Sole Trader vs Limited Company Calculator
Compare your take-home pay both ways for the 2026/27 tax year
Last updated: June 2026
Compare Sole Trader vs Limited Company Take-Home Pay
Enter your expected annual business profit (turnover minus allowable expenses, before any tax or salary). We assume a single owner-director taking a tax-efficient salary of £12,570 plus dividends.
What this calculator does
Choosing between operating as a sole trader or a limited company is one of the biggest decisions a UK small-business owner makes, and tax is usually the deciding factor. This calculator compares your annual take-home pay both ways using the 2026/27 tax rates, so you can see in pounds and pence which structure leaves more in your pocket.
For the sole trader route it works out your Income Tax, Class 4 National Insurance and (optionally) voluntary Class 2 contributions on your business profit. For the limited company route it assumes you take a tax-efficient director’s salary of £12,570 (which uses your full Personal Allowance), charges Corporation Tax on the remaining profit, then taxes the dividends you draw. The difference between the two take-home figures is your potential annual saving. It is built for freelancers, contractors, tradespeople and small-business owners weighing up whether incorporating is worth it — and the accountant’s fees that come with it.
How it works
The calculator applies the official 2026/27 figures step by step:
- Personal Allowance: £12,570 (tapered by £1 for every £2 of income over £100,000).
- Income Tax (sole trader): 20% basic rate on taxable income up to £37,700, 40% higher rate to £125,140, then 45%.
- Class 4 NI (sole trader): 6% on profits between £12,570 and £50,270, then 2% above.
- Class 2 NI (sole trader): voluntary £3.65 per week (£189.80/year) where profit exceeds £7,105 — toggle on or off.
- Corporation Tax (limited): 19% on profits up to £50,000, 25% above £250,000, with marginal relief (3/200 fraction) between the two.
- Dividend Tax (limited): first £500 tax-free, then 10.75% (basic), 35.75% (higher) and 39.35% (additional).
Worked example
Take a business making £60,000 profit in 2026/27, with voluntary Class 2 included:
- Sole trader: Income Tax £11,432.00 + Class 4 NI £2,456.60 + Class 2 £189.80 = £14,078.40 total. Take-home ≈ £45,921.60.
- Limited company: £12,570 salary, Corporation Tax on £47,430 profit = £9,011.70, leaving £38,418.30 in dividends. Dividend Tax = £4,255.79. Take-home ≈ £46,732.51.
At £60,000 profit the limited company wins by roughly £811 a year before accountancy costs — a margin that grows at higher profits but can be wiped out by typical accountant fees of £800–£1,500.
Frequently asked questions
At what profit is a limited company worth it?
For many owners the tax saving only becomes meaningful above roughly £40,000–£50,000 profit, and even then it must beat the extra accountancy and admin costs (typically £800–£1,500/year). Below about £30,000 a sole trader is usually simpler and just as cheap after fees. Use the calculator with your real profit figure to see the exact gap.
Why does the limited company assume a £12,570 salary?
A salary of £12,570 uses up your full Personal Allowance tax-free and is a deductible business expense that reduces Corporation Tax, while keeping you within the National Insurance secondary threshold for most single-director companies. Profit above the salary is then drawn as dividends, which are taxed at lower rates than salary.
Do I pay National Insurance on dividends?
No. Dividends are not subject to National Insurance, which is a key reason the limited company route can be more tax-efficient. You do pay Dividend Tax (10.75% / 35.75% / 39.35% for 2026/27) on dividends above the £500 allowance, but no Class 1, Class 2 or Class 4 NI.
Does this calculator include accountancy costs?
No. The comparison shows the pure tax-and-NI difference. A limited company normally needs annual accounts, a Corporation Tax return and Confirmation Statement, so factor in £800–£1,500 of accountancy fees before deciding. If the calculated saving is smaller than those fees, staying a sole trader usually makes sense.
Source: figures verified against GOV.UK Income Tax rates, self-employed National Insurance, Corporation Tax rates and tax on dividends for the 2026/27 tax year.