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Sole Trader vs Limited Company Tax Calculator 2026/27

Would you keep more as a sole trader or through a limited company? Compare Income Tax, National Insurance, Corporation Tax, dividend tax and take-home side by side for a one-person UK business.

Rates checked against GOV.UK on 23 October 2026 · England, Wales & NI · Estimates only, not tax advice

Tax year 2026/27 · England, Wales & NI rates

Showing example figures — replace them with your own.

Business income for a 12-month period, before costs.

Running costs only — don't include your own salary or dividends.

E.g. salary from another job, a pension or property income, before tax. Don't enter savings interest or dividends — this field doesn't model them.

Defaults to £12,570, a common starting point — not necessarily the best salary for you. The best salary can depend on Employment Allowance eligibility, other employees or directors, pensions and your circumstances.

Assumes you're the only director and employee (so Employment Allowance can't be claimed), a director for the full tax year on standard category A annual NI thresholds. Calculated in your browser — nothing you type is sent to us.

Estimated take-home difference

£20 / year

Roughly the same take-home on these figures.

Sole trader

£46,111

take-home a year · £3,843/month

Business profit
£60,000
Income Tax
−£11,432
Class 4 NI
−£2,457
Total tax & NI
£13,889

Effective rate 23.1%

Limited company

£46,091

take-home a year · £3,841/month

Director's salary
£12,570
Employer NI
−£1,136
Corporation Tax
−£8,796
Dividends paid
£37,499
Income Tax (salary + dividends)
−£3,977
Employee NI
£0
Total company + personal tax
£13,909

Effective rate 23.2%

How we calculated this

Business profit: £70,000 turnover − £10,000 expenses = £60,000.

Sole trader: Income Tax on profit (after your other non-savings income uses the Personal Allowance and bands first) = £11,432. Class 4 NI at 6% on profit £12,570–£50,270 and 2% above = £2,457. Class 2 isn't charged: at profits of £7,105 or more it's treated as paid.

Company: salary £12,570; employer NI 15% above £5,000 = £1,136. Taxable profit = £60,000 − salary − employer NI = £46,295. Corporation Tax = £8,796 (19% small profits rate). All remaining profit, £37,499, is paid as dividends.

You personally: Income Tax on salary on its own £0; extra Income Tax from dividends £3,977, including any Personal Allowance lost to the £100,000 taper (first £500 at 0%, then 10.75% / 35.75% / 39.35% depending on band); employee NI £0.

Guidance and estimates only — not tax or legal advice. Your circumstances can change the result. Check GOV.UK or speak to a qualified adviser before acting.

Sole trader vs limited company: how the tax differs

As a sole trader, your business profit is your income. You pay Income Tax on it through Self Assessment, plus Class 4 National Insurance at 6% on profits between £12,570 and £50,270 and 2% above.

A limited company pays Corporation Tax on its own profits. You then take money out, usually as a small salary (which can mean employer and employee NI) plus dividends from profit left after Corporation Tax. Dividends have their own lower tax rates but aren't deductible for the company, so profit is taxed twice — once in the company, once on you.

Corporation Tax for 2026/27

  • 19% on profits of £50,000 or less.
  • 25% on profits over £250,000.
  • In between, the main rate applies less marginal relief of 3/200 × (£250,000 − profit). This means profit between £50,000 and £250,000 is effectively taxed at 26.5% at the margin.

Important: the £50,000 and £250,000 limits are divided between associated companies and reduced for accounting periods shorter than 12 months. This calculator assumes one company, no associates and a 12-month period.

Dividend tax for 2026/27

The first £500 of dividends is taxed at 0% (the dividend allowance), but it still uses up part of your basic or higher rate band. Above that, dividends are taxed at 10.75% (basic rate), 35.75% (higher rate) and 39.35% (additional rate). Dividends sit on top of salary and other income.

Worked examples

Single director, no other income, £12,570 salary, all remaining profit paid as dividends, 2026/27 England, Wales & NI rates. Calculated by the same engine as the calculator above.

ProfitSole trader take-homeLtd take-homeDifference (Ltd − sole)
£30,000£25,468£24,403−£1,065
£50,000£40,268£38,862−£1,406
£80,000£57,711£55,765−£1,947
£120,000£76,911£74,654−£2,257

These don't include accountancy fees, which are often higher for a company.

