Sole Trader vs Ltd Company Calculator UK
Compare the total tax you’d pay as a sole trader against a limited company at your profit level — and see why “go limited to save tax” isn’t true at every income.
Choosing between operating as a sole trader or a limited company is one of the biggest decisions a UK self-employed person makes — and the advice “go limited to save tax” is only sometimes right. A sole trader pays Income Tax and Class 4 National Insurance on the whole profit. A limited company pays Corporation Tax on profit, then you take a small salary and dividends, with dividend tax on top. The surprise is how narrow the gap often is: at £30,000 profit a company saves barely £30 a year, and between roughly £80,000 and £115,000, a sole trader can actually pay less tax, because the personal allowance taper hits dividends hard. This calculator works out the total tax under each structure at your profit, the take-home difference, and where the genuine crossover lies — not the myth that limited always wins. To see your take-home in detail, use the Salary Take-Home Calculator; for the self-employed side, the Self-Employed Tax Calculator.
Business profit
Sole trader assumptions
Limited company assumptions
Tax year assumptions
Comparison result
Estimated better option
Calculating…
Calculating…
Sole trader take-home
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Ltd personal take-home
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Ltd retained profit
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Difference
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Sole trader tax + NI
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Ltd total tax estimate
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Sole trader vs limited company — quick lookup
The left table shows the total tax under each structure at common profit levels, and the difference between them. The right maps where each structure wins — the crossover isn’t a single point but a band, and a sole trader genuinely pays less across part of it. Both assume a tax-efficient salary-plus-dividends setup for the company; the calculator runs your exact profit.
| Profit | Sole trader | Ltd | Difference |
|---|---|---|---|
| £30,000 | £4,532 | £4,503 | −£28 |
| £50,000 | £9,732 | £9,721 | −£11 |
| £60,000 | £13,889 | £12,509 | −£1,379 |
| £80,000 | £22,289 | £22,643 | +£354 |
| £100,000 | £30,689 | £32,904 | +£2,215 |
| Profit band | Cheaper | By roughly |
|---|---|---|
| £20k–£50k | Ltd | £10–40 |
| £55k–£75k | Ltd | £700–1,400 |
| £80k–£115k | Sole trader | £350–2,200 |
| £120k+ | Ltd | £150+ |
Negative difference means the company pays less; positive means the sole trader pays less. Notice the band from roughly £80,000 to £115,000 where the sole trader wins — caused by the personal allowance tapering away above £100,000, which falls especially hard on dividend income. The “always go limited” rule simply isn’t true across all of it.
How each structure is taxed
The two structures are taxed on entirely different machinery, and that’s why the comparison isn’t a simple “lower rate wins.” Understanding each side is the only way to read the crossover.
Sole trader — taxed on all profit, directly
As a sole trader, you and the business are the same legal person. Your profit is your income, taxed through Self Assessment:
It’s simple and transparent: every pound of profit is taxed in the year you earn it, whether you spend it or leave it in the business. There’s no separation between business money and your money. That simplicity is part of the appeal — and at lower profits, the tax cost is almost identical to a company anyway.
Limited company — two layers of tax
A limited company is a separate legal entity. Its profit is taxed first, then taxed again when you extract money. The tax-efficient approach is a small salary plus dividends:
The advantage is that dividends avoid National Insurance entirely, and Corporation Tax at 19% is lower than higher-rate Income Tax. The catch is the second layer: you pay Corporation Tax and dividend tax, and above £100,000 the personal allowance tapers away, dragging dividends into higher tax. The two-layer structure is what creates both the savings at some profit levels and the penalty at others.
Worked examples
Four profit levels showing how the gap opens, closes, and reverses — and why the answer depends entirely on where you sit.
Profit £30,000 · Early-stage
The gap is barely there
Company saves: £28 a year
At £30,000 profit, going limited saves about £28 — less than the cost of a single hour of an accountant’s time, let alone the annual accounts and admin a company requires. At this level the tax case for incorporating is effectively nil; you’d do it for liability protection or credibility, not the tax. The simplicity of being a sole trader is worth more than £28.
Profit £60,000 · The sweet spot
Where the company genuinely wins
Company saves: £1,379 a year
This is where incorporation earns its keep. Above the higher-rate threshold, the sole trader pays 40% Income Tax plus NI on the top slice, while the company pays 19% Corporation Tax and dividend tax that avoids NI. The £1,379 saving comfortably covers accountancy fees with room to spare. Between roughly £55,000 and £75,000 is the classic case for a limited company.
