Sole Trader vs Limited Company Calculator
Sole trader vs limited company calculator
The biggest tax decision an owner-managed UK business owner makes. Enter your annual profit and we will model both routes side by side — sole trader self-assessment, or limited company with a £12,570 salary plus dividends — using 2026/27 rates.
Compare the two routes
Ltd Co model assumes the standard owner-manager package: £12,570 salary plus the rest as dividends. Other income shifts the dividend tax band. 2026/27 rates: PA £12,570; CT 19%/25% with marginal relief between £50k–£250k; Class 4 NIC 6%/2%; Dividend tax 8.75%/33.75%/39.35%; Employer NIC 15% above £5,000.
Which structure works for whom?
For most owner-managed businesses with profit above about £30,000 a year, a limited company saves tax — usually a few thousand pounds, sometimes much more. Below that, a sole trader is simpler and the savings rarely justify the extra admin. There is no single right answer. The numbers help, but the decision also depends on:
- Liability — limited liability protects your personal assets from business creditors. Worth a lot if your work carries any meaningful risk.
- Reinvestment — if you want to leave profit in the company to grow it, you only pay corporation tax (not personal tax). Sole traders pay personal tax on all profit whether they spend it or not.
- Pensions and family planning — limited companies open up family income shifting (giving your spouse a small shareholding), corporate pension contributions, and exit planning via BADR.
- Admin cost — a limited company means corporation tax returns, payroll, dividend documentation and Companies House filings. We handle all of it for a fixed monthly fee, but it does add roughly £100–£200/month to running the business.
- Public records — limited company accounts and director details are on public Companies House records. Some people prefer the privacy of a sole trader.
Frequently asked questions
At what profit level does a Ltd Co usually beat sole trader?
Roughly £30k a year. Below that, the saving is usually less than the extra admin cost. Above that, a Ltd Co tends to save £1,000–£5,000+ a year depending on the profit level and how much you draw vs leave in the company. The April 2025 jump in employer NIC slightly narrowed the advantage, but the Ltd Co route still wins for most.
What about Class 4 NIC vs employer NIC + dividend tax?
Sole traders pay Class 4 NIC at 6% on profits between £12,570 and £50,270, then 2% above. Limited companies pay 15% employer NIC on salary above £5,000 (so on a £12,570 salary, about £1,135), and dividend tax at 8.75% / 33.75% / 39.35% on the dividend draw. Different mechanics, similar total burden — until you factor in that the dividend allowance and corporation tax shape the answer.
Can I have a Ltd Co AND keep my PAYE job?
Yes. Many people run a side-business through a limited company while keeping their PAYE day-job. The PAYE income uses your personal allowance and pushes you into higher dividend tax bands earlier — the calculator handles this when you fill in “other personal income”.
Is incorporating mid-year a problem?
Not in itself, but you have to file two final sole-trader accounts (covering the period before incorporation) and the company starts its first accounting period from the date of incorporation. We typically time it for the start of a new tax year (6 April) where possible, but mid-year is fine when there is a reason.
What if I want to leave profit in the company?
That is one of the strongest cases for incorporation. Profit kept in the company only pays corporation tax (19% on small profits up to £50k, 25% above £250k, marginal relief between). It can sit there until you need it — drawn as future dividends, paid as pension contributions, or extracted via Members’ Voluntary Liquidation on exit (potentially with BADR at 14% rising to 18% from April 2026).
Want a proper review before incorporating?
The calculator is a starting point. The right answer depends on more than just the headline tax — pensions, BADR, partner shareholdings, and exit plans all change the picture. We model the actual numbers for clients before any decision.