Sole trader vs limited company · 2026/27
Should you go limited — or stay a sole trader?
For years the answer was "incorporate and save tax." The 2025 jump in employer National Insurance to 15%, corporation tax's marginal band, and the 2026/27 rise in dividend rates have quietly changed that. Put your profit in and see what each route actually leaves in your pocket this year.
Your year
Enter the annual profit your business makes — turnover minus allowable expenses. Nothing is sent anywhere; this runs entirely in your browser.
Why the gap has closed for 2026/27
The old "limited company saves tax" rule of thumb was built on a 19% flat corporation tax rate, cheap employer National Insurance, and dividend rates of 8.75%/33.75%. Three things have since eroded it:
- Employer NI is now 15% on salary above just £5,000 — and a single-director company with no other staff can't claim the £10,500 Employment Allowance to offset it.
- Corporation tax has a marginal band. Profits between £50,000 and £250,000 are effectively taxed at 26.5%, not 19%, once Marginal Relief is worked out.
- Dividend tax rose for 2026/27 to 10.75% (basic) and 35.75% (higher), on top of the £500 allowance — so extracting profit as dividends costs more than it used to.
Stack those together and, if you draw all your profit out each year, a sole trader now often keeps more than the same person running a limited company. The calculator above shows your own numbers side by side.
Tax isn't the only reason to incorporate
A limited company still gives you limited liability, a separate legal identity, easier access to some contracts, and — crucially — the ability to leave profit in the company and only pay dividend tax when you draw it. This tool compares the full-extraction case (everything paid out this year). If you'd retain profit, pay into a pension from the company, or want the liability protection, the balance shifts.
How each side is worked out
- Sole trader: Income Tax on profit above your £12,570 personal allowance (20% / 40% / 45%), plus Class 4 National Insurance at 6% between £12,570 and £50,270 and 2% above. No Class 2 is due.
- Limited company: a director's salary (deductible for the company), 15% employer NI on the salary above £5,000, corporation tax on what's left, then the post-tax profit paid as dividends — taxed at your personal dividend rates after the £500 allowance.
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Common questions
Is a limited company still more tax-efficient than a sole trader?
Not automatically for 2026/27. With employer National Insurance at 15%, corporation tax's 26.5% marginal band between £50,000 and £250,000, and dividend rates of 10.75%/35.75%, a sole trader who draws all their profit often keeps as much or more than the same person as a limited company. The advantage of incorporating is now less about a quick tax saving and more about limited liability and retaining profit in the company.
At what profit does a limited company become worth it?
If you extract every pound each year, there often isn't a clear tax crossover in 2026/27 — the numbers stay close and can favour the sole trader. Incorporation tends to pay off when you can leave profit in the company (deferring dividend tax), pay pension contributions from the company, or need limited liability. Run your own figure above to see where you land.
Why can't my company offset employer NI with the Employment Allowance?
The £10,500 Employment Allowance isn't available to a company whose only paid employee is a single director. That's why the calculator applies 15% employer NI in full on the director's salary above the £5,000 secondary threshold. If you employ other staff you may qualify — which would improve the limited-company result.
What salary should a director take?
A common tax-efficient choice is £12,570 — the full personal allowance — so no income tax or employee NI is due on it, and the salary is a deductible cost for the company. The calculator defaults to this but lets you change it. Paying yourself more as salary can waste the point of dividends; paying less can leave corporation tax relief on the table.
Do these figures include Scotland?
No. The Income Tax bands used here are for England, Wales and Northern Ireland. Scottish taxpayers have different Income Tax rates and bands on salary and self-employment profit (dividends and corporation tax are the same UK-wide), so a Scottish sole trader's figure will differ.
Run the numbers properly before you decide
A one-year snapshot is a start — but the real decision needs your actual mix of income, expenses and how much you draw versus retain. Our spreadsheet toolkit lets you model it year on year, in Excel or Google Sheets you own.
- Self Assessment Tax Estimator 2026/27 — your full sole-trader bill: income tax, Class 4 NI, payments on account, month-by-month set-aside.
- Freelance Day-Rate & Profit Calculator — work back from the take-home you want to the rate you need to charge.
- Rental Property ROI & Yield Calculator — for the landlords weighing personal vs company ownership.
- Invoice Tracker & Log — auto paid/outstanding/overdue, with a chase list.
Excel and Google Sheets. Working formulas, not just formatting. Built and checked by us, with AI assistance, and every calculation verified.
Get the Tax Estimator — £9 →£9 on its own, or all four tools for £19, with a 14-day money-back guarantee.