Profit £100,000 · The reversal
When the sole trader pays less
Sole trader saves: £2,215 a year
The surprise that catches people out. Above £100,000, the personal allowance tapers away at £1 for every £2 earned — and for a company owner taking large dividends, this hits hard, dragging dividend income into higher-rate territory on top of Corporation Tax already paid. Here the sole trader actually pays £2,215 less. The “limited always wins” rule is simply false across this band.
Profit £150,000 · High earner
The company edges back ahead
Company saves: £31 a year
At higher profits the company creeps back in front, but only marginally on tax alone — about £31 here. At this level the real advantages of a company aren’t the headline tax figure but the flexibility: retaining profit in the company to defer extraction, pension contributions, and splitting income with a spouse. The tax-only comparison understates the company’s appeal for high earners who don’t need all the cash now.
Beyond the tax number — the four-part decision
The tax comparison is where most calculators stop, and it’s the least complete part of the answer. The structure that pays slightly less tax can still be the wrong choice once you weigh four things the headline number ignores. Work through them before deciding:
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1
The tax difference — often smaller than you think
At many profit levels the gap is a few hundred pounds or less, and across £80k–£115k the sole trader wins. Don’t incorporate for a tax saving that an accountant’s fee erases. Below roughly £50,000, the tax case is weak either way.
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The admin cost — real money and time
A company means annual accounts, a Corporation Tax return, Companies House filings, a separate bank account, and usually an accountant — often £1,000–£2,000 a year. That cost has to be subtracted from any tax saving before the company comes out ahead.
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Liability and credibility — the non-tax wins
A limited company is a separate legal entity, so your personal assets are generally protected if the business fails. Some clients also prefer to contract with a company. These can matter more than tax, especially in higher-risk trades.
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4
Flexibility — when you don’t need all the cash
A company lets you leave profit inside to extract later, make generous pension contributions, and split shares with a spouse. If you need every pound now, this is worthless; if you don’t, it’s where a company quietly pulls ahead.
£60k profit — tax saving vs the real picture
The headline saving shrinks once admin is counted:
That £60,000 example is the honest version of the decision. The £1,379 tax saving looks compelling until the £1,200 of extra admin leaves a net benefit of around £179 — at which point the non-tax factors, liability protection, flexibility, and how clients see you, become the real deciding voices, not the tax line. The point isn’t that one structure is better; it’s that the tax difference alone almost never settles it. Run the tax comparison first to rule out the levels where it clearly doesn’t pay, then decide on everything else.
A rule of thumb that survives the maths
If your profit is below about £50,000, stay a sole trader unless you specifically need liability protection — the tax saving is tiny and the admin isn’t worth it. Between £55,000 and £75,000, a company usually wins enough to cover its costs and then some. Above £80,000, it’s genuinely mixed — the sole trader can pay less across a wide band, and the company’s edge returns only at higher profits or when you exploit retention and pension flexibility. And at every level, factor in that you can incorporate later: starting simple and incorporating once profits justify it is a perfectly sound path.
Two scenarios that change the answer
What if…
You counted the accountant’s fee?
What if…
You didn’t need all the profit as cash?
Key sole trader and limited company terms explained
The choice spans Income Tax, National Insurance, Corporation Tax, and dividends — four systems that interact. The ten terms below cover what you’ll meet when comparing the two structures and talking to an accountant.
- Sole trader
- A self-employed person who is the business legally — no separation between you and it. You keep all profit after tax, but are personally liable for any debts. The simplest way to be self-employed.
- Limited company Ltd
- A separate legal entity that you own and run. The company’s profit and debts are its own, protecting your personal assets, but it brings filing obligations and a second layer of tax when you extract money.
- Class 4 National Insurance
- The NI a sole trader pays on profit — roughly 6% between £12,570 and £50,270, then 2% above. It’s the main reason a sole trader’s tax can exceed a company’s at higher profits, since dividends avoid NI.
- Corporation Tax
- Tax on a company’s profit: 19% up to £50,000, rising via marginal relief to 25% above £250,000. Lower than higher-rate Income Tax, which is part of why a company can save tax — but it’s only the first of two layers.
