On 2026/27 rates, a sole trader keeps more than a limited company at every profit level we tested, from £10,000 to £300,000, when all the profit is taken out as pay and dividends. At £55,000 profit the gap is £735 a year, and around £60,000 the two are within about £20. A company can come out ahead when part of the profit stays in it, and it brings protection and options that a tax figure does not show.
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This table shows what you keep each year from the same business profit, as a sole trader and as a limited company that pays out everything. The calculator above lets you enter your own figures.
| Yearly profit | Sole trader keeps | Limited company keeps | Difference |
|---|---|---|---|
| £20,000 | £18,068 | £17,174 | -£894 |
| £30,000 | £25,468 | £24,403 | -£1,065 |
| £40,000 | £32,868 | £31,633 | -£1,235 |
| £50,000 | £40,268 | £38,862 | -£1,406 |
| £55,000 | £43,211 | £42,477 | -£735 |
| £60,000 | £46,111 | £46,091 | -£20 |
| £80,000 | £57,711 | £55,765 | -£1,947 |
| £100,000 | £69,311 | £65,210 | -£4,102 |
| £120,000 | £76,911 | £74,654 | -£2,257 |
Assumes England, Wales and Northern Ireland rates for 2026/27, no other income, no extra company running costs, and all profit taken out. The company pays a salary of £12,570 and the rest as dividends, which gave the best result in every row. A negative difference means the sole trader keeps more.
A sole trader pays income tax at 20%, 40% and 45%, plus Class 4 National Insurance of 6% on profit between £12,570 and £50,270 and 2% above that.
A company pays corporation tax first: 19% on profit up to £50,000, 25% above £250,000, and a tapered rate in between. Then you pay tax again on what you take out. Dividends above the £500 allowance are taxed at 10.75%, 35.75% or 39.35%, and the basic and higher rates went up two points in April 2026. A salary above £5,000 also costs the company employer National Insurance at 15%.
Put the two layers together and the company route costs slightly more than the sole trader route at every level in the table. Around £60,000 the two are almost level.
If you do not need all the profit personally, leaving it in the company means it is taxed at 19% instead of your personal rates. At £55,000 profit, leaving half in the company leaves you £1,063 ahead this year. Leaving all of it in leaves you £2,807 ahead. Treat that as a delay: money you take out later is taxed as dividends at that point.
The comparison above counts tax only. Most people who run a company would say tax was never the main reason. Here is what the extra cost buys.
A company is its own legal person. If the business owes money it cannot pay, creditors go after the company, not your house or your savings. Exceptions: personal guarantees you sign for loans or leases, and directors who keep trading while insolvent or break the rules.
Profit you leave in the company is taxed at 19% on the first £50,000, and up to 25% above that. A sole trader pays 20% to 45% income tax plus National Insurance on every pound, spent or not. Money you take out later is taxed again, so this is about timing and flexibility.
Pay yourself a steady salary and draw dividends when it suits you. A strong year does not have to push you into the 40% band, and a quiet year does not stop your pay. Dividends can only be paid from profit the company has already made.
Employer pension contributions come out of profit before corporation tax, and they are not limited by your salary. The cap is your annual allowance, £60,000 for most people.
Many larger clients, agencies and councils prefer or insist on a limited company as a supplier. Banks and landlords tend to treat it as an established business.
Bring in a partner or key staff with shares, raise money from investors (including through EIS and SEIS), or sell by selling the shares. The company carries on if you are ill or step back, and contracts stay in its name.
| Item | 2026/27 |
|---|---|
| Personal allowance | £12,570 |
| Income tax | 20% on the next £37,700, 40% up to £125,140, 45% above |
| Class 4 National Insurance (sole trader) | 6% on profit between £12,570 and £50,270, 2% above |
| Corporation tax | 19% up to £50,000, 25% above £250,000, marginal relief between |
| Dividend allowance | £500 |
| Dividend tax | 10.75% basic, 35.75% higher, 39.35% additional |
| Employer National Insurance | 15% on salary above £5,000 |
| Employee National Insurance | 8% on salary between £12,570 and £50,270, 2% above |
Sources: GOV.UK: income tax rates · GOV.UK: tax on dividends · GOV.UK: corporation tax rates · GOV.UK: self-employed National Insurance · GOV.UK: employer rates and thresholds 2026 to 2027. General information, not personal tax advice.
See also the landlord tax calculator, or browse all free tax calculators.
On tax alone, a sole trader keeps more at every profit level we tested, from £10,000 to £300,000, when all the profit is taken out (around £60,000 the two are within about £20 of each other). At £55,000 profit the difference is £735 a year. A limited company can be better when part of the profit stays in the business, and for protection, credibility, pensions and growth. The right answer depends on your own figures.
When all the profit is taken out as salary and dividends, it does not on 2026/27 rates, at any profit level we tested up to £300,000 (the nearest it gets is around £60,000, where the two are within about £20). The saving comes from leaving profit in the company, where the first £50,000 is taxed at 19% instead of your personal rates. Money taken out later is taxed again, so it is a delay rather than a permanent saving.
Class 4 National Insurance at 6% on profit between £12,570 and £50,270, and 2% on profit above £50,270. Class 2 is no longer payable, and you still get a qualifying year for the State Pension if your profit is above the small profits threshold.
After a £500 dividend allowance, dividends are taxed at 10.75% in the basic rate band, 35.75% in the higher rate band and 39.35% in the additional rate band. The basic and higher rates rose by two percentage points on 6 April 2026.
Limited liability, which keeps your home and savings separate from company debts apart from personal guarantees and wrongful trading; keeping profit in the business at corporation tax rates; choosing when to take money out; employer pension contributions that are not limited by your salary; credibility with larger clients; and the ability to bring in partners or investors or to sell the shares.
No. It uses the income tax rates for England, Wales and Northern Ireland. Scotland has different bands, so the result would be wrong. Ask us for a Scottish comparison.
We will run your actual figures, including other income, pension and the benefits that matter to you, and tell you which structure fits.
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