Sole Trader vs Limited Company Tax Calculator

What the 2026/27 numbers actually say

[Personalised summary will appear here once you submit the form.]

Why the answer has shifted in the last two budgets

Three legislative changes in the last 18 months have materially reduced the limited-company advantage for most owner-managers who draw all their profit personally:

• October 2024 budget, Employer NI raised from 13.8% to 15%. Every pound of director's salary above the threshold now costs the company 15p extra in employer NI.
• October 2024 budget, Secondary threshold cut from £9,100 to £5,000. Employer NI now starts much earlier on the standard £12,570 director salary, adding around £1,135 of annual cost that wasn't there before.
• Autumn Budget 2025, Dividend tax rates raised by 2 percentage points. Basic rate now 10.75% (was 8.75%); higher rate now 35.75% (was 33.75%). The additional rate stayed at 39.35%. This further erodes the dividend extraction route that traditionally favoured limited companies.

The cumulative effect: for many owner-managers who draw all their profit personally, the limited company is no longer the obvious winner. Sole trader is now competitive, or even ahead, at most profit levels up to £100,000, depending on personal circumstances.

When a limited company still wins

• You retain profit inside the company for reinvestment, equipment, future drawdown, or building reserves. Retained profit only pays corporation tax (19% for small profits), no dividend tax until you withdraw.
• You have a spouse or partner who can be a shareholder. Splitting dividends across two basic-rate taxpayers vs one higher-rate taxpayer can save thousands.
• You have employees (so the Employment Allowance can cover up to £10,500 of employer NI).
• Your income is in the additional rate band (over £125,140). Corporation tax at the 25% main rate is materially lower than additional rate income tax at 45%.
• You make pension contributions through the company. Employer pension contributions are corporation tax deductible and avoid NI on both sides, a powerful planning lever inside a limited company.
• You're seeking limited liability, i.e., the legal separation between your business and personal assets matters more than the tax outcome.

When sole trader still wins

• You want simplicity. One annual return (SA100), no Companies House filings, no statutory accounts, no separate bank account legally required.
• You take all profit personally each year, no retention strategy, and your profit is below ~£80,000.
• Your industry has issues with limited company status, e.g., certain contracts only accept sole traders or partnerships.
• You're testing a new business and don't want the overhead of a company until you know it works.
• You can offset losses against other income. Sole trader losses can be set against employment income, etc., a flexibility limited companies don't have.

The middle ground most accountants don't mention

If your profit is somewhere between £40,000 and £80,000 and you're undecided, two options often beat both pure choices:

• Sole trader + private pension contributions, pushes effective tax rate down, simpler than a limited company, lets you build retirement wealth tax-efficiently.
• Limited company + bare minimum salary (£5,000) + smaller dividends + larger retained profit, defers personal tax, builds company reserves, gives you flexibility to extract in a low-income year later.

The right answer depends on your personal income outside the business, your spouse's income, your retirement plans, and whether you're growing or coasting. A 15-minute call gets you a specific recommendation, book below.

Caveats & assumptions in this calculator

The numbers above assume:

• UK England/Wales/Northern Ireland tax rates for the 2026/27 tax year (current)
• Updated for the Autumn 2025 Budget dividend rate increase (basic 10.75%, higher 35.75%)
• Scottish income tax bands differ for sole traders, book a call for a Scotland-specific calculation
• Optimal director salary of £12,570 (using full personal allowance)
• You have no other income that pushes you into a higher band
• You take dividends from the limited company (not bonus or director's loan)
• No Employment Allowance (assumes single-director company without other employees)
• No pension contributions, capital allowances, or other reliefs
• Personal allowance £12,570 (modelled with the £100k tapering correctly)

This calculator is a starting point, not professional advice. Your actual position depends on your full circumstances. Book a free 15-minute call below and we'll model your specific situation.