Limited company
Limited company or sole trader: the 2026/27 comparison
The same profit run through both structures by one engine, with the dividend rates that took effect on 6 April 2026.
On £60,000 of profit in 2026/27, a sole trader in England, Wales or Northern Ireland keeps £46,111, while a one-director company paying a £12,570 salary and drawing everything else as dividends leaves £46,091: £20 less. That is close to the company’s best case. With dividends taxed at 10.75 %, 35.75 % and 39.35 % from 6 April 2026, Corporation Tax between 19 % and 25 %, and employer National Insurance on the director’s salary with no Employment Allowance, a company that pays out all its profit leaves less than self-employment at almost every level of profit outside Scotland. The engine finds the company ahead only in a narrow window around £60,500. Scotland is different, because its Income Tax bands bite earlier on trading profit while dividends keep the UK bands. What really moves the answer is how much profit you leave inside the company, and the running costs a company adds that no tax table shows.
Everything paid out, the sole trader leaves you
£20 more
| Sole trader keeps | £46,111 |
| Company, all paid out | £46,091 |
| Salary used | £12,570 |
Company minus sole trader, by profit (England, Wales, NI)
Solid line: everything paid out as dividends. Lower the share paid out to see the effect of leaving profit in the company. Above the axis the company leaves more. Method and limits
Figures checked by Radif Partners · Editorial policy · How we calculate
Every level of profit, both structures
The table runs each profit through the same engine twice. The company pays the director the salary that leaves the most cash (£12,570 for most of the range), then employer National Insurance, then Corporation Tax, and pays out everything left as a dividend. The last two columns show the gap: a minus sign means the company leaves less than staying self-employed.
| Profit | Sole trader keeps | Company, all drawn | Gap rUK | Gap Scotland |
|---|---|---|---|---|
| £20,000 | £18,068 | £17,174 | −£894 | −£934 |
| £30,000 | £25,468 | £24,403 | −£1,065 | −£1,100 |
| £40,000 | £32,868 | £31,633 | −£1,235 | −£1,170 |
| £50,000 | £40,268 | £38,862 | −£1,406 | +£90 |
| £60,000 | £46,111 | £46,091 | −£20 | +£1,730 |
| £80,000 | £57,711 | £55,765 | −£1,947 | +£354 |
| £100,000 | £69,311 | £65,210 | −£4,102 | −£802 |
| £150,000 | £92,040 | £85,321 | −£6,719 | −£787 |
Outside Scotland the gap stays negative almost everywhere. A self-employed electrician on £30,000 and a consultant on £150,000 both keep more without a company, if they need all the money each year. The figures ignore what a company costs to run, so the real gap is wider than shown.
Why the old advantage disappeared
Look at the tax on one extra pound of profit. A sole trader in the basic rate band pays 26 % on it: Income Tax plus Class 4. Through a company the same pound first loses 19 % to Corporation Tax, then the dividend rate of 10.75 % applies to what is left, about 27.7 % in all. Higher up, the sole trader pays 42 %, because Class 4 falls to 2 % above £50,270, while a company profit inside the marginal relief band pays 26.5 % at the margin and then 35.75 % on the dividend: about 52.8 %.
The company keeps two genuine savings. Salary up to the Personal Allowance is a deductible cost with no employee National Insurance. And the director’s personal income (salary plus dividends) is smaller than the company’s profit, because Corporation Tax has already come out, so it stays in the basic rate band for longer. In 2026/27 those savings are roughly cancelled by employer National Insurance at 15 % on salary above £5,000, which a sole director cannot offset with the Employment Allowance (GOV.UK eligibility rules), and by the dividend rates in force since 6 April 2026 (GOV.UK, tax on dividends).
Scotland: where the company comes out ahead
A Scottish sole trader pays Scottish rates on trading profit: 21 % in the intermediate band and 42 % from £43,663. Dividends do not follow: a Scottish taxpayer pays the same dividend tax as the rest of the UK, with the UK bands, so the higher dividend rate starts only at £50,271 of total income. The company lives off that mismatch. With everything drawn, the engine puts the company ahead from about £50,000 to £86,000 and from about £105,000 to £145,500, and behind elsewhere. If the company costs, say, £1,500 a year more to run than a sole trade, the company stays ahead only from about £56,500 to £74,000 and from about £109,500 to £143,000.
Take a self-employed joiner in Glasgow with £70,000 of profit. As a sole trader the bill is £20,039 and £49,961 is left. Through a company paying £12,570 of salary, the company owes £1,136 of employer National Insurance and £11,168 of Corporation Tax, then pays £45,126 of dividends on which the director owes £6,654 of Income Tax. That leaves £51,042, a difference of £1,081 in the company’s favour. The same joiner living in Carlisle would see the gap at −£869.
Leaving profit in the company
The comparison changes as soon as you stop drawing everything. Profit retained in the company has paid Corporation Tax but no dividend tax yet. A designer who lives on part of the profit and lets the rest build up for new equipment or a quiet year is in a different position from one who spends every pound. The table halves the draw.
| Profit | Sole trader keeps | Company: paid to you | Left in company | Both together |
|---|---|---|---|---|
| £40,000 | £32,868 | £22,128 | £10,649 | £32,777 |
| £60,000 | £46,111 | £29,357 | £18,749 | £48,107 |
| £80,000 | £57,711 | £36,041 | £26,238 | £62,280 |
| £100,000 | £69,311 | £42,601 | £33,588 | £76,189 |
The last column adds the two and beats self-employment from £60,000 in this table. Read it with care: money left in the company is not yours yet. It meets dividend tax when you take it, at a rate set by your income in that later year. Set the share you draw in the calculator above; the limited company tax calculator breaks the same split into Corporation Tax, employer National Insurance and your own tax.
All profit drawn: the sole trader usually keeps more in 2026/27, except across parts of the Scottish bands. Profit kept back: the company defers tax rather than removing it. None of this is advice for your own case; it is the arithmetic of the 2026/27 rates.
What the tax tables leave out
A company is legally separate from its owners. Its debts are its own, so the owners are generally responsible only up to what they invested, while a sole trader is personally liable for every business debt. That protection is the strongest non-tax reason some builders and consultants incorporate.
In return the company brings duties. It is registered at Companies House, confirms its details there each year, files annual accounts and a Company Tax Return, registers as an employer to pay the director a salary, and keeps minutes and a voucher for every dividend. Its name, registered number and office address must appear on its letters, website and order forms, and a sole trader’s figures go to HMRC alone while a company’s accounts are filed at Companies House too. Most directors pay an accountant for part of this, a cost the tables above leave out.
Two last points. A contractor working through a company for a medium or large client may find a contract inside IR35, which removes most of the company’s tax effect on that income. And the salary you choose sets your National Insurance record as a director: the director’s salary calculator shows what each level costs.