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Free tool · 2026/27 tax year

Sole trader vs limited company calculator

Compare what you keep as a sole trader with what you keep through a limited company, using the 2026/27 rates. Then read what the numbers do not show, from liability to cash flow.

Your numbers

£

Fees or sales less business expenses. For a company, this is before your salary and before the extra company running costs below.

£

The added accountancy, payroll and filing cost compared with being a sole trader. Replace it with your own quotes.

£

Rental profit, a pension or a second job. Taxed at income tax rates, with no NIC added.

£
£

Enter the total you want paid into your pension. The same amount goes in under both options. As a sole trader you pay it into a personal pension (SIPP): basic rate relief is added for you and higher rate relief comes through Self Assessment, but relief is capped at your earnings. The company pays it as an employer contribution before corporation tax, with no National Insurance.

What you leave in the company is taxed at corporation tax only for now. It is not counted in your take-home, so lower this and the company side will look worse in cash terms.

Sole trader takes home

£0

Limited company takes home

£0

Difference

£0

A limited company only wins from

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Side by side

Is a sole trader or a company better off?

How much more cash you keep as a sole trader than through a limited company, at every profit level. Above the line the sole trader keeps more. Below it the company keeps more. The lime dot is your profit.

At different profit levels

The cash you keep after all tax and NIC at different business profits, using the other inputs on the left. The highlighted row is the profit you entered.

What this assumes

  • Rates for 6 April 2026 to 5 April 2027, for taxpayers in England, Wales and Northern Ireland. Scottish income tax bands are not modelled.
  • Sole trader: income tax at 20%, 40% and 45% after the personal allowance, plus Class 4 National Insurance of 6% on profits between £12,570 and £50,270 and 2% above. Class 2 is treated as paid once profits reach £7,105, so no payment is added.
  • Money left in the company is shown after corporation tax. It has not yet borne dividend tax, which would be due when you take it out later at that year's rates.
  • Limited company: one director who is the only employee. The model tests every salary level and uses the one that leaves you with the most if you paid out everything, then pays out the share of profit you choose as dividends. Dividend tax is 10.75%, 35.75% and 39.35% with a £500 allowance. Corporation tax is 19% to £50,000, 25% above £250,000, with marginal relief between.
  • Employer NIC is 15% above £5,000. Employee NIC is 8% from £12,570 to £50,270 and 2% above. Employment Allowance is not available to a company with one employee who is also a director, so it is not included.
  • The extra running cost you enter is deducted from company profit before corporation tax.
  • Pension: the company pays the amount as an employer contribution before corporation tax with no NIC. A sole trader pays it personally and the basic and higher rate bands widen by the gross amount. Relief on personal contributions is limited to your earnings, or £3,600 if higher. The £60,000 annual allowance is not tested against carry forward.
  • Both sides use the same other income and savings interest, stacked as other income first, then savings, then dividends. The personal allowance tapers above £100,000 of total income.
  • Not modelled: student loans, the High Income Child Benefit Charge, losses, capital allowances, VAT, payments on account timing, director's loans and the cost of closing a company.

It is not only about the tax

The calculator shows the tax difference for one year. Whether to keep a company or go back to being a sole trader also depends on risk, cash flow, admin and what you plan to do next. Here is the other half of the picture.

Why you might go back to sole trader

  • Lower tax at modest profit. Higher dividend tax rates from April 2026 and the 15% employer NIC rate have narrowed the gap, so for a one-person business the tax saving from a company is small, and often the sole trader simply keeps more.
  • Simpler admin. No payroll, no company accounts, no dividend paperwork, no corporation tax return and no director's loan rules.
  • Lower running costs. Accountancy for a sole trader is usually cheaper than for a company.
  • Losses. Business losses can often be set against your other income. Company losses stay inside the company.
  • Privacy. Company accounts and director details are public at Companies House. A sole trader's affairs are not.
  • Easier access to your money. You can take cash out whenever you like, with no need to wait for distributable profits.

Why you might stay limited

  • Limited liability. A sole trader is personally liable for business debts. A company keeps business and personal assets apart, within the limits of personal guarantees and the rules on directors.
  • Profit you do not need. Money left in the company is taxed at corporation tax only, and dividend tax is deferred until you take it out. A sole trader is taxed on all profit whether or not they spend it.
  • Efficient pension saving. Employer contributions are a company expense with no NIC.
  • Clients and contracts. Some clients, agencies and frameworks will only contract with a company.
  • Sharing income. A spouse or partner who is a genuine shareholder can receive dividends in their own tax bands, subject to the settlements rules.
  • Selling or growing. A company is easier to bring in partners, sell or pass on.

If you are thinking of moving back

  1. Check Making Tax Digital for Income Tax. From April 2026 sole traders with gross income over £50,000 must keep digital records and send quarterly updates. The threshold falls to £30,000 in April 2027 and £20,000 in April 2028. Companies are not in this regime.
  2. Plan the closing of the company. Money taken out when a company is closed can be taxed as capital rather than income, and Business Asset Disposal Relief can bring the rate down to 18% in 2026/27 if you qualify. The route you choose matters, so get advice first.
  3. Deal with VAT, payroll and contracts. Deregister or transfer VAT, close the PAYE scheme and tell clients which entity you are now invoicing from.
  4. Expect payments on account. A sole trader pays tax in advance in January and July, which can be a cash flow shock in the first year.

Questions to ask yourself

  • Do I take all the profit out each year, or leave a lot in the business?
  • Does any client require me to be a limited company?
  • Am I comfortable being personally liable if something goes wrong?
  • Do I have, or plan to have, staff or business partners?
  • Is my profit close to a tax threshold, such as £50,270 or £100,000, where small changes cost more tax?

This tool is an illustration based on 2026/27 rates and the assumptions above. It is not personal tax advice. If you want your numbers checked before you decide, talk to us.

Sole trader vs limited company: common questions

Is it cheaper to be a sole trader or a limited company in 2026/27?

For a one-person business, being a sole trader often leaves more cash in your pocket on the calculator's default assumptions. Dividend tax rose to 10.75% and 35.75% from April 2026, employer National Insurance is 15% above £5,000, and a company adds running costs. A company can still suit you if you leave profit in the business, want limited liability, or need to contract through a company.

Can I switch from a limited company back to a sole trader?

Yes. You close or stop trading through the company and start trading personally. Plan the closure carefully, because how you take money out of the company affects the tax, and Business Asset Disposal Relief may apply at 18% in 2026/27 if you qualify. You also need to deal with VAT, payroll and your clients' contracts.

What National Insurance do sole traders pay in 2026/27?

Sole traders pay Class 4 National Insurance at 6% on profits between £12,570 and £50,270, and 2% on profits above that. Class 2 is treated as paid once profits reach £7,105, so most sole traders no longer pay it as a separate charge.

Do sole traders have to use Making Tax Digital?

Making Tax Digital for Income Tax applies to sole traders with gross income over £50,000 from April 2026. The threshold falls to £30,000 from April 2027 and £20,000 from April 2028. It means digital records and quarterly updates to HMRC.

Not sure which structure suits you?

We can run your actual numbers and look after whichever route you choose, as a sole trader or a limited company. This calculator is an illustration based on 2026/27 rates and is not personal tax advice.

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