Compare your real take-home pay as a sole trader versus a limited company for 2026/27 — net of company running costs, with England and Scotland tax bands. See which structure actually keeps you more.
Built & maintained by Marcus, freelancer·Figures from HMRC·Last updated June 2026
⚠️ Updated for 2026/27: Dividend tax rose to 10.75% (ordinary) and 35.75% (upper) from 6 April 2026. Combined with employer NI at 15% above £5,000 (since April 2025), the limited company's tax edge has narrowed sharply — if you draw all your profit as income, the sole trader route is now often equally or more tax-efficient. This tool uses current rates and nets off company running costs.
£12,570
Tax-free personal allowance (both routes)
6% / 2%
Sole trader Class 4 NI rates
10.75%
Dividend tax from 6 April 2026
19–25%
Corporation tax on company profit
£/ yr
£/ yr
£/ yr
Sole Trader
Annual take-home
£—
— / month · — effective tax
Annual profit—
Income tax—
Class 4 National Insurance—
Class 2 NI (abolished 2024)£0
Limited Company
Annual take-home
£—
— / month · — effective tax
Director salary (tax-free)—
Employer NI on salary—
Corporation tax—
Dividends (post corp tax)—
Dividend tax—
Running costs (accountant etc.)—
—more per year
—
per month
—
more tax-efficient
Where your profit goes
Sole trader — take-home
—
Sole trader — tax & NI
—
Ltd — take-home
—
Ltd — tax, NI & costs
—
⚠️ Estimate only. Assumes you draw all profit as income each year. Limited company model: director salary as selected (taxed at 0% within the personal allowance), all remaining post-tax profit taken as dividends, no Employment Allowance (sole director). Personal allowance taper above £100k is applied to the sole trader but not the limited company route. Excludes pension contributions, VAT, student loans and income splitting. Consult a qualified accountant (CA or CTA) before deciding. 2026/27 rates.
Take-home at each profit level, using your selected region (England), director salary and running cost from the Compare tab. The row nearest your profit is highlighted.
No tax break-even on full extraction. At 2026/27 rates, if you draw all your profit as income, the sole trader keeps more at every level shown below. A limited company wins on retained profit and non-tax factors — see "When a limited company still makes sense" below.
Annual profit
Sole trader
Limited company
Difference
⚠️ Take-home is after all tax, NI and (for the limited company) running costs, assuming full profit extraction as salary + dividends. "Difference" shows which structure keeps more at that profit level. Change the region, salary or running cost on the Compare tab to update this table.
Line-by-line for an annual profit of £55,000 (England), based on your inputs on the Compare tab.
Sole Trader
Annual profit—
Income tax (total)—
Class 4 NI 6% to £50,270, then 2%—
Take-home—
Limited Company
Annual profit—
Less: director salary—
Less: employer NI 15% above £5,000—
Taxable profit—
Less: corporation tax—
Dividends available—
Less: dividend tax—
Less: running costs—
Take-home salary + dividends − tax − costs—
⚠️ The limited company keeps a small salary plus dividends; the director salary is within the personal allowance so attracts no income tax or employee NI. Dividend tax is charged at 10.75% / 35.75% / 39.35% above the £500 allowance, stacked on top of salary. Figures rounded.
Sole Trader vs Limited Company: What's the Difference?
Both are ways to run a freelance business, but they are legally and tax distinct. A sole trader is self-employed as an individual — you and the business are the same legal entity. You keep all the profit and pay income tax and Class 4 National Insurance through Self Assessment. Setup is free and admin is light.
A limited company is a separate legal entity that you own (as shareholder) and run (as director). The company earns the income and pays corporation tax on its profit. You then extract money as a small salary plus dividends, each taxed differently. This gives you limited liability and some tax-planning flexibility, but adds Companies House filing, statutory accounts, payroll and — for most people — an accountant.
For years the headline reason to incorporate was tax saving. For 2026/27 that reason has largely gone if you draw all your profit as income: the dividend tax rise to 10.75% / 35.75%, employer NI at 15% above £5,000, and a 26.5% marginal corporation tax band mean a sole trader now keeps as much or more at most profit levels. The limited company case today rests more on liability, credibility, profit retention and pensions than on a simple tax win.
Side-by-Side Comparison (2026/27)
Sole Trader
Limited Company
Tax on profit
Income tax 20–45% + Class 4 NI 6% / 2%
Corp tax 19–25% + dividend tax 10.75–39.35% on what you draw
All profit taxed in the year, whether drawn or not
Retain profit at corp tax only; defer dividend tax
Pension
Personal contributions from net income
Company contributions, deductible against corp tax
When a Limited Company Still Makes Sense
The tax gap may favour the sole trader on full extraction, but incorporation can still be the right call. A limited company is often worth it when:
You retain profit
If you don't need all the profit to live on, you can leave it in the company taxed at just 19–25% corporation tax and defer dividend tax until later (or extract it in a lower-income year). This is the single biggest tax reason to incorporate in 2026/27 — and it's why a simple "take everything as income" comparison understates the limited company.
You want limited liability
A company is a separate legal entity, so business debts and most claims stop at the company rather than your personal assets. If your work carries financial or legal risk, this protection can matter more than a few hundred pounds of tax.