- Dividends
- Payments to a company’s shareholders from post-tax profit. Taxed at 8.75%, 33.75%, or 39.35% after a £500 allowance, but crucially free of National Insurance — the core of the tax-efficient salary-plus-dividends strategy.
- Salary-plus-dividends
- The standard way a director extracts money: a small salary around the personal allowance (low NI, deductible for Corporation Tax) topped up with dividends. Minimises the combined tax bill on a company’s profit.
- Personal allowance taper
- Above £100,000 of income, the £12,570 personal allowance is cut by £1 for every £2 earned, vanishing at £125,140. It hits company owners on dividends especially hard, which is why a sole trader can pay less between £80k and £115k.
- Marginal relief
- The mechanism that tapers Corporation Tax from 19% to 25% on profits between £50,000 and £250,000, so the effective rate rises gradually rather than jumping. It nudges the comparison as company profits climb through that band.
- Limited liability
- The protection a company gives: if the business fails, your personal assets are generally safe beyond what you invested. A sole trader has no such shield — a key non-tax reason to incorporate in higher-risk trades.
- Self Assessment
- The HMRC system through which a sole trader (and a company director personally) reports income and pays tax. Sole traders file one return; company owners file both a personal return and the company’s accounts and Corporation Tax return.
Five mistakes people make choosing a structure
The sole-trader-vs-limited decision is full of received wisdom that doesn’t survive the maths. These five errors, drawn from the recurring r/UKPersonalFinance and r/SmallBusinessUK threads, are how people pick the wrong structure or overpay for the right one.
Assuming “limited always saves tax”
It doesn’t. At £30,000 profit a company saves about £28, and between £80,000 and £115,000 a sole trader actually pays less because the personal allowance taper hits dividends hard. Incorporating on the blanket assumption it cuts tax can cost you money. Run the comparison at your actual profit before deciding.
Cost: incorporating to pay more tax Fix: compare at your real profit levelIgnoring the cost of running a company
A company’s tax saving has to clear its admin cost before it’s a real benefit. Accountancy, accounts, and Corporation Tax filing run £1,000–£2,000 a year — enough to wipe out a modest saving entirely. A £1,379 saving at £60,000 profit can net down to under £200 once the accountant is paid. Always subtract the admin.
Cost: a “saving” smaller than the admin fee Fix: net the tax saving against running costsForgetting company profit isn’t all yours
A sole trader’s profit is their money. A company’s profit belongs to the company — to get it out you pay Corporation Tax and then dividend or salary tax. New directors who spend company money as if it were personal can face a tax bill and even a director’s loan problem. Keep business and personal money strictly separate.
Cost: tax bills and director’s loan traps Fix: treat company money as the company’sDeciding on tax alone
When the tax gap is small — as it often is — the decision should turn on liability protection, client perception, and flexibility, not a few hundred pounds. A higher-risk trade may justify a company even with no tax saving; a simple side business rarely needs one. Let the non-tax factors decide where the tax is close.
Cost: wrong structure for a tiny tax difference Fix: weigh liability and flexibility tooIncorporating too early
You can always incorporate later. Setting up a company at £25,000 profit, where the tax saving is negligible, just adds admin for no real gain. Start as a sole trader, then incorporate once profits clear roughly £50,000 and the saving justifies the costs. Going early is a common, avoidable misstep.
Cost: admin burden with no tax payoff Fix: start simple, incorporate when profit justifies itFrequently asked questions
Is a limited company always cheaper than being a sole trader?
No — this is the biggest myth in the comparison. At low profits the gap is tiny (around £28 a year at £30,000), and between roughly £80,000 and £115,000 a sole trader actually pays less tax, because the personal allowance tapers away above £100,000 and hits dividends hard.
A company tends to win clearly between about £55,000 and £75,000 profit, and again at higher incomes. But at every level you must subtract the company’s running costs before calling it cheaper. Run the comparison at your own profit rather than assuming.
At what profit should I switch from sole trader to limited company?
As a rough guide, the tax case starts to favour a company once profit clears around £50,000, and is strongest between £55,000 and £75,000, where the saving comfortably covers accountancy fees.
Below £50,000 the saving is usually too small to justify the extra admin. But profit isn’t the only factor — liability protection or client requirements can justify incorporating earlier. You can always start as a sole trader and incorporate later once the numbers and your needs line up.
