Written and reviewed by James Whitfield · Updated August 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 nets about £46,091 before accountancy fees — the sole trader is fractionally ahead. 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.
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.
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.
£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.
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.
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.
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.
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 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.
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.