Clients require it, or credibility matters
Some agencies and larger clients only contract with limited companies, and a "Ltd" can look more established. Large company-funded pension contributions and income splitting with a shareholder spouse are also easier through a company.
Rule of thumb for 2026/27: if you spend everything you earn and your work is low-risk, staying a sole trader is usually simpler and at least as tax-efficient. If you can retain profit, want liability protection, or need the company status, incorporating still pays off.
The Real Running Cost of a Limited Company
Most online calculators compare the two structures on tax alone and ignore what a company actually costs to run — which makes the limited company look better than it is. A realistic annual cost includes:
Accountant: £800–1,500/year for statutory accounts, the CT600 corporation tax return and payroll. Confirmation Statement: £34/year filed online with Companies House. Company formation: £50 one-off (or free with some accountants). Optional extras include business banking and bookkeeping software.
That's why this calculator includes a running-cost field, pre-filled at £1,200, and subtracts it from the limited company take-home. Set it to match your own accountant's quote. Even at the low end, the cost meaningfully eats into any tax saving at the profit levels most freelancers operate at.
Switching from Sole Trader to Limited Company
You are not locked in. Many freelancers start as a sole trader and incorporate later when profit, liability or client requirements justify it. In outline you would: register a company at Companies House, tell HMRC, set up a business bank account, register for PAYE if you'll take a salary, transfer your business (clients, contracts, assets) to the company, and stop trading as a sole trader at the end of the tax year.
The order of these steps affects your tax — for example, incorporation relief on business assets or how you handle goodwill — so it's worth a one-off conversation with an accountant before you switch. There is rarely a rush: you can change structure whenever the numbers and circumstances change.
Frequently Asked Questions
At what profit is a limited company worth it in 2026/27?
On a pure tax comparison where you draw all your profit as income, there is no longer a clear profit point where a limited company wins in England. After the dividend tax rise to 10.75% / 35.75% on 6 April 2026, plus employer NI at 15% above £5,000 and corporation tax up to 26.5% on the marginal band, the sole trader keeps more at virtually every level once running costs are counted — roughly £2,600 more at £50,000 profit and £5,300 more at £100,000. A limited company still pays off if you retain profit rather than drawing it all, want limited liability, need the company status for clients, or plan large pension contributions.
How much tax does a sole trader pay versus a limited company?
A sole trader pays income tax on profit (20%, 40%, then 45% in England and Wales, with separate Scottish bands) plus Class 4 NI at 6% between £12,570 and £50,270 and 2% above — no employer NI, and Class 2 NI was abolished in April 2024. A limited company pays corporation tax (19% up to £50,000, rising to 25% with a 26.5% marginal rate to £250,000), then the director pays dividend tax of 10.75% / 35.75% / 39.35% above a £500 allowance, plus employer NI on salary over £5,000.
Did the 2026/27 dividend tax rise change the maths?
Yes, significantly. Dividend rates rose 2 percentage points from 6 April 2026 — ordinary from 8.75% to 10.75%, upper from 33.75% to 35.75%. With employer NI already up to 15% (and the threshold down to £5,000) from April 2025, the tax advantage a limited company once held over a sole trader has largely disappeared for full income extraction. Many older calculators still use 8.75% and therefore overstate the limited company benefit.
Do I need an accountant for a limited company?
In practice almost always. A company must file statutory accounts, a CT600 corporation tax return, an annual Confirmation Statement (£34) and run payroll for any salary. Most small companies pay £800–1,500/year for an accountant. A sole trader only files Self Assessment, which many do themselves. That difference in running cost is why this calculator nets it off the limited company take-home — ignoring it flatters the company result.
Is the sole trader vs limited company decision different in Scotland?
Yes. Scotland sets its own income tax bands, with rates up to 48%, so a Scottish sole trader pays more income tax on the same profit. Dividend tax, corporation tax and NI are UK-wide, so the gap narrows in Scotland and a limited company can edge slightly ahead around £60,000 profit. Switch the region selector to Scotland to see your figures.
Can I switch from sole trader to limited company later?
Yes — you can incorporate any time by registering a company at Companies House and transferring your business to it. Many freelancers start as a sole trader and incorporate when profit, liability or client requirements justify it. When you move business assets across you may be able to claim incorporation relief, so speak to an accountant about the order of steps. You don't have to start as a limited company.
What about IR35 and taking salary versus dividends?
If you work through your limited company for medium or large clients, IR35 may treat your income as employment income and remove the dividend advantage — check our IR35 calculator. For the most tax-efficient salary and dividend split, and your full income tax and Class 4 NI as a sole trader, use our UK self-employed tax calculator. The optimal director salary is usually £12,570, the personal allowance.
Sources & how we calculate
For the sole trader we apply 2026/27 income tax bands (England/Wales/NI or Scotland, with personal allowance taper above £100k) and Class 4 National Insurance at 6% / 2%. For the limited company we deduct a tax-efficient director salary and employer NI, charge corporation tax (19% up to £50k, 26.5% marginal to £250k, 25% above), then dividend tax of 10.75% / 35.75% / 39.35% on dividends above the £500 allowance, and subtract your company running cost. Everything runs in your browser from the figures you enter.
Estimate only, not tax advice. Your best structure depends on your profit, risk, plans and personal circumstances. Speak to a qualified accountant before incorporating or changing structure.
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