“Go limited, it’ll save you thousands.” It’s one of the most common things self-employed people hear, usually from someone who isn’t looking at their numbers. Sometimes it’s true. Often it isn’t. Here’s how the two structures compare in 2026/27, with the working shown.
The short answer
At moderate profits where you need most of the money to live on, staying a sole trader usually costs less. A company starts to help at higher, steady profits, and mainly when you can leave money in the business. Choose a structure from your own numbers, not a headline tax rate.
Key point: at £45,000 profit, paying everything out of a company costs about £1,321 more in tax than staying a sole trader, before the extra accountancy fees.
£45,000 profit, two structures
Aisha was told going limited would save her thousands. Same business, same £45,000 profit, England, 2026/27. Here’s what she’d pay each way, taking every pound out:
| £45,000 profit, 2026/27 | Sole trader | Company, all paid out |
|---|---|---|
| Income Tax (20% × £32,430) | £6,486 | – |
| Class 4 NI (6% × £32,430) | £1,946 | – |
| Employer NI (15% of salary above £5,000) | – | £1,136 |
| Corporation Tax (19% × £31,295) | – | £5,946 |
| Dividend tax (10.75% × £24,849) | – | £2,671 |
| Total tax | £8,432 | £9,753 |
| You keep | £36,568 | £35,247 |
The company pays a £12,570 salary, so there’s no employee NI or Income Tax on it, but there is employer NI above £5,000. With only one director and no other employees, the company can’t claim the Employment Allowance. The rest goes out as dividends, and the first £500 is tax-free.
Assumes no other income, one director and no other employees, salary £12,570 with the rest paid as dividends, the £500 dividend allowance, and no pension contributions, student loan or company running costs. Rounded to the nearest pound.
Try it with your own profit. The tax estimate compares sole trader and company side by side.
Compare my numbersAt £100,000, it depends what you take
At higher profits, the company advantage comes from what you leave in the company, not from lower rates. Here are three versions of the same £100,000 profit:
| £100,000 profit, 2026/27 | Sole trader | Company: take all | Company: take up to £50,270 |
|---|---|---|---|
| Income Tax | £27,432 | – | – |
| Class 4 NI | £3,257 | – | – |
| Employer NI on £12,570 salary | – | £1,136 | £1,136 |
| Corporation Tax (with marginal relief) | – | £19,118 | £19,118 |
| Dividend tax | – | £14,537 | £3,999 |
| Tax arising this year | £30,689 | £34,790 | £24,253 |
| Personal cash after tax | £69,311 | £65,210 | £46,271 |
| Left in the company | – | – | £29,476 |
- Take everything out and you end up with about £4,102 less personal cash than as a sole trader.
- Take only up to £50,270 (salary plus dividends up to the basic-rate limit) and about £6,436 less tax arises this year, but only £46,271 reaches you.
That £29,476 is still the company’s money. It pays off if you reinvest it, keep a reserve or pay into a pension. Taking it out later means more dividend tax. A lower tax bill this year isn’t the same as more money in your pocket.
England, 2026/27. Assumes no other income; one director and no Employment Allowance; salary £12,570; a 12-month accounting period with no associated companies; dividends after the £500 allowance; no pension contributions, student loan or company running costs. Rounded to the nearest pound.
It’s not only about tax
| Sole trader | Limited company | |
|---|---|---|
| Legal status | You and the business are the same person | A separate legal entity |
| Tax on profit | Income Tax and Class 4 NI on all the profit, whether or not you take it out | Corporation Tax on company profit, then personal tax on salary and dividends |
| Liability | Business debts are generally your debts | Limited, though personal guarantees and director duties can still expose you |
| Admin | Self Assessment; Making Tax Digital above the threshold; VAT if registered | Accounts, Company Tax Return, Companies House filings and payroll |
| What’s public | Your accounts aren’t published | Accounts and directors are on the public Companies House register |
A company also means more deadlines, and they don’t line up. Paying Corporation Tax doesn’t mean you’ve filed, and filing doesn’t mean you’ve paid.
Four questions to answer first
- What profit do you expect, and how steady is it? Savings from a company usually only show up at higher, stable profits.
- How much do you need to take out to live? If you need almost all of it, most of the company advantage disappears.
- What are your risks and plans? Employees, investors, big contracts or large liabilities can favour a company.
- Can you run the admin? A company means more filing, more deadlines and higher accountancy costs.
In the gym, you pick the programme that fits your goal, not the one that looks impressive. Business structure is no different.
Quick answers
Is a limited company always more tax-efficient?
No. At £45,000 profit with everything paid out, it costs about £1,321 more in 2026/27, before accountancy fees.
When does a company start to save tax?
Usually at higher, steady profits when you don’t need to take everything out. The saving comes from profit left in the company, which is taxed again if you take it out later.
Will I still need a Self Assessment tax return as a director?
Not just for being a director. You may need one if you get dividends over £10,000, have other untaxed income, or HMRC sends you a notice to file. HMRC has an online checker on GOV.UK: check if you need to send a Self Assessment tax return.
Want it modelled on your numbers? I can help you weigh it up through my practice, TaxationMadeSimple.
Work with meFigures from The UK Tax Guide 2026/27 (chapters 2 and 4), checked against GOV.UK on 21 October 2026. Sources: Corporation Tax rates · Tax on dividends · Income Tax rates · Self-employed National Insurance rates. Educational information, not tax advice. Check GOV.UK or speak to a qualified adviser before acting.