Sole trader vs limited company calculator

How the comparison is worked out

• Sole trader: income tax on profit (personal allowance £12,570, then 20% to £50,270, 40% to £125,140, 45% above, with the allowance tapering away over £100,000) plus Class 4 NI at 6% between £12,570 and £50,270 and 2% above.
• Limited company: the company pays you a £12,570 salary (no employee NI at that level, but 15% employer NI above £5,000, and sole-director companies do not get the Employment Allowance). What is left pays corporation tax at 19% up to £50,000, 25% from £250,000, with marginal relief between. The after-tax profit comes out as dividends: £500 tax free, then 8.75% in the basic band, 33.75% higher, 39.35% additional.
• Accountancy difference: limited company accounts, corporation tax returns and payroll cost more. The default £800 a year is a typical small-company gap; edit it to match your own quotes. It is treated as a company expense before tax.

Rates last checked: 15 July 2026 (2026/27 tax year). Assumes all profit is drawn each year, no other income, no pension contributions and a single director; each of those can swing the answer.

At what point is a limited company worth it?

Purely on take-home, the crossover on 2026/27 rates sits around the high £50,000s of profit once realistic accountancy costs are included. At £30,000 the sole trader keeps roughly £1,400 more; at £60,000 the company edges ahead by about £130; the gap then grows slowly. The tax saving alone rarely justifies the switch below £50,000. What changes the maths is retained profit: if you only need £40,000 to live on and can leave the rest in the company (or pay it into a pension), the company defers the dividend tax entirely and wins comfortably.

What the calculator deliberately leaves out

Real decisions include things a headline calculator cannot know: student loans, child benefit clawback between £60,000 and £80,000, pension strategy, whether your customers insist on dealing with a company, IR35 if you contract for larger clients, and how lenders view dividend income on a mortgage application. The gated checklist walks through each one so you can have a proper conversation with an accountant rather than a vibe-based one.

Is it better to be a sole trader or a limited company?

Below roughly £50,000 profit, sole trader is usually better: simpler, cheaper and now only slightly more taxed. Above that, a limited company starts to win on take-home, and wins clearly if you can leave profit in the business. Liability matters too: a company protects your personal assets if the business is sued or fails.

Why pay yourself a £12,570 salary from a limited company?

£12,570 matches the personal allowance, so the salary suffers no income tax and no employee NI, while still counting as a qualifying year for your state pension. It is also a deductible company expense. The company pays some employer NI above £5,000, which the calculator includes.

Can I switch from sole trader to limited company later?

Yes, and most people do it that way round. You register a company, tell HMRC you have stopped self employment (final Self Assessment return), and transfer the trade. Timing matters: switching early in a tax year is cleaner, and payments on account from your sole trader years still fall due after you incorporate, so plan the cash.

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