Non-tax differences

  • Liability: a company is a separate legal person, so your personal assets are usually protected from business debts. A sole trader is personally liable (though personal guarantees can change this).
  • Admin: a company must file annual accounts and a confirmation statement with Companies House, a Corporation Tax return with HMRC, and run payroll for your salary. Some details become public.
  • Access to money: a company's money isn't yours. You can only take it as salary, dividends (from available profits) or expenses — not just transfer it whenever you like.
  • Image and contracts: some clients prefer or require a company; IR35 rules can apply to contractors working through one.

When professional advice matters

Speak to an accountant if you're thinking of incorporating an existing business (assets, goodwill and timing matter), have other shareholders, want to keep profit in the company or pay into a pension, work through intermediaries (IR35), live in Scotland, or have student loans or high other income.

How this is calculated

  • Profit = turnover − allowable expenses (excluding your own salary or dividends). Both scenarios start from the same profit.
  • Sole trader: Income Tax with your other non-savings income (salary, pension, property income) using the Personal Allowance and bands first; Class 4 NI on profit. Class 2: at profits of £7,105 or more (the 2026/27 small profits threshold) it's treated as paid and you get an NI credit. Below that it isn't credited automatically; voluntary Class 2 may be possible and isn't included.
  • Company: salary and employer NI (15% above £5,000) are deducted before Corporation Tax. No Employment Allowance, because a company whose only employee is a director can't claim it. Salary is capped at what the company can afford.
  • Corporation Tax uses the small profits rate, main rate and standard marginal relief formula — not a blended rate. The simple formula 3/200 × (£250,000 − profit) assumes no associated companies, a 12-month accounting period and no exempt distributions received (so augmented profits equal taxable profits). If any of those apply, the limits or relief differ.
  • Director NI assumes a director for the whole tax year using standard category A annual thresholds. Other NI categories, mid-year appointments, under-21s, veterans, Freeport or Investment Zone relief aren't modelled.
  • All profit after Corporation Tax is paid out as dividends in the same tax year. Employee NI: 8% on salary £12,570–£50,270 and 2% above.
  • Personal Allowance is reduced by £1 for every £2 of income over £100,000 (salary, other income and dividends), and is zero from £125,140.
  • Only tax caused by the business is counted; tax on your other income is left out of both totals. The other income field is treated as non-savings income only; savings interest and dividends you receive elsewhere aren't modelled.
  • Simplifications: real company accounting periods and tax years don't line up; no pension contributions, student loans, benefits-in-kind, IR35, reliefs or accountancy fees. Scottish Income Tax isn't supported.

Sources

Last reviewed: 23 October 2026.

Related

Staying self-employed? Use the self-employed tax calculator to see your tax and how much to put aside each month. Growing fast? Check the VAT threshold calculator — the £90,000 VAT threshold applies to sole traders and companies alike.

Frequently asked questions

Is a limited company more tax efficient than being a sole trader?

Sometimes, but not always. It depends on your profit, how you take money out, other income and costs such as accountancy fees. From April 2026, dividend tax rates rose to 10.75% and 35.75%, which narrows the gap. Use the calculator with your own figures rather than relying on a rule of thumb.

At what profit is a limited company worth it?

There's no single figure. On our simplified assumptions the difference is often small at modest profits, and admin costs of running a company can outweigh any tax saving. Try different profits and salaries in the calculator, and take advice before deciding.

Why is the default director's salary £12,570?

It matches the 2026/27 Personal Allowance and employee NI primary threshold, so there's no Income Tax or employee NI on it if you have no other income. Employer NI of 15% is due above £5,000, but the salary and that NI reduce Corporation Tax. It's a common starting point, not an optimal recommendation — the best split can depend on Employment Allowance eligibility, other employees or directors, pensions and your circumstances. Try other amounts.

Can a one-person company claim Employment Allowance?

No. HMRC says you can't claim Employment Allowance if you're a company and the only employee paid above the secondary threshold is a director. That's why this calculator includes employer NI in full.

Does this work for Scotland?

Not yet. The comparison uses England, Wales and Northern Ireland Income Tax bands. Scottish rates differ on salary and self-employed profit (dividends are taxed at UK rates), so results for Scottish taxpayers will be off.

Is tax the only thing to consider?

No. A company gives limited liability and a separate legal identity, but brings more admin: annual accounts and a confirmation statement at Companies House, a Corporation Tax return, payroll and public records. Money in the company belongs to the company, not you.