Is it better to be a sole trader or limited company?

It depends on your profit level. Below £40,000–£50,000 annual profit, a sole trader is simpler and the tax saving from incorporating is minimal. Above that, a limited company typically saves significant tax — for example, at £60,000 profit you could save approximately £-1,358 per year.

At what profit should I incorporate?

The general tipping point is around £40,000–£50,000 of annual profit. Below this, accounting fees (£1,000–£2,500/year) may offset the tax saving. Above £12,579, the combination of Corporation Tax (19%) and dividend tax (8.75%) becomes more efficient than income tax (40%) plus Class 4 NI (6%).

How much does a limited company save on tax?

At £50,000 profit, you save approximately £-432 per year. At £100,000 profit, the saving grows to approximately £-8,464 per year. These figures assume optimal salary/dividend split and do not include accounting fees.

Sole Trader vs Limited Company: Which Is Better for Tax? (2026/27)

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Annual profit: £60,000.00

£10K

£50K

£100K

£150K

£200K

Sole Trader

Income tax

£11,430.18

Class 2 NI

£179.40

Class 4 NI

£2,456.60

Total

£14,066.18

Limited Company

Corporation Tax

£9,009.99

Director income tax

£0.00

Director NI

£0.72

Dividend tax

£6,413.09

Total

£15,423.80

At £60,000.00 annual profit, a limited company saves approximately -£1,357.62 per year in tax. See full breakdown →

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Annual profit	Sole trader total tax	Ltd company total tax	Annual saving (Ltd)
£30,000	£4,709	£4,791	£-82
£50,000	£9,909	£10,341	£-432
£80,000	£22,466	£27,280	£-4,814
£100,000	£30,866	£39,330	£-8,464

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Income Tax Calculator at £60,000 — see what you'd pay as a sole trader (profit treated as salary)

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