Sole traders · Limited companies
Sole trader vs limited company: which pays more in 2026/27?
Real take-home comparisons at £30k, £50k, and £80k profit. Income Tax vs Corporation Tax + dividend tax — the full breakdown with a summary table.
The classic UK freelancer question: "Should I go limited?". It depends entirely on your profit. Here's the calculation at three levels.
Sole trader: simple, taxed at your personal rate
Profit hits your Self Assessment. You pay Income Tax + Class 4 NI. No corporation tax, no separate company accounts, no Companies House.
Limited company: two-step taxation
- Company pays Corporation Tax on profits — 19% below £50k, 25% above £250k, sliding scale between.
- You pay yourself with a mix of salary (Income Tax + NI at PAYE rates) and dividends (£500 tax-free, then 8.75% / 33.75% / 39.35% depending on band).
Real comparison at 2026/27 rates
| Profit | Sole trader net | Ltd net (salary £12,570 + rest as div) | Winner |
|---|---|---|---|
| £30,000 | £25,342 | £25,470 | Ltd (£128) |
| £50,000 | £38,700 | £40,010 | Ltd (£1,310) |
| £80,000 | £57,712 | £61,050 | Ltd (£3,338) |
| £120,000 | £78,400 | £85,900 | Ltd (£7,500) |
Limited wins on tax at every level above £30k. But it's not free.
The hidden costs of going limited
- Accountant £600–£1,200/year (essential; you can't DIY the accounts safely).
- Confirmation Statement + annual accounts filed at Companies House.
- Business bank account (some are free, most £5–15/mo).
- Time cost of running two sets of books.
- Ir35 risk if your work is really employment in disguise.
The switch
You can start as sole trader and incorporate later — HMRC and Companies House both let you. Just make sure to close down the sole trader properly (final Self Assessment, cancel Class 2 NI) or you'll be filing two returns.
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