How is a sole trader taxed compared with a limited company?
A sole trader pays Income Tax and Class 4 National Insurance on the whole profit, all in the year it’s earned. A limited company pays Corporation Tax on its profit first (19% to 25%), then you extract money as a small salary plus dividends, with dividend tax on top.
The company route avoids National Insurance on dividends, which is its main advantage, but it taxes the money twice — once in the company, once when you take it out. That two-layer structure is why the comparison shifts so much with profit level.
Why does a sole trader pay less tax around £100,000?
Because of the personal allowance taper. Above £100,000 of income, the £12,570 personal allowance is cut by £1 for every £2 earned, vanishing entirely at £125,140. For a company owner taking large dividends, this drags dividend income into higher-rate tax on top of the Corporation Tax already paid.
The combined effect can make a limited company more expensive than a sole trader between roughly £80,000 and £115,000 of profit — by over £2,000 a year at £100,000 in our example. It’s the clearest case against the “limited always wins” rule.
What does it cost to run a limited company?
Typically £1,000 to £2,000 a year, mostly accountancy. A company must file annual accounts and a Corporation Tax return, submit a confirmation statement to Companies House, and usually maintain a separate business bank account. Most owners pay an accountant to handle it.
This cost is the figure people forget. A tax saving of, say, £1,379 at £60,000 profit can net down to under £200 once the accountant is paid. Always subtract running costs from the headline saving before deciding a company is worth it.
What are the non-tax reasons to choose a limited company?
Two stand out. Limited liability — a company is a separate legal entity, so your personal assets are generally protected if the business fails, which matters in higher-risk trades. And credibility — some clients, particularly larger ones, prefer or require to contract with a company.
A company also offers flexibility a sole trader doesn’t: retaining profit to extract later, generous pension contributions, and splitting shares with a spouse. Where the tax difference is small, these factors often decide the choice.
Can I take all my company’s profit as dividends?
You can only pay dividends from post-tax profit — profit remaining after Corporation Tax. Paying dividends the company hasn’t actually made (an “illegal” or unlawful dividend) can create tax problems and a director’s loan.
The standard tax-efficient approach is a small salary around the personal allowance, then dividends from what’s left after Corporation Tax. You don’t have to extract everything: leaving profit in the company, taxed at just 19% Corporation Tax, and taking it later is one of a company’s genuine advantages.
Do I need an accountant for either structure?
A sole trader can often manage their own Self Assessment, especially with simple accounts, though many still use an accountant for peace of mind. A limited company is more involved — accounts, Corporation Tax, and Companies House filings — so most company owners use an accountant.
The accountancy cost is part of the comparison, not an afterthought: it’s a key reason a company’s tax saving has to be reasonably large before incorporating pays. For tailored advice on your situation, a qualified accountant is worth the fee, and free general guidance is available from gov.uk.
Related calculators
The structure decision connects to your take-home, your tax bill under each route, and your wider business numbers. These calculators handle each piece.
Methodology & sources
How the maths works
For the sole trader, the calculator applies Income Tax (basic, higher, and additional rates after the personal allowance, with the allowance tapered above £100,000) and Class 4 National Insurance to the full profit. For the limited company, it assumes a tax-efficient structure: a small salary near the personal allowance, Corporation Tax on the remaining profit (19%, rising via marginal relief toward 25%), then dividends from the post-tax profit taxed at the dividend rates after the £500 allowance. The difference between the two total tax figures is the saving, and the take-home is profit minus total tax.
These are illustrative comparisons to show how the two structures behave across profit levels. Real outcomes depend on your exact circumstances, other income, pension contributions, employment allowance eligibility, and choices about how much to extract. The aim is to reveal where each structure genuinely wins, not to replace tailored accountancy advice.
Assumptions and conventions used
- Sole trader: Income Tax + Class 4 NI on full profit
- Limited company: small salary + Corporation Tax + dividends
- Personal allowance: tapered £1 for £2 above £100,000
- Corporation Tax: 19% to £50k, marginal relief to £250k, 25% above
- Dividend tax: 8.75% / 33.75% / 39.35% after the £500 allowance
- Class 4 NI: 6% £12,570–£50,270, 2% above
- Admin costs and employment allowance not included in headline tax
- Rates and bands shown are illustrative current UK figures