The limited company route assumes a small director's salary topped up with dividends — the usual tax-efficient mix, with employer NI (15% above £5,000) deducted before Corporation Tax. Employment Allowance (up to £10,500) applies only if you have staff beyond the sole director.
Sole trader: Income Tax + Class 4 NI. Limited company: Corporation Tax (with marginal relief £50k–£250k) then dividend tax at 2026-27 rates (10.75% / 35.75% / 39.35%, up 2 points from 2025-26). A simplified comparison — your circumstances may differ. Not a substitute for professional advice.
Incorporating isn't only a tax decision — but tax is usually what triggers the conversation. As a rough rule for 2026-27: a limited company tends to save money on immediate take-home once profit clears roughly £26,000–£30,000, provided the extra accountancy and admin costs are worth it to you. Above £100,000 the sole trader route often pulls back ahead on immediate extraction — a limited company's advantage there comes from leaving profit in the company rather than drawing it all out.
There's no fixed number — it depends on your salary/dividend mix and other income — but many sole traders start seeing a benefit once profit passes roughly £26,000–£30,000. Below that, the extra admin rarely pays for itself.
Typically £600–£1,500 a year more in accountancy fees for annual accounts, a confirmation statement and a CT600, plus your own time on payroll and Companies House filings. Toggle this into the calculator above.
Yes — limited liability protection (your personal assets are separate from business debts), a more "credible" look to some clients and lenders, and the ability to leave profit in the company to smooth out a lower-income year later.
If most of your income comes through a limited company but HMRC would view you as an employee of your client in all but name, IR35 can wipe out the tax advantage of incorporating. Get this checked before switching if you work mainly for one client.
No — the £90,000 VAT threshold applies to your turnover either way, sole trader or limited company.
Yes, but closing a company properly (striking off or formal dissolution) takes time and can trigger its own tax treatment on any money left inside it. It's easier to move from sole trader to Ltd than the other way round.