Ltd Company vs Sole Trader Calculator

Q: Should I be a limited company or sole trader?

The right structure depends on your income level and circumstances. Limited companies typically become more tax-efficient above around £30,000-£35,000 profit due to the ability to pay a combination of salary and dividends. Below that level, the additional administrative burden of a limited company often outweighs the tax saving.

Q: At what income does a limited company become more tax efficient?

As a rough guide, a limited company typically becomes more tax efficient than sole trader status at profits above £30,000-£35,000 per year. The exact crossover point depends on your expenses, whether you are VAT registered, and your personal circumstances. Use this calculator to find your specific crossover point.

Q: What tax does a sole trader pay?

Sole traders pay income tax on profits above the personal allowance (£12,570 in 2026/27) at 20%, 40% or 45% depending on profit level. They also pay Class 4 National Insurance at 9% on profits between £12,570 and £50,270, and 2% above that.

Q: What tax does a limited company director pay?

A limited company pays corporation tax on profits (19% on profits up to £50,000, 25% above). The director then pays themselves an optimal salary (typically £5,000 — the employer NI threshold) and takes the remainder as dividends. Dividend tax applies above the £500 annual allowance at 8.75%, 33.75% or 39.35% depending on income.

Q: Can I switch from sole trader to limited company?

Yes. You can incorporate your sole trader business into a limited company at any time. The process involves registering a company at Companies House (£50 online), opening a business bank account, and transferring your business activities. You should seek advice from an accountant before switching as there are tax implications to consider.

Compare take-home pay under both structures — see which puts more money in your pocket at your income level. Updated for 2026/27.

Using 2026/27 figures

Your income & expenses

Annual turnover / gross income (£) Your total income before any expenses or tax

Allowable business expenses (£) Software, equipment, travel, professional fees etc. Enter 0 if unsure.

Are you VAT registered? VAT affects your effective income and expenses

Enter your turnover above to see the comparison.

How is each structure calculated?

Sole trader

As a sole trader, your taxable profit is turnover minus allowable expenses. You pay income tax above the personal allowance (£12,570) at 20%, 40% or 45%. You also pay Class 4 National Insurance at 9% on profits between £12,570 and £50,270, and 2% above that.

Limited company

Your company pays corporation tax on profits (19% on profits up to £50,000, 25% above). You pay yourself an optimal salary of £5,000 to minimise NI while preserving your personal allowance. The remaining after-tax profit is paid as dividends. Dividend tax applies above the £500 annual allowance.

Important caveats

These calculations are simplified estimates. They do not account for pension contributions, the employment allowance, student loan repayments, other sources of income, or your specific circumstances. The optimal salary and dividend strategy assumes no other income. Always verify with a qualified accountant.

Common questions

Should I be a limited company or sole trader?

Limited companies typically become more tax efficient above around £30,000-£35,000 profit. Below that level, the additional administrative burden often outweighs the tax saving. Use this calculator to find your specific crossover point.

At what income does a limited company become more tax efficient?

As a rough guide, above £30,000-£35,000 profit per year. The exact point depends on your expenses and personal circumstances. This calculator shows your specific crossover point based on your inputs.

What tax does a sole trader pay?

Income tax on profits above £12,570 at 20%, 40% or 45%. Plus Class 4 NI at 9% on profits between £12,570 and £50,270, and 2% above that.

What tax does a limited company director pay?

The company pays corporation tax (19% up to £50,000 profit, 25% above). The director pays themselves a salary and takes remaining profits as dividends. Dividend tax applies above the £500 annual allowance at 8.75%, 33.75% or 39.35%.

Can I switch from sole trader to limited company?

Yes at any time. Register at Companies House (£50 online), open a business bank account and transfer your business activities. Seek accountant advice before switching as there are tax implications.

This calculator provides estimates only and does not constitute tax, legal or financial advice. The optimal business structure depends on your individual circumstances. Always seek advice from a qualified accountant before changing your business structure. Rates shown are for 2026/27.

Thinking of forming a limited company?

Companies House registration costs £50. Formation agents handle the paperwork in minutes — often for free or a small fee.

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