Sole Trader vs Limited Company Calculator
See how much you would keep each year as a sole trader compared with running a limited company and paying yourself a salary plus dividends.
2026/27 tax year: Figures use current HMRC rates for England, Wales and Northern Ireland. This is an estimate to help you decide. It is not tax advice, so speak to an accountant before you incorporate.
Your Business
2026/27 Rates Used
| Tax | Rate |
|---|---|
| Income tax (Personal Allowance £12,570) | 20% / 40% / 45% |
| Class 4 National Insurance (sole trader) | 6% from £12,570 to £50,270, then 2% |
| Employee National Insurance (director salary) | 8% from £12,570 to £50,270, then 2% |
| Employer National Insurance | 15% above £5,000 |
| Corporation tax | 19% up to £50,000, 25% above £250,000, marginal relief between |
| Dividend tax (£500 allowance) | 10.75% / 35.75% / 39.35% |
Frequently Asked Questions
It depends on your profit, how much of it you take out, and what else matters to you. If you withdraw all of the profit as salary and dividends, the corporation tax, employer National Insurance, dividend tax and higher running costs of a limited company can outweigh the saving, and being a sole trader can leave you better off. A limited company tends to look better if you leave profit in the business, pay pension contributions from the company, or want limited liability and the credibility it can give you with clients.
Common choices are £12,570 (the full Personal Allowance, with no employee National Insurance but employer National Insurance of 15% on the amount above £5,000) or £5,000 (no employer National Insurance at all). A salary above the Lower Earnings Limit but below the Primary Threshold still counts towards your State Pension without costing you employee National Insurance. Use the salary box to test different figures and see the effect on your take-home pay.
Dividends are taxed after your salary, and the first £500 falls within the dividend allowance at 0%. Above that, dividends are taxed at 10.75% in the basic rate band, 35.75% in the higher rate band and 39.35% at the additional rate. Company profits are taxed first as corporation tax, so dividends are paid from profit that has already been taxed.
Profits up to £50,000 are taxed at 19%. Profits above £250,000 are taxed at 25%. Profits in between are taxed at 25% reduced by marginal relief, so the effective rate rises gradually from 19% to 25%. The salary you pay yourself, and the employer National Insurance on it, are deducted before corporation tax is worked out.
It assumes England, Wales or Northern Ireland income tax bands, no other income, no student loan and no pension contributions, and that all profit after corporation tax is paid out as dividends in the same year. It does not include VAT, the Employment Allowance (not available to companies whose only employee is the director), capital allowances or the cost of an accountant beyond what you enter. Real results can differ, so speak to an accountant before you incorporate.
Yes. If you work through your own company but HMRC would treat you as an employee of your client, the IR35 rules can require the income to be taxed like employment income, which removes most of the advantage of taking dividends. Check your status with our IR35 Calculator before choosing a limited company for contract work.
Beyond the Tax Bill
- A limited company is a separate legal entity, so your personal assets are usually protected from business debts.
- Companies must file annual accounts and a confirmation statement, and pay corporation tax on time.
- Profit left in the company is only taxed at corporation tax until you take it out.
- Company pension contributions can be a tax-efficient way to extract profit.
- Sole traders keep things simple, with one Self Assessment tax return and fewer filing deadlines.