UK Contractor Tax Calculator
On £60,000 of turnover with £5,000 of expenses, a sole trader keeps £43,211.40 while the limited-company route keeps £43,297.46 — a difference of £86.06 on £55,000 of profit. Enter your own turnover and expenses; the calculator prices both structures side by side at 2026/27 rates and names the winner.
Figures checked against 2026/27 GOV.UK rates · Reviewed October 2026
How sole trader tax works
Subtract expenses from turnover and the profit faces two charges. Income Tax at 20% from £12,571 to £50,270, 40% from £50,271 to £125,140, and 45% above, after the £12,570 Personal Allowance — see the current rates on GOV.UK. On top sits Class 4 National Insurance: 6% on profits from £12,570 to £50,270 and 2% above, per the current rates on GOV.UK. Class 2 needs no payment once profits reach the £7,105 Small Profits Threshold — it is treated as paid, protecting the State Pension record; below that, voluntary Class 2 costs £3.65 a week. And expect payments on account: when the Self Assessment bill passes £1,000, HMRC collects half of next year's bill in advance each January and July.
Formula (sole trader): profit = turnover − expenses; Income Tax on (profit − £12,570) at 20/40/45; Class 4 at 6%/2%; take-home = profit − both.
How the limited-company route works
The standard contractor model draws a small salary and takes the rest as dividends. This calculator uses a £12,570 salary (covered by the Personal Allowance, so no Income Tax on it), charges corporation tax on profit after salary — 19% up to £50,000, marginal relief between £50,000 and £250,000, 25% above, per the GOV.UK rates — then taxes the drawn dividends at 10.75% basic, 35.75% higher, 39.35% additional above the £500 dividend allowance, per GOV.UK's dividends guide. What it deliberately leaves out: employer National Insurance, VAT, IR35 status effects, and accountancy costs — all of which move the real answer, which is why this page compares structures rather than filing your return.
Formula (limited, simplified): CT on (profit − £12,570 salary) at 19%/marginal/25%; distributable = profit − salary − CT; dividends taxed at 10.75/35.75/39.35 above £500; take-home = salary + dividends − dividend tax.
Worked example: £60,000 turnover, £5,000 expenses
Profit is £55,000. Sole trader: Income Tax is 20% × £37,700 = £7,540 plus 40% × £4,730 = £1,892, totalling £9,432; Class 4 is 6% × £37,700 = £2,262 plus 2% × £4,730 = £94.60, totalling £2,356.60; combined £11,788.60, leaving £43,211.40. Limited: corporation tax at 19% on (£55,000 − £12,570) = £8,061.70; distributable £34,368.30 drawn as dividends, taxed at 10.75% above £500 = £3,640.84; take-home £12,570 + £34,368.30 − £3,640.84 = £43,297.46. Verdict: limited wins by £86.06 — essentially a tie, which is itself the lesson of this page.
Limited does not always win anymore
Run £75,000 of profit through both sides and the answer flips: the sole trader keeps £54,811.40 while the limited route keeps £53,939.91 — sole trader ahead by £871.49. The mechanism is the post-2023 double layer: marginal corporation tax at an effective 26.5% in the taper band plus higher-rate dividend tax at 35.75% outweighs the single income-tax-plus-NIC layer once profits push well into the higher band. The old rule of thumb ("always go limited past £30k") predates the 25% main rate and the dividend-tax rises — at 2026/27 rates the crossover sits far higher than folklore claims, and near the boundary the right answer is genuinely either. That is why the calculator exists: run your own profit, not someone else's rule.
Which structure, beyond the tax
Tax is one input among several. Limited companies bring limited liability, a more corporate face for enterprise clients, and extra admin (accounts, confirmation statement, payroll even for one director). Sole traders get simplicity: register with HMRC, file Self Assessment, keep records — the GOV.UK working-for-yourself guide covers the obligations. IR35 can override the whole comparison for contractors working like employees. And anyone inside the UK day-rate market should sanity-check the profit input against reality first: the UK freelance rates guide benchmarks the £407 average day rate this calculator's turnover implies. At that benchmark, five days a week for forty-eight weeks is £407 × 240 = £97,680 of turnover — so a contractor at the average rate with modest expenses lands near the top of this calculator's range, exactly where the two structures run neck and neck. Structure choice is education here, not advice — confirm yours with an accountant before registering anything.
Sources
Income Tax bands and Personal Allowance: GOV.UK. Class 2/Class 4 National Insurance: GOV.UK. Dividend rates and allowance: GOV.UK. Corporation Tax tiers and marginal relief: GOV.UK. Self-employment registration and records: GOV.UK. Modelled for trading profits up to £100,000; above that the £100,000 Personal Allowance taper applies — see an accountant.
The sole-trader versus limited-company comparison on this page was recomputed by hand from 2026/27 GOV.UK rates, outside the calculator. How we check every page.
Related calculators
The comparison needs a profit input grounded in reality: the freelance rates by country tool benchmarks UK rates globally, the day rate converter turns a target salary into the day rate that funds it, and the UK freelance rates guide carries the £407 benchmark plus the Class 2/Class 4 detail behind this page's National Insurance line.
Frequently Asked Questions
Should I be a sole trader or a limited company in the UK?
At 2026/27 rates there is no universal winner: on £55,000 of profit the two routes land within £86 of each other, while at £75,000 the sole trader pulls nearly £900 ahead. Run your own profit in the calculator above — then weigh liability, admin, and IR35 alongside the tax.
How much Class 4 National Insurance will I pay?
6% on profits from £12,570 to £50,270 and 2% on profits above £50,270. On £55,000 of profit that is £2,262 plus £94.60 — £2,356.60 total, with no Class 2 payment due above the £7,105 threshold.
Do I pay Class 2 National Insurance?
Not as a payment once profits reach £7,105 a year — Class 2 is treated as paid, protecting your State Pension record for £0. Below that threshold, voluntary Class 2 at £3.65 a week keeps the record intact.
What are payments on account?
When your Self Assessment bill passes £1,000, HMRC collects roughly half of next year's bill in advance — due 31 January and 31 July — unless most of your tax is already collected at source. Budget for the January double-hit in year one: the balancing payment plus the first payment on account land together.
What is the dividend allowance for 2026/27?
£500 a year at 0%, then 10.75% basic, 35.75% higher, and 39.35% additional rate on dividends above the allowance. Dividends stack on top of salary, so a £12,570 salary leaves the basic band open for the first slice of dividends.
Should I work through an umbrella company instead?
An umbrella employs you and pays you through PAYE: the client pays the umbrella an assignment rate, which is reduced by the umbrella's margin, employer National Insurance, pension, and holiday pay before your salary lands. Take-home typically trails both sole-trader and limited-company routes on the same rate — the trade is zero admin and no IR35 paperwork. New PAYE rules for umbrella supply chains apply from April 2026; see GOV.UK's umbrella guidance before signing.