- Drawing all your profit, a sole trader is often cheaper to about £60,000.
- A limited company wins mainly when you leave profit inside the business.
- Sole traders pay no corporation tax; only companies do.
There’s no single answer to sole trader vs limited company tax, and the right call depends on your profit and how much you draw. If you’d rather just have it worked out, a sole trader accountant can run the comparison on your figures.
At lower profits a sole trader usually pays less once the extra filing is counted. At higher profits a limited company can pull ahead, mostly when you leave some profit in the business rather than drawing it all.
A sole trader pays income tax and Class 4 National Insurance on all profit, drawn or not. A limited company pays corporation tax first, then you pay personal tax on the salary or dividends you take.
Not sure which way the numbers fall for you?
How is a sole trader taxed?
As a sole trader, you and the business are the same person for tax. You pay income tax and Class 4 National Insurance on your profit, and you report both through Self Assessment. There’s no separate business tax, and how sole trader tax is calculated follows the same bands as employment income.
For 2026/27 the income tax bands are: nothing on the first £12,570, 20% on profit between £12,571 and £50,270, 40% between £50,271 and £125,140, and 45% above that. Class 4 National Insurance adds 6% on profit between £12,570 and £50,270, then 2% on anything above.
Class 2 National Insurance is no longer a separate bill. If your profit is above £7,105 it’s treated as paid, so the year still counts towards your state pension. That keeps the sole trader sum simple: income tax plus Class 4, on every pound of profit.
How is a limited company taxed?
A limited company is a separate legal person, so its profit is taxed on its own before any of it reaches you. The company pays corporation tax, then you pay personal tax on whatever you take out as salary or dividends. That two-step is the heart of the limited company vs sole trader tax difference.
For the financial year from 1 April 2026, the corporation tax rate is 19% on profits up to £50,000 and 25% above £250,000, with a marginal rate of 26.5% on profits between the two. A salary you pay yourself is a deductible cost for the company, so it lowers the profit that corporation tax applies to.
Dividends are paid from profit after corporation tax, so they aren’t deductible. You get a £500 dividend allowance, then dividend rates rose to 10.75% and 35.75% for basic and higher-rate income from 6 April 2026. That 2026 rise matters, because it narrowed the old salary-and-dividends advantage.
Do sole traders pay corporation tax?
Do sole traders pay corporation tax? No, they don’t. Corporation tax is a tax on company profits, and a sole trader isn’t a company, so if you trade in your own name your profit goes through Self Assessment as income tax and Class 4 National Insurance instead.
The sole trader corporation tax mix-up is common, so it’s worth being plain: you only pay corporation tax once you’ve set up a limited company. Until then there’s no CT600 and no corporation tax return to file. The sole trader corporation tax question is one of the few here with a clean, one-word answer.
What does the tax look like at different profit levels?
Numbers make this concrete. The examples below take one person with no other income who wants to draw every pound of profit in the same year, because that’s the case where the sole trader route looks strongest. For the company, they pay themselves a £12,570 salary and take the rest as dividends.
A sole director can’t claim the Employment Allowance, so a £12,570 salary carries £1,135.50 of employer National Insurance, which the company deducts before corporation tax. Change the salary, the dividend split, or how much you draw, and the figures move, which is exactly the point of the crossover section below.
Lower profit: £30,000
On £30,000 of profit, a sole trader pays about £3,486 in income tax and £1,046 in Class 4 National Insurance, so roughly £4,532 in total.
Run the same £30,000 through a company and you’re looking at £1,136 of employer NI, about £3,096 of corporation tax, and £1,365 of dividend tax, so roughly £5,597. The sole trader is around £1,065 better off, before you count the extra accountancy and filing.
Middle profit: £60,000
At £60,000, the sole trader pays about £11,432 in income tax and £2,457 in Class 4, so roughly £13,889.
The company lands at about £13,909 once you add employer NI, corporation tax at 19%, and dividend tax. That’s effectively a dead heat on tax, so the extra admin tips it back towards the sole trader when you’re drawing everything.
Higher profit: £100,000
On £100,000 drawn in full, the sole trader pays about £27,432 in income tax and £3,257 in Class 4, so roughly £30,689.
The company comes to about £34,790: employer NI, corporation tax of about £19,118 in the marginal band, and £14,537 of dividend tax once part of the payout hits the 35.75% higher rate. Drawing every pound, the sole trader is still around £4,100 ahead. The company only wins here when you stop drawing everything, which is the next section.
Here’s the same comparison in one view. These are illustrations on the stated assumptions, not a personal tax calculation.
| Profit (drawn in full) | Sole trader tax | Limited company tax | Difference |
|---|---|---|---|
| £30,000 | £4,532 | £5,597 | Sole trader £1,065 lower |
| £60,000 | £13,889 | £13,909 | About level |
| £100,000 | £30,689 | £34,790 | Sole trader £4,101 lower |
Want these figures run on your own numbers?
