Sole trader vs limited company take home pay
Enter your profit before you pay yourself, the salary you would draw from a company, and the extra cost of running one. You get both structures side by side using the tax year you choose.
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QuickBooks PartnerCertified ProAdvisor100+ yearsCombined team experienceFully insuredUp to £2m indemnityA limited company usually leaves more in your pocket once profit is comfortably above the point where the extra running costs and employer National Insurance are covered, because profit is taxed at corporation tax rates and dividends carry no National Insurance. Below that point a sole trader is simpler and often cheaper.
Take home, 2026/27
Sole trader
After income tax and Class 4 National InsuranceLimited company
Salary plus dividends after all taxesDifference
Better as a sole trader on these figuresProfit before owner pay
Sole trader £60,000, company £60,000Extra cost of running a company
Sole trader £0, company £1,800. Accountancy, payroll, confirmation statementDirector salary
Sole trader £0, company £12,570Employer National Insurance
Sole trader £0, company £1,136. 15% above the £5,000 secondary thresholdCorporation tax
Sole trader £0, company £8,454. 19% to 25% with marginal reliefDividends available
Sole trader £0, company £36,041Income tax
Sole trader £11,432, company £3,821National Insurance on your income
Sole trader £2,457, company £0. Class 4 for a sole trader, Class 1 on salaryAn estimate using published rates for the year you selected. It ignores pension contributions, student loans, the employment allowance and any other income. Basic questions are free, technical work is quoted first.
What the comparison actually models
As a sole trader, all trading profit is charged to income tax at your marginal rate and to Class 4 National Insurance between the lower profits limit and the upper profits limit, with a smaller rate above it. There is no way to leave profit in the business untaxed.
Through a company, you take a salary, the company pays employer National Insurance on it, corporation tax is charged on what is left, and the remaining profit can be paid as dividends taxed at dividend rates after your dividend allowance. You control the timing, which is the part a static comparison cannot value.
The numbers are not the whole decision
A company gives you limited liability, a separate legal identity, easier investment and share options, and a much better position when a client or a marketplace runs supplier checks. Those matter more than a few hundred pounds of tax to most founders.
Against that, you take on filing duties, public accounts, a director loan account to keep clean, and real cost if you get the paperwork wrong. If your profit is modest and you want the least admin, a sole trader is a legitimate answer.
Salary level changes the answer
Most one director companies pay a salary at or just above the National Insurance secondary threshold, so the salary is deductible for corporation tax and the director still builds a qualifying year for the state pension. Where a company can claim the employment allowance, a higher salary can be better.
Try a few salary levels in the tool. The gap between two sensible salary choices is often larger than the gap between the two structures.
Switching from sole trader to limited
Incorporation is not just a new registration. Contracts, bank accounts, VAT registration, insurance, payroll and any assets you are transferring all need handling, and there can be capital gains and goodwill points on the transfer itself.
We handle the switch for founders regularly and it usually takes a couple of weeks end to end. Ask before you incorporate, not after.
Common questions
At what profit is a limited company worth it?
There is no fixed threshold, but the extra running costs and employer National Insurance typically need profits comfortably into five figures before the tax saving is meaningful. Run your own numbers above rather than relying on a rule of thumb you read elsewhere.
Do I pay National Insurance on dividends?
No. Dividends carry no National Insurance, which is the main reason a salary plus dividend mix can beat trading profit taxed as a sole trader. Dividends are paid out of post corporation tax profit, so the company has already been taxed on that money.
Can I pay myself whatever salary I like?
Yes, but the level changes the tax. A salary is deductible for corporation tax and creates employer and employee National Insurance above the thresholds, so the optimum is usually near the secondary threshold unless the employment allowance is available.
Does this include student loan or pension contributions?
No. The comparison covers income tax, National Insurance, corporation tax and dividend tax. Employer pension contributions are usually a strong reason to favour a company because they are deductible and carry no National Insurance, and we model those in a consultation.
Which tax year should I use?
Use 2025/26 for the year you are filing now and 2026/27 for planning ahead. Both sets of rates are built in and you can switch between them above.