{"id":83,"date":"2026-07-31T09:00:00","date_gmt":"2026-07-31T09:00:00","guid":{"rendered":"https:\/\/payslp.com\/blog\/?p=83"},"modified":"2026-08-15T18:06:07","modified_gmt":"2026-08-15T18:06:07","slug":"sole-trader-vs-limited-company-tax","status":"publish","type":"post","link":"https:\/\/payslp.com\/blog\/guides\/sole-trader-vs-limited-company-tax\/","title":{"rendered":"Sole Trader vs Limited Company \u2014 Which Pays Less Tax"},"content":{"rendered":"

A direct tax comparison between trading as a sole trader and running a limited company in 2026\/27.<\/p>\n

Sole trader<\/h2>\n

All profit is yours, taxed as Income Tax (20%\/40%\/45%) plus Class 4 National Insurance<\/a>. Simple to set up and run, but no legal separation between you and the business \u2014 and no access to the lower Corporation Tax<\/a> rate.<\/p>\n

Limited company<\/h2>\n

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 \u2014 at the cost of more admin, filing requirements, and public disclosure via Companies House.<\/p>\n

Where the crossover typically sits<\/h2>\n

At lower profit levels, the extra admin of a limited company often isn’t worth the tax saving. As profits grow \u2014 commonly somewhere around \u00a330,000\u2013\u00a340,000 and upward \u2014 the limited company route usually starts keeping meaningfully more.<\/p>\n

Compare both structures directly with the Payslp self-employed calculator<\/a> and contractor calculator<\/a>.<\/p>\n

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Where the crossover point actually sits<\/h2>\n

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.<\/p>\n

Frequently asked questions<\/h2>\n

Can I switch from sole trader to limited company later?<\/strong>
\nYes, and many businesses do exactly this once profits grow \u2014 the process involves registering a new company and transferring the business, worth planning with an accountant rather than doing informally.<\/p>\n

Does a limited company protect my personal assets?<\/strong>
\nGenerally yes, through limited liability \u2014 a meaningful benefit beyond tax that sole traders don’t have, since sole traders remain personally liable for business debts.<\/p>\n

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Related reading<\/h2>\n