Sole Trader or Limited Company?
Use our free calculator to compare the tax, costs, and take-home pay of each structure — then book a call to discuss your situation.
Your numbers
Your total business income before expenses
Costs you incur to run your business
Employment, rental, pension income etc. (optional)
Business profit
£50,000
With turnover above £20,000, you would be subject to Making Tax Digital for Income Tax as a sole trader — requiring quarterly digital submissions to HMRC. This does not apply to limited companies.
Director salary strategy
Your comparison
£2,126/year more as a sole trader
At your current profit level, staying as a sole trader looks like the better option. The additional accounting costs and admin of a limited company would outweigh the tax savings. That said, if your profits are growing, it's worth reviewing this annually.
| Tax Year 2026/27 | Sole Trader | Limited Co. |
|---|---|---|
| Income Tax | £7,486 | £0 |
| National Insurance | £2,246 | £0 |
| Employer NI | £0 | £1,136 |
| Corporation Tax | £0 | £6,896 |
| Dividend Tax | £0 | £3,107 |
| Total Tax | £9,732 | £11,138 |
| MTD quarterly submissions | £480 | £0 |
| Additional accounting costs | £0 | £1,200 |
| Take-home | £39,788 | £37,662 |
Director salary used: £12,570 | Dividends: £29,399
Assumes all remaining company profits extracted as dividends. Employment Allowance not applied (not available to single-director companies).
Important disclaimer
This calculator provides illustrative estimates only, based on standard assumptions and 2026/27 UK tax rates. It does not constitute tax advice, financial advice, or a recommendation to incorporate or change your business structure.
The results do not account for your full personal circumstances, including but not limited to: student loan repayments, pension contributions, tax credits, benefits, existing employment income taxed at source, capital gains, or any reliefs you may be entitled to. Actual tax liabilities may differ materially from the figures shown.
You should seek professional advice from a qualified accountant or tax adviser before making any decisions about your business structure. Thyme Tax and Accountancy Ltd accepts no liability for decisions made on the basis of this calculator.
Why more sole traders are incorporating
The UK has around 5.7 million private sector businesses, and roughly 4.27 million of them have no employees at all. For years, most of these were sole traders — it was simpler, cheaper, and good enough.
That changed with Making Tax Digital for Income Tax. From April 2026, sole traders and landlords earning over £50,000 must submit quarterly digital updates to HMRC. By April 2028, that threshold drops to £20,000. That means four submissions a year instead of one annual return — plus the cost of MTD-compatible software and, for most people, professional help with each quarterly submission.
MTD doesn't change how much tax you pay. But it significantly increases the admin and cost of being a sole trader. And that changes the question people ask — from "which structure is cheapest right now?" to "which structure gives me the best setup for the next few years?"
How the two structures actually work
Sole trader
Your business profit is treated as your personal income straight away. The profit is yours, the tax is yours, and it all lands on you in that tax year — whether you've actually taken the money or not. There's very little room to move.
Think of it as a pipe — everything flows straight through.
Limited company
The company earns the money and pays corporation tax on its profits. Then you decide how and when you take money out — as salary, dividends, pension contributions, or you can leave it in the company.
Think of it as a reservoir — profits have somewhere to sit while you decide.
What a limited company lets you do
- + Take a mix of salary and dividends to minimise your overall tax bill
- + Leave profits in the company when you don't need them personally
- + Make tax-efficient pension contributions through the business
- + Bring in a spouse or family member as a shareholder for dividend income
- + Plan ahead — the flexibility becomes more valuable as profits grow
When incorporation is not the right move
A limited company is not automatically better for everyone. It comes with responsibilities — annual accounts, corporation tax returns, Companies House filings, and possibly payroll. The additional accounting costs typically run £1,000–£2,000 more per year than a sole trader.
If you're making modest profits and taking most of the money out to live on, the extra structure adds complexity without much return. You've added admin without really using the flexibility.
The benefits tend to grow over time. In the early days the difference can feel marginal, but a couple of years in — when profits are higher and you have genuine choices about how much to take out — the flexibility starts doing the heavy lifting.
The calculator above uses 2026/27 tax rates and makes standard assumptions about salary and dividend extraction. Your actual position will depend on your full personal and business circumstances — pension contributions, other income, student loans, and more. This is a starting point, not a substitute for proper advice.
Making Tax Digital: what it means for you
| Date | Who's affected | Applies to |
|---|---|---|
| April 2026 | Income over £50,000 | Sole traders & landlords |
| April 2027 | Income over £30,000 | Sole traders & landlords |
| April 2028 | Income over £20,000 | Sole traders & landlords |
Limited companies are not subject to MTD for Income Tax. If you incorporate, your quarterly reporting obligation as a sole trader goes away. The company files a corporation tax return annually — which your accountant handles as part of your standard package.
Not sure which is right for you?
The calculator gives you a starting point. A conversation gives you the answer. Book a free call and we'll walk through your numbers together.