by Asim Abbas
11 November 2026 
Sole trader or limited company: which saves more tax in 2026/27?
Sole trader or limited company: which saves more tax in 2026/27?
For years, the standard advice was that a limited company saves tax once profits pass a certain level. The 2026/27 rules have changed that maths.
- A sole trader pays Income Tax and Class 4 NI on all profit
- A company pays Corporation Tax, then you pay tax on what you take out
- Taking all profit out of a company now often costs more than being a sole trader
- A company can still win if you leave profit in the business
Higher dividend tax rates, 15% employer National Insurance and Corporation Tax of up to 26.5% on some profits mean a company isn’t automatically cheaper any more.
This guide compares the two on real numbers and explains when a company still makes sense.
How each is taxed
Sole trader
You pay Income Tax at 20%, 40% and 45% on your profit, plus Class 4 National Insurance at 6% and 2%. It’s simple, and you file one Self Assessment return.
Limited company
The company pays Corporation Tax at 19% on profits up to £50,000, 25% over £250,000 and an effective 26.5% on the slice in between. You then take money out as salary or dividends, which are taxed again on you.
A side-by-side example
Here’s £50,000 of profit in 2026/27, with every penny taken out. The company pays a £12,570 salary and the rest as dividends.
| Sole trader | Limited company | |
|---|---|---|
| Income Tax / dividend tax | £7,486 | £3,107 |
| National Insurance | £2,246 | £1,136 (employer) |
| Corporation Tax | £0 | £6,896 |
| You keep | £40,268 | £38,862 |
Figures are rounded, for England, Wales and Northern Ireland, ignoring accountancy and admin costs.
At £100,000 profit with everything taken out, a sole trader keeps about £69,300 and a company owner about £65,200. But if the company owner needs only £50,000 a year and leaves the rest in the company, the picture changes, because retained profit has only paid Corporation Tax.
Corporation Tax calculator
See company tax with marginal relief.
When a limited company still makes sense
- You don’t need all the profit now and can leave money in the company
- You want limited liability to protect personal assets
- You plan to bring in investors or sell the business
- Clients only work with limited companies
- You want to pay family members as shareholders, within the rules
When sole trader may be better
- You need all or most of the profit to live on
- You want lower admin and accountancy costs
- Your profits are modest or irregular
- You value privacy: company accounts are public at Companies House
Fixed-fee accountancy support
Transparent monthly packages for sole traders, landlords and limited companies. Fixed fees agreed upfront, VAT included.
Get a fixed-fee quoteCall 0161 531 4179Other costs to factor in
A company means annual accounts, a Corporation Tax return, a confirmation statement, payroll and identity verification with Companies House. Accountancy fees are usually higher. Read more on GOV.UK.
Our business tax planning service models both options on your real figures, and our limited company accountants and self-employed accountants can support either route.
What should I do next?
Next year’s, not last year’s.
This drives the answer more than profit alone.
Liability, image, admin and plans to sell.
Our tax planning service compares both with real numbers.
Frequently Asked Questions
Is a limited company always more tax efficient?
No. Under 2026/27 rules, if you take all profits out, a sole trader often pays less. A company can win when profits are left in the business.
What salary should a director take?
Often £12,570, but it depends on your other income and whether your company can claim the Employment Allowance. We can work it out for you.
Can I switch from sole trader to a company later?
Yes. You can incorporate at any time, but there can be tax consequences for transferring assets and goodwill, so get advice first.
Does a company protect my personal assets?
Generally yes, through limited liability, although personal guarantees and director duties still apply.
How much more does a company cost to run?
Expect higher accountancy fees for accounts, payroll and the Corporation Tax return, plus your own time on admin.
Need help with this? Wingate Accountants offers fixed-fee online accountancy support across the UK. Call 0161 531 4179 or request a quote at wingateaccountants.co.uk.
About the Author
Asim Abbas
I’m Asim Abbas, founder of Wingate Accountants and a Chartered Certified Accountant. I help sole traders, landlords and directors stay on top of their tax with fixed fees and plain-English advice.
