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Sole Trader vs Limited Company

Indicative comparison of take-home pay using 2025/26 rates. Limited company assumes salary at NI primary threshold plus dividends.

Short answer

For 2025/26: a sole trader pays Income Tax + Class 4 NI on all profit (simple, but unlimited personal liability). A limited company pays 19–25% Corporation Tax on profit, then you draw a small salary + dividends — usually £2,000–£8,000/year more take-home above ~£40k profit. Below £30k profit, sole trader is usually simpler and similar net.

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How it works

The comparator runs both structures on your stated profit using current allowances (£12,570 personal, £500 dividend) and rates (8% basic / 33.75% higher dividend tax) and shows annual take-home plus admin overhead.

Worked example

£60k profit: sole trader nets ~£44,200; Ltd via salary £12,570 + dividends nets ~£46,800 = ~£2,600/year benefit, offsetting £1,200 accountant fees.

Who should use this

•Freelancers approaching the £30k+ profit point
•Contractors choosing a structure
•Sole traders considering incorporation

Common mistakes

×Incorporating too early (admin overhead > tax saving)
×Forgetting IR35 exposure for contractors
×Not running PAYE for the director's salary
×Mixing personal and company spending

Frequently asked questions

Can I switch later?▾

Yes — sole trader → Ltd is common at £35k–£50k profit.

Is a Ltd safer?▾

Yes for liability — debts stay with the company, not you personally (with exceptions for director loans and fraud).

Related calculators

Company Setup →Director Salary Calculator →VAT Registration Checker →IR35 Status Checker →