Free tool: Try our free limited company vs sole trader calculator for 2026/27, with your own figures.
There is no single profit level at which going limited pays. If you take all the profit out as salary and dividends, a company now costs about the same in tax as being a sole trader. Limited companies win when you leave profit in the business, make employer pension contributions, or want limited liability.
A sole trader pays income tax (20% to £50,270, 40% above) and Class 4 National Insurance (6% between £12,570 and £50,270, 2% above) on all profit, whether drawn or not. A company pays corporation tax at 19% up to £50,000 of profit and 25% above £250,000, with marginal relief between. You then pay tax again when you take money out, and dividends are taxed at 10.75%, 35.75% or 39.35% after a £500 allowance.
The table assumes one owner-director, no other income and no other employees, a £12,570 salary (which costs the company employer NI at 15% above £5,000) and all remaining profit paid as dividends. It shows what the owner keeps.
| Profit before owner's pay | Sole trader keeps | Limited company keeps | Difference |
|---|---|---|---|
| £40,000 | £32,868 | £31,633 | +£−1,235 |
| £60,000 | £46,111 | £46,091 | +£−20 |
| £100,000 | £69,311 | £65,335 | +£−3,977 |
At these profit levels the company is level or worse if you take everything out. The gap is not a reason to avoid incorporating, but it is why the old rule of thumb of going limited at £30,000 to £35,000 of profit no longer holds by itself.
A company must file annual accounts with Companies House and a Corporation Tax return, run payroll for any director salary, and keep fuller records. Accountancy fees are higher, and extracting money is more formal. Incorporation partway through a year needs care, and transferring stock and goodwill has tax consequences. The cleanest time is often the start of a tax year or a new venture.
VAT is separate. You register when taxable turnover passes £90,000 whatever the structure, and your VAT number stays with you personally unless you transfer the business as a going concern. See VAT across Amazon and Shopify and what expenses online sellers can claim.
Sources: GOV.UK: Income Tax rates and Personal Allowance, GOV.UK: Corporation Tax rates.
E-commerce accounting for online sellers: fixed fees, specialist advice on structure, VAT and stock.
Talk to an AccountantThere is no single profit level at which going limited pays. If you take all the profit out as salary and dividends, a company now costs about the same in tax as being a sole trader. Limited companies win when you leave profit in the business, make employer pension contributions, or want limited liability.
There is no fixed figure. If you draw all the profit, tax is roughly the same either way. Limited companies pay off when profit is left in the business, pensions are paid by the company, or liability protection matters.
Not automatically. You pay corporation tax on profit and then income tax on dividends, so taking everything out often costs about the same as sole trader tax. Retained profit is where a company helps.
Yes, but it needs planning. You will have a final sole trader period and a first company period, and transferring stock and other assets can have tax effects, so many sellers pick the start of a tax year.