A direct tax comparison between trading as a sole trader and running a limited company in 2026/27.
Sole trader
All profit is yours, taxed as Income Tax (20%/40%/45%) plus Class 4 National Insurance. Simple to set up and run, but no legal separation between you and the business — and no access to the lower Corporation Tax rate.
Limited company
Profits are taxed at Corporation Tax rates (19% with marginal relief up to 25%), and you extract income via a combination of salary and dividends, each taxed separately and generally more efficiently than equivalent sole-trader income — at the cost of more admin, filing requirements, and public disclosure via Companies House.
Where the crossover typically sits
At lower profit levels, the extra admin of a limited company often isn’t worth the tax saving. As profits grow — commonly somewhere around £30,000–£40,000 and upward — the limited company route usually starts keeping meaningfully more.
Compare both structures directly with the Payslp self-employed calculator and contractor calculator.
Where the crossover point actually sits
The gap widens as profit increases, which is exactly why the limited company route becomes more compelling at higher profit levels, even accounting for the extra admin and accountancy costs involved.
Frequently asked questions
Can I switch from sole trader to limited company later?
Yes, and many businesses do exactly this once profits grow — the process involves registering a new company and transferring the business, worth planning with an accountant rather than doing informally.
Does a limited company protect my personal assets?
Generally yes, through limited liability — a meaningful benefit beyond tax that sole traders don’t have, since sole traders remain personally liable for business debts.