Sole trader or limited company?
Going limited used to be a straight tax decision. Not any more. Put your numbers in, then read what the tax answer does not tell you.
Your numbers
Your turnover less business costs. As a sole trader this is what you are taxed on. In a company it is the profit before your salary and dividends.
A sole trader is taxed on the whole profit whether they spend it or not. A company is only taxed personally on what you actually draw.
Change the assumptions
£12,570 keeps a qualifying year for the state pension and is normally the better answer even after employer NIC.
Employment, pension or rental income that already uses part of your allowances.
Modelled as a company contribution if you are limited, and a personal contribution if you are a sole trader.
Accounts, corporation tax return, payroll, confirmation statement, over and above what you would pay as a sole trader. Put your own quotes in.
Where the money goes
| For a profit of | Sole trader | Limited company |
|---|
The part the tax figure misses
Tick everything that is true of you. Most people who should incorporate today do it for these reasons, not for the tax.
The structural case is what usually decides this, so be honest with the list.
Notes on your answer
What has changed, and why this is a closer call than it used to be
- The dividend allowance is £500. It was £5,000 when it was introduced in 2016.
- Dividend tax rose again on 6 April 2026. The basic rate is 10.75% and the higher rate 35.75%, both two points up on the year before. The additional rate is 39.35%.
- Corporation tax is 19% on profits up to £50,000 and 25% above £250,000. In between, marginal relief means every extra pound of profit is effectively taxed at 26.5%.
- Employer National Insurance is 15% on pay above £5,000, so a director's salary now costs the company more than it used to.
- The personal allowance and the higher rate threshold are frozen until 2030/31, so more profit falls into higher rates every year without any rate changing.
- Making Tax Digital for Income Tax started on 6 April 2026 for sole traders and landlords with gross income over £50,000. It reaches £30,000 in April 2027 and £20,000 in April 2028. If you are in scope, you file four quarterly updates and a final declaration instead of one tax return.
- Business Asset Disposal Relief is now 18%, so the tax on selling up is higher than it was.
- From April 2027 savings and property income are taxed two points above the main rates. Trading profits are not affected, but it matters if you have other income.
The next Budget is on 28 October 2026 and rates can change. This tool is a starting point for a conversation, not advice you should act on by itself.
What this does not cover
- Scottish income tax rates, which apply to a sole trader's profits but not to dividends, and which change the answer.
- Off-payroll working and IR35, if you supply services through a company to a small number of clients.
- The cost of incorporating an existing business: goodwill, capital allowances, VAT registration, stock and the transfer of contracts.
- Associated companies, which cut the £50,000 and £250,000 corporation tax limits.
- Losses, capital allowances on large purchases, R&D relief and anything else specific to your trade.
- Student loan repayments, which are charged on sole trader profits but not on dividends. The effect is real and is flagged in the checklist, but it is not in the arithmetic above.
Run your own numbers past someone
If the two columns are close, the decision is not really about tax. We will look at your figures, your risk and what you want the business to do next, and tell you plainly which way to go.
Book a call
Two more tools.
The instant estimate tells you what Echo would cost. The director health check tells you where you are most likely leaking money or time.
Advice while there is still time to act.