Sole trader vs limited company: which keeps more?

The short answer: if you take all your profit out each year, a one-person limited company now usually leaves you with less than being a sole trader. On 2026/27 figures, at £50,000 profit a sole trader keeps about £1,406 more, before the company's extra accountancy costs. A company still pays off if you leave profit in the business, pay into a pension through it, share ownership, or need limited liability.

What you keep at each profit level

Sole trader: all profit taxed as income, with Class 4 National Insurance. Limited company: a £12,570 salary, Corporation Tax on the rest, then everything paid out as dividends. No other income, England, 2026/27.

The company figures include employer National Insurance of about £1,136 on the salary, as a one-director company usually cannot claim the Employment Allowance. The extra fees column is a rough figure for the additional accountancy and admin cost of a company over a sole trader; quotes vary.

A company used to win comfortably at these levels. That changed as Corporation Tax rose to 25% for larger profits, employer National Insurance rose to 15% from April 2025 with the threshold cut to £5,000, and dividend tax went up again in April 2026. A cheaper salary of £5,000 avoids employer National Insurance, but wastes part of the personal allowance and comes out slightly worse on these figures.

Where a company still helps

• Leaving profit in the business: profit kept in the company pays only Corporation Tax, 19% on profits up to £50,000. Keeping £10,000 in the company costs £1,900 in tax now, against about £4,200 for a higher-rate sole trader. Tax is due when you take it out later, ideally in a lower-income year.
• Pension contributions: the company can pay into your pension before Corporation Tax, with no National Insurance. See director salary vs dividends.
• Sharing income: a spouse who works in the business or owns shares can receive salary or dividends, though HMRC watches artificial arrangements.
• Limited liability and, sometimes, a more established image with larger clients.

Where sole trader wins

• Simplicity: one Self Assessment return, no payroll, no company accounts.
• Lower costs: many sole traders do their own return; most companies use an accountant.
• All profit is yours: you can draw money any time, with no dividend paperwork or rules on directors' loans.
• Losses: early losses can be set against other income, such as a salary from a job, and get you a tax refund.
• Privacy: no public record at Companies House of your name, address or accounts.

Admin compared

Things to check first

• IR35: if you contract through your company but work like an employee, most of the tax saving goes. See the day rate calculator.
• Mortgages: lenders usually want two years of accounts for either type, and some treat retained company profit differently.
• VAT works the same for both: registration is required above £90,000 turnover. See the VAT Flat Rate Scheme.
• Student loans are charged on dividends as well as salary.

Starting out? See what expenses you can claim when self-employed and tax when you are employed and self-employed.

Switching later

Many people start as a sole trader and incorporate once profits are steady and they can leave money in the business. When you switch, the company buys or takes over your business, you register it for Corporation Tax and PAYE, and you close your self-employment with HMRC. Transferring goodwill or equipment can have tax effects, so take advice at that point.

Figures are simplified estimates for 2026/27 in England, Wales and Northern Ireland. They ignore other income, student loans and expenses. This is general information, not tax advice; an accountant can model your situation.