Business Startup Tools2 min check

Sole Trader vs Limited Company

Indicative comparison of take-home pay using 2026/27 rates. Limited company assumes a £12,570 salary plus dividends.

Short answer

In 2026/27 a sole trader pays Income Tax and Class 4 NI on profit. A limited company pays Corporation Tax, may pay employer NI on salary, and the shareholder then pays tax on dividends. The better structure depends on profit, other income, pension strategy and administration costs.

Step 1 of 10%

Calculation method, coverage and version

Inputs used: Annual profit before tax / drawings.
Calculation approach: The calculator applies the rules and assumptions described in “How it works” to the values you enter. Rounding can cause small differences from an official or provider calculation.
Coverage: Business Startup Tools. UK nations, tax treatment, local rules and provider criteria can differ; check the official sources shown below before acting.
Content version: No page-specific review date is currently published. Treat the result as indicative and verify current rules independently.

Not included unless explicitly requested: personal circumstances not entered, provider discretion, future rule changes, professional fees and case-specific exceptions. Read the full calculator methodology.

How it works

The simplified comparator applies the £12,570 personal allowance, £500 dividend allowance, 2026/27 dividend rates and current Income Tax and Class 4 NI rates. It excludes employer NI, marginal Corporation Tax relief and other income, so use it for an initial comparison only.

Worked example

Enter the same annual profit to compare estimated take-home under each structure, then allow separately for accountancy, payroll, insurance and other company administration costs.

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 →