There's no one-size-fits-all answer, and anyone who tells you "always go limited" is guessing. Use the calculator below to compare your 2026/27 take-home both ways, then read on for the honest version of the trade-offs. A real person has got you here, not a call centre.
Choosing between sole trader and limited company is one of the biggest decisions a business owner makes, and for 2026/27 it's more finely balanced than it has been in years. The Autumn Budget 2025 pushed dividend tax rates up by two percentage points from 6 April 2026, and a single-director company now pays 15% employer National Insurance on salary above just £5,000. Both changes chip away at the classic company advantage, so the old rules of thumb no longer quite hold.
That doesn't mean incorporating is a bad idea. For a lot of owners it's still the more efficient route, and the tax saving is only part of the picture. Limited liability, credibility with bigger clients, and genuinely tax-efficient pension contributions can matter far more than a few hundred pounds either way. For others, the extra admin, the loss of privacy, and the cost of a second set of accounts simply aren't worth it.
This guide lays out both sides plainly. No jargon, no scare tactics, and no invented numbers. Every figure here is the confirmed 2026/27 rate. When you're ready, the calculator gives you a like-for-like take-home comparison, and if you'd rather just talk it through, that's what we're here for.
Drag your annual profit and watch the take-home for each route — and the gap between them.
This calculator is an illustration using 2026/27 rates for England, Wales and Northern Ireland. It assumes a single-director limited company paying a £12,570 director's salary plus dividends, and it ignores pensions, student loans, and any other income you may have. The company figure assumes you extract all remaining profit as dividends; if you can leave some profit in the company, the comparison shifts in the company's favour. Scottish income tax rates differ. The figures are a guide to help you compare the two routes, not personal advice, and your own position may change the answer. Before making a decision, get advice tailored to your circumstances, that's exactly what we're here for. Assumes a single-director company taking a £12,570 salary plus dividends.
Being a sole trader is the simplest way to run a business. You and the business are one and the same in the eyes of the law and HMRC, you pay income tax and Class 4 National Insurance on your profit, and you file one Self Assessment return a year. It's cheap to run and your finances stay private, but there's no separation between you and the business if things go wrong.
A limited company is a separate legal entity that owns the business. Your personal assets are generally protected, the company pays corporation tax on its profit (19% up to £50,000), and you typically pay yourself with a small salary plus dividends. It can be more tax-efficient at higher profits, especially if you don't need to draw every penny, but it costs more to run and your accounts go on the public record.
Here's the mechanism in plain English. A sole trader pays income tax and Class 4 NI on all their profit. In the basic-rate band that's a combined marginal rate of about 26% (20% tax plus 6% Class 4); in the higher-rate band it's about 42% (40% plus 2%). Crucially, you pay this on every pound of profit, drawn or not.
A company works in two layers. First the company pays corporation tax on its profit: 19% on the first £50,000, rising towards 25% between £50,000 and £250,000 (an effective marginal rate of around 26.5% in that band), and 25% above £250,000. Then, if you extract profit as dividends, there's a second tax on you personally at the dividend rates, after a £500 tax-free dividend allowance.
The efficient route is a small salary plus dividends. Our calculator assumes a £12,570 director's salary, which uses your full personal allowance and secures a state-pension qualifying year. The salary is deductible against corporation tax, and although a single-director company pays 15% employer NI on the slice above £5,000 (roughly £1,135), that NI is itself corporation-tax deductible and the relief on the salary more than offsets it, so the £12,570 level still comes out ahead of a lower £5,000 salary for most owners. That's why we use it as a deliberate, defensible default.
Two 2026/27 changes reshaped this. The basic and higher dividend rates each rose 2 points on 6 April 2026, and employer NI is now 15% on salary above just £5,000 with no Employment Allowance for a one-director company. Together they've all but removed the take-home advantage of incorporating if you draw everything — which is why, this year, the case for a company rests on retaining profit, limited liability and credibility rather than a simple tax saving on what you extract.
You can switch from sole trader to limited company whenever it makes sense. In 2026/27 the trigger is rarely a pure take-home saving on the profit you draw — it's more often that you want to start retaining and reinvesting profit (where the company's lower tax really tells), you need limited liability, or a client requires a 'Ltd'. There's no need to rush.
Good moments to look seriously: when you can leave profit in the business rather than drawing it all; when you want to fund a pension tax-efficiently through employer contributions; when you need the liability protection; or when a bigger contract requires a limited company. Construction and trade businesses often incorporate early for the liability alone — and that's a big part of the work we do.
Timing matters for the practical bits too. Incorporating mid-year means a final sole-trader period and a first company period, transferring assets and goodwill, opening a business bank account, registering for corporation tax and PAYE, and moving over any VAT registration. None of it is difficult with help, but it's worth planning so nothing falls through the cracks.
This is exactly the kind of decision we'll model properly for you before you commit, with your real figures, so you're not guessing. And if it later turns out incorporating wasn't right, you can move back to being a sole trader too. It's your call, and we'll make sure you understand the trade-offs first.
