Sole trader vs limited company in 2026/27
Take-home side by side
| Profit | Sole trader | Limited company |
|---|---|---|
| £20,000 | £18,068 | £17,174 |
| £40,000 | £32,868 | £31,633 |
| £60,000 | £46,111 | £46,091 |
| £80,000 | £57,711 | £55,765 |
| £100,000 | £69,311 | £65,210 |
| £150,000 | £92,040 | £85,110 |
| £200,000 | £118,540 | £105,765 |
England, no other income, a £12,570 director salary with all other company profit paid out as dividends, before company running costs. The higher figure in each row is in bold. The two are closest around £60,000 profit, where the company's taxable profit of £46,295 sits under the £50,000 small profits limit for corporation tax.
Why the company lost its tax edge
A director's money is taxed twice: corporation tax of 19% to 25% in the company, then dividend tax of 10.75%, 35.75% or 39.35% personally. A sole trader pays Income Tax at 20%, 40% or 45% plus Class 4 NI of 6% or 2%. When dividend tax rose by 2 points in April 2026, and the main corporation tax rate had already reached 25% in 2023, the two layers together became heavier than the sole trader's single layer.
When a limited company still pays
- You can leave profit in the company. Money kept in the company has only paid corporation tax. At £80,000 profit, keeping £20,000 in the company leaves you £41,609 now plus £20,000 in the company, against £57,711 as a sole trader. You pay dividend tax when you take it out later.
- Employer pension contributions. The company can pay into your pension before corporation tax with no NI, a route sole traders do not have in the same form.
- Limited liability. The company, not you personally, is normally liable for business debts.
- Clients and contracts. Some clients only work with limited companies. Outside IR35, a company usually beats working inside IR35 through an umbrella: see the IR35 calculator.
The extra work of a company
A company files annual accounts and a confirmation statement with Companies House, a corporation tax return within 12 months of its year end, runs a payroll for your salary and keeps company money separate from yours. Most directors pay an accountant for this. A sole trader files one Self Assessment return.
Work out your own numbers
Use the self-employed tax calculator for the sole trader figure and the limited company calculator, which also lets you leave profit in the company.
Frequently asked questions
At what profit should I go limited in 2026/27?
For tax alone, at no profit level in our table (£20,000 to £200,000) if you need all the money each year. It depends on how much you can leave in the company, your pension plans and the costs of running it.
Can I switch from sole trader to limited company later?
Yes. You set up a company, transfer the business and tell HMRC you have stopped trading as a sole trader. It is worth taking advice before you do.
Calculated with 2026/27 rates: Finance Act 2026 dividend rates, Finance Act 2025 corporation tax rates, HMRC National Insurance rates. Updated 2026-11-04. General information, not tax advice.