Sole Trader vs Limited Company Calculator — 2026/27 Tax Year
Should you operate as a sole trader or set up a limited company? The answer depends almost entirely on how much profit your business makes — and the tax difference can be thousands of pounds a year.
This calculator compares your take-home pay under both structures using the latest 2026/27 UK tax rates. It accounts for income tax, Class 4 National Insurance (sole trader), corporation tax, dividend tax and employer NIC (limited company) to show you the real difference — not just the headline rates.
How to use: Move the slider to set your annual business profit. The calculator instantly shows your take-home pay, total tax bill and effective tax rate for both structures side by side — so you can see exactly where the crossover point is.
Understanding your results
The calculator compares two scenarios side by side. As a sole trader, all your profit is taxed as personal income. You pay income tax at 20%, 40% or 45% depending on the amount, plus Class 4 National Insurance at 6% on profits between £12,570 and £50,270, and 2% above that.
As a limited company director, the calculation is more complex. The company pays you a salary of £12,570 (using your full personal allowance), pays corporation tax on the remaining profit at 19% or 25% depending on the level, and the rest comes to you as dividends taxed at 10.75% (basic rate) or 35.75% (higher rate). The company also pays employer National Insurance at 15% on salary above £5,000.
For most businesses earning above roughly £30,000–£35,000 in profit, the limited company structure produces a lower total tax bill. Below that level, the sole trader structure is often simpler and just as tax-efficient.
Frequently asked questions
Why is the limited company salary set at £12,570?
This figure matches the personal allowance for 2026/27, meaning no income tax is due on the salary itself. The employer pays NIC at 15% on the amount above £5,000, but the corporation tax deduction on the salary cost usually offsets this. For single-director companies without the Employment Allowance, £12,570 is typically the most tax-efficient salary level.
What about the Employment Allowance?
If your company has at least one employee alongside the director (and your employer NIC bill was under £100,000 last year), you can claim the Employment Allowance — currently £10,500 in 2026/27. This offsets employer NIC, potentially making a higher salary more tax-efficient. Use our salary and dividend calculator to model this scenario in detail.
Does this calculator include all costs of running a limited company?
No. A limited company has additional compliance costs that are not reflected in the tax comparison: annual accounts preparation, corporation tax returns, payroll administration, Companies House filing fees, and a separate business bank account. These typically cost between £1,000 and £3,000 per year depending on complexity. Factor these in when comparing structures.
Can I switch from sole trader to limited company (or back)?
Yes. Incorporating (moving from sole trader to limited company) is straightforward — you register at Companies House and transfer your business operations. Moving back is less common and involves striking off or liquidating the company. The best time to incorporate is at the start of a tax year (6 April) or at the start of a new accounting period, to keep things clean.
What other factors should I consider beyond tax?
Tax savings are important, but they are not the only consideration. A limited company gives you limited liability protection (your personal assets are separate from business debts), can look more professional to clients and suppliers, and offers more flexibility for pension contributions and profit extraction timing. A sole trader structure is simpler to run, has fewer compliance requirements, and your accounts remain private (limited company accounts are filed publicly at Companies House).
Related tools
Not sure which structure is right for your situation?
A 15-minute call with a chartered accountant can save you thousands. We will review your numbers and give you a clear recommendation — no obligation.
Book a free discovery callRates shown are for the 2026/27 UK tax year (England and Wales). This calculator provides estimates only and does not constitute tax advice. Individual circumstances vary — pension contributions, other income sources, and specific reliefs may change the comparison. Grosvenor Solutions is a trading name of Imperial Consulting Limited.