See how we set companies upA company is a separate legal person, so your personal assets are generally protected if the business fails or is sued. This is often the single most important reason to incorporate, especially in higher-risk trades. Bear in mind banks frequently ask directors for personal guarantees on company borrowing, and directors can still be liable for wrongful trading.
A sole trader keeps their finances private. A limited company must file accounts, director names and a registered office on the public Companies House register. From April 2028 small and micro companies will also have to file a profit and loss account, though they'll be able to opt out of publishing it publicly.
A 'Ltd' can look more established and is sometimes required to win larger contracts or work with certain agencies. Companies can also raise money by issuing shares to bring in investors, something a sole trader simply can't do. How much this matters varies a lot by sector.
A company can make employer pension contributions that are deductible for corporation tax and paid before any extraction, sidestepping both dividend tax and NI. For a sole trader, business pension contributions aren't a trading expense, so relief is given personally on contributions from post-tax income. For owners keen to fund a pension, this can tip the balance.
A sole trader files one Self Assessment return. A company must file annual accounts, a corporation tax return, a confirmation statement, run payroll for the director's salary, and follow company law on dividends. Expect £1,000 to £2,000+ a year more in accountancy fees, which is precisely why the tax saving needs to be big enough to be worth it.
From 6 April 2026, sole traders and landlords with gross income over £50,000 must keep digital records and file quarterly updates plus a final declaration (the threshold drops to £30,000 in April 2027 and £20,000 in April 2028). Limited companies aren't in MTD for Income Tax at all, they file a CT600 instead, so incorporating side-steps this particular compliance burden.
It can be, but not always. A company can be more efficient at higher profits because retained profit is taxed only at corporation tax (19% up to £50,000) rather than income tax plus Class 4 NI, and a salary-plus-dividends split lowers the combined rate. But after the April 2026 dividend rise and with 15% employer NI, the advantage is narrower than it used to be, and at lower profits the extra cost and admin often cancel out any saving. The calculator above will show you your own comparison.
It depends far more on whether you draw your profit or retain it than on any magic number. If you draw most or all of what you earn in 2026/27, a sole trader generally stays a little ahead of a single-director company at almost every level — the two run near-level in the high-£50,000s, then the sole trader pulls ahead again in the higher-rate band. Since 6 April 2026 dividend tax rose 2 points and employer NI is 15% with no Employment Allowance for a one-director company, so the old 'incorporate to save tax' rule of thumb no longer holds for money you extract. Where a company wins clearly is on profit you leave in — taxed at just 19%–26.5% corporation tax with the dividend layer deferred. The calculator shows the draw-it-all comparison on your own figures.
There's no single number, it depends entirely on your profit, how much you extract, your salary level and your other income. The saving is largest when you can leave profit in the company and defer the dividend tax; it can be small, negligible, or even negative if you need to draw every pound at lower profit levels. Rather than quote a figure that might not apply to you, we'll model it with your real numbers before you decide.
No. A sole trader has unlimited personal liability, meaning your personal assets, including your home and savings, are exposed if the business runs up debts or is sued. Only a limited company gives you that legal separation, which is often the main non-tax reason people incorporate, especially in higher-risk trades.
Yes. A sole trader's finances stay private. A limited company has to file accounts and director details on the public Companies House register, which anyone can view. From April 2028 small companies will also need to file a profit and loss account, though they'll be able to opt out of publishing it publicly.
For most single-director companies, a salary of £12,570 works well: it uses your full personal allowance with no income tax or employee NI, secures a state-pension qualifying year, and the corporation-tax relief on the salary outweighs the roughly £1,135 of employer NI on the slice above £5,000, so it still beats a lower £5,000 salary for most owners. Some owners prefer the £5,000 salary to avoid employer NI entirely, but for most the £12,570 level is the better default, which is why our calculator assumes it.
Often the company, for pension-focused owners. A company can make employer pension contributions that are deductible for corporation tax and paid before extraction, avoiding both dividend tax and NI. A sole trader contributes from post-tax income with personal relief instead, and business contributions aren't a trading expense. If funding a pension is a priority, that can tip the decision towards incorporating.
From 6 April 2026, yes if your gross income is over £50,000: you'll need to keep digital records and file quarterly updates plus a final declaration. The threshold falls to over £30,000 from April 2027 and over £20,000 from April 2028. Limited companies aren't in MTD for Income Tax, so incorporating avoids this particular burden.
Yes, and many people do once their profits grow. There's no rush, it's usually best to wait until the tax saving comfortably clears the extra running costs. Switching involves closing off your sole-trader period, transferring assets and goodwill, setting up the company for corporation tax and PAYE, and moving any VAT registration. We'll plan it so nothing slips through the cracks.
Expect £1,000 to £2,000+ a year more in accountancy fees than a sole trader, on top of the extra filings: annual accounts, a corporation tax return, a confirmation statement and payroll. That ongoing cost is exactly why the tax saving needs to be big enough to justify incorporating. As always, we agree our fees with you upfront so there are no nasty surprises.
The calculator gives you the shape; a five-minute chat gives you the exact answer for your situation — and the plan to act on it.
