Sole Trader vs Limited Company: the 2026/27 Math
At 2026/27 rates there is no universal winner: on £55,000 of profit the sole trader and limited-company routes land within £86 of each other, while at £75,000 the sole trader pulls nearly £900 ahead. The old rule of thumb — go limited past £30,000 of profit — predates the 25% corporation tax main rate and the dividend-tax rises, and the crossover now sits far higher than folklore claims. This guide prices both structures from the same profit, then weighs the non-tax factors (liability, admin, IR35, costs) that decide the close calls.
The one-line version: under roughly £50,000 of profit the two routes are a rounding error apart, so choose on simplicity; past £70,000-plus the sole trader's single tax layer increasingly beats the company's double layer. Run your exact profit in the calculators linked below before registering anything.
The tax crossover, priced
Take £55,000 of profit. Sole trader: Income Tax £9,432 plus Class 4 £2,356.60 (£11,788.60 total), keeping £43,211.40. Limited ( £12,570 salary, rest dividends): corporation tax £8,061.70, dividend tax £3,640.84, keeping £43,297.46 — limited ahead by £86.06, essentially a tie. Now take £75,000 of profit: the sole trader keeps £54,811.40 while the limited route keeps £53,939.91 — sole trader ahead by £871.49. Both computations are shown line by line in our UK contractor tax calculator, and the sole-trader half is independently priced in the sole trader tax calculator.
Why the crossover moved
Three post-2023 changes did it. Corporation tax rose to a 25% main rate (19% only under £50,000, with a 26.5%-effective taper band between £50,000 and £250,000). Dividend tax rose to 10.75% basic, 35.75% higher, 39.35% additional above a £500 allowance. And Class 4 National Insurance fell to 6% main rate. Together they flattened the old limited-company advantage: the company's double layer (corporation tax plus dividend tax) now outweighs the sole trader's single layer (Income Tax plus Class 4) across most of the higher band. Anyone quoting pre-2023 rules is answering a different tax year.
Beyond the tax: liability, admin, costs
Tax is one input among several. A limited company brings limited liability (your house is not the business's collateral), a more corporate face for enterprise clients, and extra admin: accounts, confirmation statement, payroll even for one director, plus accountancy fees — get two quotes before registering, because the fee alone can erase a small tax saving. Sole traders get simplicity: register with HMRC, file Self Assessment, keep records, per the GOV.UK working-for-yourself guide. Near the £55,000 tie, these factors decide; only far above it does tax alone settle the question.
IR35 can override everything
Contractors working like employees may fall inside IR35, which taxes limited-company income much like employment income and collapses most of the comparison on this page. Status depends on working practices (control, substitution, mutuality of obligation), not on what the contract calls you. If an engager, agency, or status determination statement points inside IR35, resolve that first — the sole-trader-versus-limited math is secondary until you do.
The crossover at three profits
Same method, three incomes, one pattern: the routes tie near £55,000 and diverge on both sides. All figures from the contractor calculator at 2026/27 rates.
| Profit | Sole trader keeps | Limited keeps | Winner |
|---|---|---|---|
| £40,000 | £32,868.20 | £32,453.58 | Sole trader by £414.62 |
| £55,000 | £43,211.40 | £43,297.46 | Limited by £86.06 — a tie |
| £75,000 | £54,811.40 | £53,939.91 | Sole trader by £871.49 |
Read the table as a slope, not three isolated answers: below £50,000 simplicity decides, near £55,000 tax is noise, and past £70,000 the sole trader's single layer wins by hundreds. Your exact profit will not sit on one of these rows, which is why the calculators above exist.
How switching works when the math says so
Switching is administrative, not dramatic. Incorporate the company at Companies House, tell HMRC the sole tradership has ceased, register the company for Corporation Tax, open a business bank account in the company name, and reissue ongoing contracts under the company. Run both entities' records cleanly across the changeover year — one Self Assessment covering the sole-trader period, company accounts covering the rest.
Timing matters more than speed. Incorporating mid-year splits record-keeping across two regimes, so many contractors align the switch with the tax year end in April. There is no deadline pressure at low profits: the table above shows the routes within £415 of each other at £40,000, so switching early buys admin without saving tax. Revisit annually — the year profits jump past £60,000 with room to spare is the year to move.
One trap to avoid: transferring existing sole-trader assets (laptops, equipment, unpaid invoices) into the company needs documenting at market value, or the transfer itself creates a tax charge. List everything crossing over, value it honestly, and minute the transfer alongside the first dividend vote.
Related tools
Price both structures from your own profit in the UK contractor tax calculator, isolate the sole-trader half in the sole trader tax calculator, and sanity-check the profit input against the UK freelance rates guide (£407 average day rate).