Choosing between sole trader and limited company is one of the biggest decisions for UK business owners. The right choice can save you thousands in tax each year. This comparison shows you exactly how much you will pay under each structure at different profit levels for 2026/27.
📊 See Your Exact Tax Under Both Structures
Enter your profit to see precisely how much tax you will pay as a sole trader vs limited company.
Compare Structures →Side-by-Side Comparison
| Feature | Sole Trader | Limited Company |
|---|---|---|
| Legal structure | You and the business are one entity | Separate legal entity |
| Liability | Unlimited — personal assets at risk | Limited — personal assets protected |
| Tax on profits | Income Tax + Class 2/4 NIC | Corporation Tax (25%) |
| Tax rate (up to £50k) | 20% Income Tax + 6% NIC | 19-25% Corporation Tax |
| Tax rate (above £50k) | 40% Income Tax + 2% NIC | 25% Corporation Tax |
| Take-home method | Draw profits directly | Salary + dividends |
| Dividend tax | N/A | 8.75%-39.35% |
| Annual admin | Self Assessment only | Accounts, CT600, confirmation statement |
| Accountant cost | £0-£500 | £800-£2,000 |
| Privacy | Details not public | Accounts public on Companies House |
| Pension | Personal pension only | Company pension (tax-deductible) |
| Best for | Profits below £55k, simplicity | Profits above £55k, growth, protection |
Worked Examples by Profit Level
Example 1: £30,000 Profit
| Tax/Cost | Sole Trader | Limited Company |
|---|---|---|
| Income Tax | £3,486 | £0 (salary at PT) |
| Class 4 NIC | £1,046 | £0 |
| Class 2 NIC | £179 | £0 |
| Corporation Tax | N/A | £4,275 |
| Dividend Tax | N/A | £1,523 |
| Accountant | £0 | £1,000 |
| Total tax + costs | £4,711 | £6,798 |
At £30k, sole trader is £2,087 cheaper.
Example 2: £60,000 Profit
| Tax/Cost | Sole Trader | Limited Company |
|---|---|---|
| Income Tax | £9,432 | £0 |
| Class 4 NIC | £2,886 | £0 |
| Class 2 NIC | £179 | £0 |
| Corporation Tax | N/A | £8,550 |
| Dividend Tax | N/A | £2,816 |
| Accountant | £0 | £1,200 |
| Total tax + costs | £12,497 | £12,566 |
At £60k, both are nearly equal (sole trader £69 cheaper).
Example 3: £80,000 Profit
| Tax/Cost | Sole Trader | Limited Company |
|---|---|---|
| Income Tax | £17,432 | £0 |
| Class 4 NIC | £3,686 | £0 |
| Class 2 NIC | £179 | £0 |
| Corporation Tax | N/A | £11,375 |
| Dividend Tax | N/A | £4,229 |
| Accountant | £0 | £1,200 |
| Total tax + costs | £21,297 | £16,804 |
At £80k, limited company saves £4,493.
Admin Requirements
Sole Trader Admin
- Self Assessment tax return by 31 January
- Basic bookkeeping (income and expenses)
- Class 2/4 NIC payments
- No annual accounts required
- No Companies House filings
Limited Company Admin
- Annual accounts prepared to accounting standards
- Confirmation Statement to Companies House (£13)
- Corporation Tax return (CT600)
- PAYE scheme if paying salary
- Dividend vouchers and board minutes
- Statutory registers maintained
Liability Protection
The biggest non-tax advantage of a limited company is limited liability. As a sole trader, your personal assets (house, savings, car) are at risk if your business faces legal action or debt. As a limited company, the company is a separate legal entity — your liability is limited to the amount you have invested in shares.
This protection is particularly valuable for businesses with:
- High-risk activities (construction, consulting with professional indemnity)
- Significant contracts with large clients
- Employees
- High-value assets or inventory
When to Choose Which
| Choose Sole Trader If... | Choose Limited Company If... |
|---|---|
| Profits below £55,000 | Profits above £55,000 |
| You want simplicity | You want tax efficiency |
| Low-risk business | High-risk business |
| No plans to grow | Planning to grow/scale |
| No employees | You have employees |
| Clients are individuals | Clients are corporations |
📊 Find Your Crossover Point
Our calculator shows exactly which structure is cheaper at your specific profit level.
Calculate Now →Switching from Sole Trader to Limited
You can incorporate at any time. The process:
- Register a new company at Companies House (£12 online)
- Transfer business assets to the company
- Notify HMRC of the change
- Open a business bank account in the company name
- Start keeping company accounts
Important: You may pay Capital Gains Tax on assets transferred. Consider seeking advice from an accountant on the most tax-efficient way to transfer.