Sole Trader vs Limited Company: A Tax Comparison for 2026/27
Written and reviewed by James Whitfield · Updated June 2026 · Checked against 2026/27 HMRC rates · Editorial standards · Methodology
Whether you are better off as a sole trader or limited company depends on your profits, other income, and how much you want to extract. This guide compares the tax position at three profit levels in 2026/27.
For 2026/27 the old rule of thumb — 'incorporate once you clear £30,000 profit' — no longer holds if you draw everything out each year. Higher dividend rates (10.75% basic, 35.75% higher)3 and 15% employer National Insurance have closed the gap. On the site's own comparison, a sole trader keeping £60,000 profit takes home about £46,111; a company paying a £12,570 salary and the rest as dividends (sole director, no Employment Allowance, no other income) nets about £46,091 before accountancy fees — the sole trader is fractionally ahead in that scenario. The limited company still wins when you can leave profit in the business, pay into a pension from the company, or need the liability protection — not on a simple full-extraction take-home comparison.
- →Sole trader pays Income Tax + Class 4 NI on profit; a company pays Corporation Tax, then you pay on salary and dividends.34
- →At £30k profit, the sole trader nets ~£1,065 more than a full-extraction company (before fees).
- →At £60k, the two are within ~£20; accountancy fees then favour the sole trader.
- →Dividends now cost 10.75%/35.75% — the incorporation maths is tighter than it used to be.3
- →The company case is retention, pensions, and protection — not automatic tax savings.
- The '£30k and you should incorporate' rule is out of date for 2026/27 full-extraction.
- Sole trader take-home is ahead or level at £30k, £60k and £100k when a company draws everything out.34
- Higher-rate dividends (35.75%) plus 19–25% Corporation Tax now rival sole trader rates.3
- A company wins on retained profit, company pension contributions and limited liability — not a same-year cash comparison.
- Factor £800–£1,500 of accountancy fees into any company decision.
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The key difference in how each structure is taxed
A sole trader pays Income Tax and Class 4 NI directly on business profits through Self Assessment. There is no legal separation between the business and you.1 A limited company is a separate legal entity — it pays Corporation Tax on its profits, and you, as director-shareholder, pay personal tax only on what you take out as salary and dividends.2
The company structure gives you levers a sole trader does not have: you control the timing and amount of what you extract; Corporation Tax (19% up to £50,000, rising to 25% at £250,000) is charged before extraction; dividends carry no National Insurance; and you can leave profit in the company and take it later. Those levers are real — but the headline claim you will read on a lot of older blogs, that a company automatically saves tax above about £30,000 of profit, does not survive contact with 2026/27 rates if you actually draw all the money out each year.
Running a company is also more work: annual accounts at Companies House, a Corporation Tax return (CT600), and a payroll for your salary. Accountancy fees of roughly £800–£1,500 a year are typical, and your accounts are publicly visible. So the tax gap has to be real and worth the overhead — and, as the numbers below show, at current rates it often is not, unless you are retaining profit.
Tax comparison at £30,000 profit
These figures come straight from the Ltd vs sole trader calculator on this site, using 2026/27 rates and the standard tax-efficient setup: a £12,570 director's salary with the rest taken as dividends.
| Sole trader — Income Tax + Class 4 NI | £4,532 |
| Sole trader take-home | £25,468 |
| Company — employer NI + Corporation Tax + dividend tax | £5,597 |
| Company take-home (before accountancy fees) | £24,403 |
| Sole trader advantage | +£1,065 |
Why has the old advice flipped? The company pays 19% Corporation Tax on £16,295 of profit (£3,096), then dividend tax of 10.75% on most of what is left (£1,365), plus £1,136 of employer NI on the salary. The sole trader simply pays 20% Income Tax and 6% Class 4 NI. At £30,000, the sole trader's simpler stack is cheaper — and that is before you add £800–£1,500 of accountancy fees to the company side.
