Sole Trader vs Limited Company: Which is Better?
The most common question among growing UK freelancers: should you stay as a sole trader or incorporate? We compare the exact tax differences using 2026/27 rates.
The key differences
As a sole trader, you and your business are legally the same entity. Your profits are taxed as personal income under Income Tax and Class 4 National Insurance. As a limited company director, the company is a separate legal entity. It pays Corporation Tax (19% to 25%) on its profits, and you withdraw money as a salary or dividends.
Tax comparison at £60,000 profits (2026/27)
| Tax Component | Sole Trader | Limited Company |
|---|---|---|
| Income Tax | £11,486 | £0 (salary at allowance) |
| National Insurance | £3,492 | ~£1,135 (Employer NI only) |
| Corporation Tax | N/A | ~£8,500 |
| Dividend Tax | N/A | ~£3,200 |
| Total Tax | ~£14,978 | ~£12,835 |
| Annual Saving (Ltd) | ~£2,143 per year | |
Use our Limited Company vs Sole Trader Calculator for your exact figures.
The real tipping point
With Corporation Tax now at 25% for larger companies and dividend tax rates rising by 2% from April 2026, the tax advantage of incorporation is smaller than it once was. After accounting for professional accountancy fees (typically £1,000 to £2,500 per year), the financial break-even is typically around £40,000 to £50,000 of profits.