there is a fixed profit threshold for incorporating

    There's no universal figure at which a limited company 'becomes worth it'. The tax gap depends on your salary choice, other income and Employment Allowance, and non-tax factors such as liability and admin often matter as much as the numbers.

  • Comparing take-home only, ignoring running costs

    Higher accountancy fees, Companies House filing, payroll software and the time cost of admin all reduce the practical benefit of incorporating, even where the tax comparison favours a company.

  • Forgetting that company profit isn't automatically 'yours'

    Unlike sole trader profit, money left in a limited company belongs to the company until it's paid out as salary or dividends — you can't simply spend it personally without a tax event.

Common questions

Is a limited company more tax efficient?

Often, but not always or automatically. Dividends escape National Insurance, so a company structure tends to save tax as profit grows, but extra accountancy and admin costs offset some of that saving, and the answer depends on your own salary, other income and circumstances.

At what profit does a limited company become worthwhile?

There is no single threshold that applies to everyone. The tax advantage of a company generally grows with profit, but running costs, the value of limited liability, and how you plan to use retained profit all vary — compare your own figures rather than relying on a rule of thumb.

What tax does a sole trader pay?

Income Tax on profit above the Personal Allowance, at the normal Income Tax rates and bands, plus Class 4 National Insurance on profit above the lower limit. Both are calculated and paid together through Self Assessment.

What tax does a limited company pay?

Corporation Tax on its taxable profit. Directors then separately pay Income Tax and employee National Insurance on any salary, and dividend tax on any dividends they draw personally.

How do directors take money from a company?

Usually as a combination of salary and dividends, though directors can also receive benefits in kind or repay a director's loan. Salary is a deductible cost taxed as employment income; dividends come from profit after Corporation Tax and are taxed at dividend rates.

Does a limited company need a separate bank account?

Yes, in practice. A company is a separate legal person from its director, so its money must be kept apart from personal funds. Mixing them makes bookkeeping unreliable and can create tax and legal problems.

What additional administration comes with a limited company?

Filing annual accounts and a confirmation statement at Companies House, registering for Corporation Tax, running PAYE if you take a salary, keeping board minutes for dividends, and usually paying higher accountancy fees than a sole trader would.

Do I pay National Insurance on dividends?

No. Dividends are never subject to National Insurance, which is a large part of the difference between the two structures. They are taxed at dividend rates after the Dividend Allowance, and they come from profit that has already paid Corporation Tax.

Can I change from sole trader to limited company later?

Yes, and many businesses do once profits grow. You would incorporate a company, transfer the trade, register for the relevant taxes and close down the sole trade properly. There can be tax consequences on transferring assets or goodwill, so take advice before you do it.

Sources

Last reviewed: 7 September 2026 · Statutory rates: 2026/27. This calculator is information only and is not tax, accounting or financial advice.