Sole Trader vs Limited Company (2026/27)
Enter your annual business profit (after expenses, before tax). We'll compare your take-home as a sole trader versus a single-director Ltd company taking the standard £12,570 salary plus dividends. Models Income Tax, Class 4 NIC, Corporation Tax marginal relief, Employer NI, and dividend tax.
Sole trader
Limited company
Rates from gov.uk for 2026/27. Assumes single director, £12,570 salary, no Employment Allowance (sole-director companies don't qualify). Excludes accountancy fees (~£800-1,500/yr typical for Ltd). Excludes pension, IR35, dividend timing.
Whatever structure you pick, the receipts have to be airtight
PocketReceipt scans receipts, extracts VAT, and exports HMRC-aligned summaries — works equally well whether you're submitting Self Assessment as a sole trader or feeding your accountant for Ltd accounts.
How the comparison works
Sole trader path
You pay Income Tax on profits above £12,570 (Personal Allowance) at 20% / 40% / 45%, plus Class 4 NIC at 6% on profits between £12,570 and £50,270, then 2%. Class 2 NIC is no longer charged for those above the small profits threshold.
Limited company path (single director, salary + dividends)
The standard professional model: take a £12,570 salary (uses your Personal Allowance, deductible from Corporation Tax), pay the resulting Employer NI, then pay Corporation Tax on remaining profit, and extract the rest as dividends. Dividend tax is charged at 8.75% / 33.75% / 39.35% above the £500 dividend allowance, using your remaining tax bands.
Corporation Tax marginal relief
Below £50,000 profit (after salary & ENI): 19%. Above £250,000: 25%. Between, marginal relief gives an effective rate around 26.5% on the marginal slice. The calculator applies the proper formula: 25% then deduct relief = (£250,000 − P) × 3/200.
When does Ltd usually win?
- Profit roughly £40,000–£100,000 with the director taking only what they need (retaining profit in the company gives more flexibility)
- You don't need all the cash personally each year — leaving profit in the company defers the dividend tax
- You can pay a spouse a salary or dividend (income splitting) — material if applicable
When sole trader usually wins
- Profit under ~£30,000 — Ltd's accountancy/admin overhead eats the saving
- You need every penny personally each year — dividend tax bites the same
- You want zero admin: no Companies House filing, no annual accounts, no PAYE
- You're inside IR35 / off-payroll for most contracts — Ltd loses most tax efficiency
What this calculator deliberately doesn't include
- Accountancy fees (typically £800–1,500/yr for a Ltd vs ~£250–500 for sole trader bookkeeping)
- Pension contributions (a strong reason to pick Ltd if you maximise employer pension contributions)
- IR35 / off-payroll working rules
- Spouse income-splitting
- Personal Allowance taper above £100,000
- Student loan repayments
- Mortgage affordability impacts
Get an accountant to model your specific situation before switching. The official gov.uk starting points: Set up a business and Form a limited company.