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Sole trader or limited company

Sole trader vs limited company: what you'd actually keep

Enter your profit to see your real take-home both ways, with the tax broken down line by line, not a rule of thumb.

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At what profit is a limited company worth it?

There is no single profit level. For 2026-27, if you take every pound of profit out as one director, a limited company often leaves you with slightly less than being a sole trader: the April 2026 dividend tax rise, to 10.75% basic rate, closed most of the old gap. The advantage now comes mainly from leaving profit in the company, where it is taxed at Corporation Tax rates until you take it out. The calculator below shows your own figures.

What an accountant or software costs you on top, e.g. £600 a year.

Sole trader

£40,268

take-home

Income tax
£7,486
National Insurance
£2,246
Total tax
£9,732
Effective rate
19.5%

Limited company

£38,862

take-home

Income tax (salary)
£0
Dividend tax
£3,107
Employee National Insurance
£0
Employer National Insurance
£1,136
Corporation Tax
£6,896
Total tax
£11,138
Effective rate
22.3%

As a limited company you would keep £1,406 less a year at this profit level.

Take-home at different profit levels

£20k£30k£50k£75k£100k£150k
Sole traderLimited company

Estimates for 2026-27. Assumes all profit is taken out of the business, one director, no other income, no pension contributions, and ignores student loans. Money left in the company is not taxed as dividends until you actually take it out.

What changes

What changes when you incorporate

Sole traderLimited company
TaxIncome Tax and Class 4 National Insurance on all profitCorporation Tax on company profit, then Income Tax on what you take out
AdminOne Self Assessment return a yearAnnual accounts, a confirmation statement, a Corporation Tax return, and usually still a personal return
LiabilityYou are personally liable for business debtsGenerally limited to what you have invested in the company
How you pay yourselfYou simply draw profit as it is earnedA salary through payroll, dividends, or a mix of both
PrivacyYour name is not on a public register for the business itselfYour name appears as a director on the public Companies House register
Accounts filingNo accounts filed with Companies HouseAnnual accounts filed with Companies House every year
Making Tax DigitalMTD for Income Tax applies once qualifying income is over £50,000 (from April 2026), falling to £30,000 (2027) and £20,000 (2028)MTD for Income Tax does not apply to companies; see our Making Tax Digital guide

More on the Making Tax Digital thresholds and dates is in our Making Tax Digital guide.

The trade-off

The admin a company adds

A limited company brings ongoing filing obligations a sole trader does not have:

  • Annual accounts filed with Companies House every year.
  • A confirmation statement, at least once a year.
  • A Corporation Tax return (CT600) filed with HMRC.
  • Payroll to run, if you take any salary at all.
  • A director's Self Assessment return in many cases, on top of the company's own filings.
  • Identity verification for directors and people with significant control.

None of this is complicated on its own, but it is more moving parts than a sole trader has to think about, and each one carries its own deadline. See all your company deadlines in one place once you have incorporated.

Staying as you are

When staying a sole trader makes sense

If you need to take all your profit out each year, a company may leave you with less, not more, once you add the extra running costs it brings, such as accountancy or software. If you value simplicity, if your profit is likely to be temporary or variable, or if you are not ready to take on the extra admin, staying a sole trader is a perfectly reasonable choice. It is also the simpler route if you are not yet sure the business will keep going.

Switching over

How to switch

  1. 1Register the company with Companies House.
  2. 2Set the company up for Corporation Tax with HMRC.
  3. 3Move your contracts, invoicing and business bank account across to the company.
  4. 4Tell HMRC you have stopped being self-employed.
  5. 5File a final Self Assessment return covering your sole trader income up to the date you switched.

If you are not sure whether you still need to register for Self Assessment personally after switching, see our guide to registering for Self Assessment.

Where Finn helps

Finn works either way

Whichever way you decide to go, Finn keeps your books up to date and works out the numbers as your circumstances change.

Try Finn free for 14 days
  • Works for sole traders and limited companies alike, on the same product
  • Keeps your books up to date as you go, from receipts and bank statements
  • Works out your salary and dividend split from your real numbers, not a rule of thumb
  • Tracks your company deadlines, if you do incorporate
  • Files MTD VAT returns once you are VAT registered

Questions

Sole trader vs limited company, answered

Sole trader vs limited company: which keeps more of my money?

It depends on your profit level, and there is no single number that applies to everyone. Use the calculator above with your own profit to see your actual figures. The April 2026 dividend tax rise means the gap has narrowed compared with previous years, so it is worth checking again even if you last compared the two a while ago.

When should I go from sole trader to limited company?

There is no fixed profit level that makes it automatic. For 2026-27, if you take all the profit out as one director, a limited company often leaves you with a little less than being a sole trader, so tax alone is rarely the reason. The case gets stronger if you can leave profit in the company, and other things matter too: limited liability, how the business looks to clients, and how much admin you are happy to take on.

Is it beneficial to go from sole trader to limited company?

Often, but not always, and by less than it used to be after the April 2026 dividend tax rise. Run your own profit through the calculator above rather than relying on a general rule of thumb.

How do I switch from sole trader to limited company?

Register the new company with Companies House, set it up for Corporation Tax, move your contracts, invoicing and business bank account across, tell HMRC you have stopped being self-employed, and file a final Self Assessment return covering your sole trader income up to the switch.

What changes when I become a limited company?

The company becomes a separate legal entity from you. You pay yourself through salary and dividends rather than simply drawing profit, the company files its own accounts and Corporation Tax return, your name appears on the public register as a director, and your personal liability is generally limited to what you have invested.

Does a limited company mean more admin than being a sole trader?

Yes. A limited company files annual accounts and a confirmation statement with Companies House, a Corporation Tax return with HMRC, runs payroll if you take a salary, and you will usually still need to file a Self Assessment return personally too.

Is it ever better to stay a sole trader?

Yes, for a lot of people. If you need to take all the profit out each year, the 2026-27 rates often leave a sole trader with slightly more than a one-director company, before you even add the company's extra running costs. Some people also simply prefer the sole trader's much lighter reporting.

Sources, checked on

General guidance, not advice for your situation. Rules change: always check the GOV.UK page before you act.

Whichever way you go, keep your books ready

Finn keeps sole trader and limited company books up to date all year, and works out your salary and dividend split as your numbers change.

Try Finn free for 14 daysOptimise your salary and dividends