Ltd Company vs Sole Trader Tax Comparison 2026/27
Updated for the 2026/27tax year · Last updated
Enter your annual profit to see a side-by-side tax comparison between operating as a sole trader and incorporating as a limited company. The limited company model uses a director salary of £12,570 plus dividends from after-corporation-tax profits — the standard structure for most one-person limited companies.
The decision to incorporate is one of the most significant financial choices a self-employed person in the UK can make. The tax mechanics differ substantially: as a sole trader, all profits are your personal income and taxed directly at income tax rates (up to 45%) plus Class 4 National Insurance (6% on profits between £12,570 and £50,270, then 2% above). As a limited company director, the company first pays corporation tax on its profits (19% for small companies), and you then extract money as a salary and dividends — with dividends taxed at significantly lower rates (8.75%, 33.75%, or 39.35%) and attracting no National Insurance.
The tax saving from a limited company is real but not automatic. At lower profit levels (under £35,000–£40,000), the saving is modest — often less than the additional accountancy costs a limited company requires (typically £1,500–£2,500 per year more than a sole trader arrangement). Above £50,000 in consistent profits, the saving becomes meaningful. Above £70,000–£80,000, it is usually substantial. Use this calculator to find your specific crossover point before making the decision.
Limited company
£47,670
take-home
Sole trader
£46,112
take-home
| Tax | Ltd | Sole |
|---|---|---|
| Corporation tax | £9,012 | — |
| Income tax | £3,318 | £11,431 |
| Class 4 NI | — | £2,457 |
| Total tax | £12,330 | £13,888 |
Ltd assumes director salary of £12,570 (NI-free threshold) and remaining profits as dividends. Excludes accountancy costs (typically £1,000–£2,500/year for a ltd company).
People also looked at
How this calculator works
The calculator computes total tax paid under each structure for the same profit figure, using 2026/27 rates:
Sole trader: Taxable profit is the full annual profit entered. Income tax is applied using the personal allowance (£12,570), basic rate (20% on £12,571–£50,270), higher rate (40% on £50,271–£125,140), and additional rate (45% above £125,140). Class 4 National Insurance is applied at 6% on profits between £12,570 and £50,270, and 2% above the upper profits limit. The sole trader keeps all profit after these deductions.
Limited company:The company pays a director salary of £12,570 (equal to the personal allowance). This salary is a deductible expense before corporation tax. Corporation tax at 19% (small profits rate) applies to the remaining company profit. The after-corporation-tax profit is then paid as dividends. The first £500 of dividends is covered by the dividend allowance. Above that, dividend tax is charged at 8.75% (basic rate band), 33.75% (higher rate band), or 39.35% (additional rate band) depending on where the dividends fall relative to the director’s total income.
What the calculator excludes:The comparison shows pure tax only. It does not include the additional accountancy costs of running a limited company (typically £1,500–£2,500 per year beyond sole trader accountancy), the Employers’ National Insurance on the director salary, or the administrative overhead of Companies House filings, payroll, and corporation tax returns. Subtract these real costs from the displayed saving to get your actual benefit.