Tax comparison at £60,000 profit
£60,000 is the level where people expect the company to pull clearly ahead, because a slice of sole trader profit is now taxed at 40%. It does not — not on full extraction.
| Sole trader — Income Tax (£11,432) + Class 4 NI (£2,457) | £13,889 |
| Sole trader take-home | £46,111 |
| Company — employer NI (£1,136) + Corp Tax (£8,796) + dividend tax (£3,977) | £13,909 |
| Company take-home (before accountancy fees) | £46,091 |
| Difference | ≈ level (£20 to sole trader) |
The reason the company does not win: all £37,499 of dividends still sits inside the basic-rate band (salary £12,570 + dividends £37,499 = £50,069, just under the £50,270 higher-rate line), so they are taxed at 10.75% — but you have already paid 19% Corporation Tax on that profit. Combined, that is close to the sole trader's 40% + 2% on the top slice. Push extraction higher and dividends start hitting the 35.75% higher rate, at which point the company falls further behind on full extraction, not ahead.
So when is a limited company actually worth it?
The company case in 2026/27 is not the full-extraction take-home — it is everything else. First, retention: if you can leave profit in the company, it is taxed only at 19–25% Corporation Tax and nothing more until you draw it. Someone earning £80,000 but only needing £45,000 to live on can bank the difference at company rates and extract it later, in a lower-income year, rather than paying 40%+ on it now as a sole trader.
Second, pensions: a company can pay employer pension contributions directly, deductible against Corporation Tax, with no NI and no dividend tax — often the single biggest genuine saving of incorporating. Third, non-tax reasons: limited liability protects your personal assets, and some clients and lenders prefer to deal with a company.
For a sole trader who spends essentially everything they earn, none of those levers apply, and at 2026/27 rates staying a sole trader is usually simpler and at least as cheap up to around £100,000 of profit. Run your own numbers on the Ltd vs sole trader calculator before deciding — and if the gap is small, the admin saving alone is often reason enough to stay a sole trader. For anything close to the line, a one-off chat with an accountant pays for itself.
Thinking of going limited? Compare first: with 2026/27 rates, a sole trader who takes all the profit out usually keeps more. If you already run a company, the Director's Pay & Tax Pack (£4.99) covers salary versus dividends, the director's loan account and year-end planning for 2026/27.
Sole trader calculators
FAQ
Is it better to be a sole trader or limited company in 2026/27?+
On a straight take-home comparison where you draw all the profit out each year, the sole trader is usually ahead or level up to around £100,000 of profit at 2026/27 rates — higher dividend rates (10.75%/35.75%) and 15% employer NI have closed the old gap. A company wins when you can retain profit, pay into a pension through the company, or want limited liability.
Does a limited company pay National Insurance?+
The company pays employer NI at 15% on director salary above £5,000. Dividends carry no NI — but they now carry dividend tax of 10.75% (basic) or 35.75% (higher), which is what narrows the gap against a sole trader's Class 4 NI.
What are the downsides of a limited company vs sole trader?+
More administration: annual accounts, a Corporation Tax return, payroll and Companies House filings. Accountancy fees of £800-£1,500 a year are typical, and your accounts are publicly visible on Companies House.
At what profit does a limited company save tax?+
At 2026/27 rates there is no clean threshold on full extraction — the sole trader is competitive up to about £100,000. The company advantage comes from retaining profit or making company pension contributions rather than from the profit level itself. Model your own figures before switching.
Sources & references
The rates, thresholds and rules in this article are drawn from the official HMRC and GOV.UK sources below, using the confirmed 2026/27 figures. Each link opens the relevant official page in a new tab.
- Set up as a sole trader www.gov.uk/set-up-sole-trader
- Set up a limited company www.gov.uk/set-up-limited-company
- Income Tax rates and Personal Allowances www.gov.uk/income-tax-rates
- Self-employed National Insurance rates www.gov.uk/self-employed-national-insurance-rates