Where does the crossover actually fall?
Notice that in all three examples the company costs more, because we drew every pound. That’s the honest limited company vs sole trader tax result when you need all the cash: taking profit as dividends adds a second layer of tax on top of corporation tax.
The company pulls ahead when you don’t take everything. Profit you leave in the business is taxed once, at 19% up to £50,000 or 26.5% in the marginal band, and the dividend tax is deferred until you actually draw it.
So the crossover isn’t a fixed profit figure. It moves with how much you need to live on, and a few levers shift it further.
Three things move the crossover in the company’s favour:
- Leaving profit in the company, so it’s taxed once now and drawn later, ideally in a lower-income year.
- Splitting dividends with a spouse who’s a genuine shareholder, giving a second dividend allowance and basic-rate band.
- Paying pension contributions from the company, which are deductible and skip dividend tax entirely.
How you split salary, dividends or both is usually the single biggest lever, which is why a generic threshold rarely fits.
How much extra admin is a limited company?
For a lot of UK business owners the admin matters as much as the tax, so it’s worth spelling out. A sole trader files one Self Assessment return a year and keeps records. A limited company takes on more, and it’s a real step up rather than a formality.
Running a company means:
- Annual accounts filed with Companies House.
- A confirmation statement each year.
- A corporation tax return (CT600) to HMRC.
- PAYE and payroll if you pay yourself a salary.
- Your name, role, and filings on the public register at Companies House.
None of that is unmanageable, and most of it can be handled for you. Still, it’s a genuine change to your year, and it’s why a small tax saving doesn’t always justify incorporating on its own.
What does it cost to run each one?
Cost follows the obligations. A sole trader’s accounting is lighter, so the yearly support bill is usually lower, while a company’s accounts, CT600, and payroll take more work to keep right.
What matters is what you’re buying help with, not the headline fee. If you want the detail, here’s what a sole trader accountant costs. Weigh the running cost against the tax difference rather than looking at either alone.
Should you stay a sole trader?
Staying a sole trader often makes sense, and an honest comparison has to say so. If your profit is modest, you need all of it to live on, and you’d rather keep filing simple, the numbers above show the sole trader route is frequently cheaper once admin is counted.
It also suits you if your income is steady and you’ve no plan to leave profit in a business or bring in a co-owner. You keep one tax return, one set of records, and nothing on a public register. For many one-person businesses that combination is worth more than a marginal tax saving.
Should you incorporate?
Incorporating starts to pay off when your profit is higher and, more importantly, when you don’t need to draw all of it. Leaving profit in the company, smoothing income across years, adding a shareholding spouse, or making company pension contributions are where the limited company gets ahead on tax.
There are non-tax reasons too, like limited liability and how some clients prefer to contract, though those sit outside this tax comparison. If you’re leaning that way, here’s changing from sole trader to limited company, and an accountant for your limited company can set the structure up so it’s efficient from day one.
How Sleek helps with sole trader vs limited company tax
The right structure for sole trader vs limited company tax depends on your actual profit and how you draw it, not a rule of thumb. Sleek’s in-house qualified accountants run the comparison on your real figures and, if you incorporate, keep the salary and dividend split working through the year, with the calculations recorded so you can see how each number was reached.
That way the decision rests on your numbers rather than a generic threshold.
Ready to see the numbers for your business?
FAQs on sole trader vs limited company tax
Can I be a sole trader and a company director at the same time?
Yes. You can run a sole trader business and be a director of a limited company at once, and many people do while they test a new venture. The two are taxed separately, so you’ll file Self Assessment for the sole trader side while the company files its own return. Keep the income and expenses of each cleanly apart.
Do I have to close my sole trader business when I incorporate?
Not automatically. Some people move the whole trade into the company and stop trading as a sole trader; others keep a separate sole trader activity running alongside. If you do transfer the trade, tell HMRC so your Self Assessment reflects the change, and handle any assets moving across at market value.
Do I still file a Self Assessment if I have a limited company?
Usually yes. A director who takes a salary or dividends normally still files a Self Assessment return for that personal income, separate from the company’s corporation tax return. The company’s profit is reported by the company; your pay from it is reported by you.
What happens to my UTR when I incorporate?
Your personal Unique Taxpayer Reference stays with you for Self Assessment. The new company gets its own separate UTR for corporation tax when it’s set up. So you can end up with two references, one personal and one for the company, each used for a different return.
Is it harder to get a mortgage as a company director?
Not necessarily, though lenders assess you differently. As a director they’ll often look at your salary plus dividends, and sometimes your share of retained company profit, rather than a single self-employed profit figure. Two to three years of accounts usually help, so keeping clean records from the start is worth it.
