Your numbers
Verdict
Side-by-side
| Sole trader | Limited company |
|---|
How this comparison works
Sole trader side
Pure pass-through. Your business profit is your personal income — taxed at standard UK income tax bands plus Class 4 NI (6% from £12,570 to £50,270, then 2% above). Class 2 NI is voluntary above the Small Profits Threshold from 2024/25 onwards.
Limited company side
- Company profit minus director's salary minus accountant fee = taxable company profit.
- Corporation tax applies: 19% on profits up to £50k, marginal 26.5% rate £50k–£250k, 25% above £250k.
- What's left after corp tax is available as dividends.
- Director takes all dividends personally; personal tax: salary uses personal allowance, dividends use £500 dividend allowance, then 8.75% basic / 33.75% higher / 39.35% additional rate.
- Director's salary attracts income tax + employee NI; we assume director's salary set at the £12,570 personal-allowance level so income tax is zero and employee NI is minimal at that point.
What this comparison doesn't include
Pension contributions, dividend tax planning across multiple years, student loan repayments, scottish tax bands, mortgage-borrowing impact, IR35 considerations, holiday pay equivalence, sick-pay value. For the broader trade-off picture, see our definitive sole trader vs Ltd guide.
Worked examples
At this level, the income tax + NI as sole trader is roughly £8,500. Going Ltd adds corporation tax (£5,200 on ~£27,300 after salary) plus dividend tax (~£1,800) plus the accountant fee (£1,200) — total tax + admin ~£8,200. Almost a wash, with extra admin overhead.
Below £40k profit, sole trader is usually simpler and equally cheap.
Sole trader: tax + NI ~£18,500, take-home ~£46,500.
Ltd: salary £12,570 (income-tax-free, minimal NI), corp tax on (£65k − £12.57k − £1.2k = £51.23k) at 19% = ~£9,734. Available dividend pool ~£41,500. Dividend tax (~£3,800 after allowances). All-in take-home ~£50,500 (after £1,200 accountant fee).
Ltd nets ~£4,000/year more at this level. Breakeven against the admin overhead.
Sole trader: above £100k the personal allowance tapers (60% effective marginal rate up to £125,140). Tax + NI ~£32,500.
Ltd: salary £12,570; corp tax on £86,230 at 19% = £16,384 (under £50k cap; above £50k the marginal 26.5% applies). Effective corp tax ~£19,300. Dividend tax on £67,000+ at higher rate. All-in tax ~£28,000. Take-home advantage ~£4,500/year.
No — it covers the headline tax difference. It doesn't model pension contributions (which favour Ltd at higher levels), student loans, Scottish tax bands, IR35, mortgage borrowing impact (often opposite of tax conclusion — Ltd standard route under-borrows), or qualitative factors like admin overhead and liability protection. See our definitive guide for the full trade-off picture.
Roughly £40k–£50k of profit, depending on your specific tax position and how much you're drawing personally. Below £40k profit, sole trader is simpler and usually equally cheap. Above £60k profit, Ltd typically saves £2k–£5k/year. Above £100k profit, savings grow further but the personal allowance taper applies to whichever structure you use.
£12,570 is the standard "personal allowance" salary — uses up your tax-free allowance with no income tax, minimal employee NI, gets you a State Pension qualifying year. Below that doesn't use the allowance efficiently. Some directors run at £9,100 (Secondary Threshold) to avoid employer's NI; saving is marginal and complicates payroll.
No — you can retain profit in the company. Retained profit isn't taxed again personally, but it sits inside the Ltd. Useful for smoothing future income, funding the business, or planning a future dividend draw. The calculator assumes you take all available profit as dividends in the same year.
If you're inside IR35 (the engagement is "deemed employment"), the Ltd advantage largely disappears — the engaging client deducts PAYE/NI as if you were employed. Outside IR35, normal Ltd rules apply. See our IR35 status checker.
Depends which lender. Standard high-street mortgage lenders use salary + dividends drawn — typically under-borrows tax-efficient Ltd directors. Specialist lenders use share of company profit including retained — often over 2× more borrowing. See our sole trader vs Ltd mortgage comparison.
£80–£150/month is normal for a single-director freelance Ltd with simple operations. Pure sole traders DIYing tax can run at £0 accountant fees but typically pay £150–500/year for a Self Assessment service. The calculator excludes sole trader accountant fees (most don't use one) but includes Ltd ones because they're effectively required.
VAT applies separately and equally to both structures above the £90k turnover threshold. It doesn't change the sole-trader-vs-Ltd outcome materially — the comparison is downstream of VAT. See our VAT registration threshold guide.
Estimating tool only. Uses simplified UK 2025/26 rates — actual tax depends on full personal circumstances (other income, pension, student loan, region). Not regulated tax advice. For decisions involving structural change, consult a qualified accountant.