Should I Incorporate? The Tax Numbers for Sole Trader vs Limited Company
The question of whether to incorporate is not always about tax. But tax is usually the biggest factor. At lower profit levels, a sole trader often keeps more. At higher levels, a limited company wins. The crossover depends on the specific rates, and it has shifted with the 2026/27 dividend tax increases. This tool shows the full tax breakdown at your profit level.
How to use
Set your annual business profit using the slider. The tool calculates the total tax and take-home income for both a sole trader (Income Tax plus Class 4 NIC) and a limited company (Corporation Tax, salary, employer NIC, employee NIC, and dividend tax). The winner is highlighted.
Frequently Asked Questions
At what profit level is a limited company better?
It depends on the exact rates each year. For 2026/27, the crossover where a limited company typically becomes more tax-efficient is around £40,000 to £50,000 of profit. Below that, the sole trader often keeps more because the Class 4 NIC rate (6%) is lower than the combined Corporation Tax and dividend tax burden.
What costs does a limited company have that a sole trader does not?
Higher accountancy fees (typically £1,000 to £2,000 more per year), Companies House filing requirements, annual confirmation statement, registered office, and more complex record-keeping. The tool shows the tax comparison only. Factor in these costs when making your decision.
Does this tool account for leaving profits in the company?
No. It assumes all post-tax profits are extracted as dividends. If you leave profits in the company for reinvestment, the Corporation Tax rate (19% for small profits) can be significantly lower than the sole trader Income Tax rate, making the company even more attractive.
Should I incorporate just for the tax saving?
Tax should not be the only consideration. A limited company provides limited liability protection, can look more professional to clients, and offers more flexibility in how you extract income. However, it also means more regulation, more paperwork, and your financial affairs become a matter of public record at Companies House.
Need help with your tax planning?
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Book a Free Discovery Call© Imperial Consulting Limited, trading as Grosvenor.Solutions. This tool is for illustrative and educational purposes only. It is not tax advice. Your circumstances may differ. Always consult a qualified professional before making tax decisions. Calculated using 2026/27 HMRC published rates for England, Wales and Northern Ireland.