- Sole trader: simple, one Self Assessment return, and you are personally liable for the debts
- Limited company: a separate legal person with limited liability, but accounts, a confirmation statement and a Corporation Tax return every year
- Profit left in a company pays Corporation Tax at 19% up to £50,000, where a sole trader in the higher rate band pays 40% income tax plus Class 4 National Insurance (As of Oct 2026)
- Your details become public at Companies House, including a service address, and every director must verify their identity, compulsory for new directors since 18 November 2025
- Some clients and insurers will only deal with a limited company
As a sole trader you pay £7,486 income tax and £2,245.80 Class 4 National Insurance, and keep £40,268.20.
As a company paying you a £12,570 salary and the rest as dividends: £1,135.50 employer National Insurance, because a sole director cannot claim the Employment Allowance, then £6,895.96 Corporation Tax and £3,106.59 dividend tax. You keep £38,861.95, which is £1,406.25 less, before the accountant's fee.
The gap runs the same way at £30k, £70k and £80k.
Where a company earns its keep is money you leave in it. Retained profit pays Corporation Tax at 19%, where a sole trader in the higher rate band pays 40% income tax plus Class 4. Add pension contributions paid by the company, and limited liability.
So the real question is how much you would leave in the business. Want me to run both at that figure?
Advanced engine. It ran both structures at your profit, and paying everything out lost.
| Profit before your pay | £50,000 |
| Employer National Insurance on a £12,570 salary, with no Employment Allowance for a sole director | -£1,135.50 |
| Corporation Tax at 19% on the £36,294.50 left | -£6,895.96 |
| Dividend tax on £29,398.54: the first £500 free, the rest at 10.75% | -£3,106.59 |
| Take-home through a company | £38,861.95 |
| Take-home as a sole trader on the same profit | £40,268.20 |
Income tax of £7,486.00 plus Class 4 National Insurance of £2,245.80. The sole trader keeps £1,406.25 more, and the gap runs the same way at £30,000, £70,000 and £80,000.
The 2026/27 rates that decide it
Corporation Tax is 19% on profits up to £50,000 and 25% above £250,000, with marginal relief in between, which taxes that band at about 26.5% at the margin. Dividends above the £500 allowance are taxed at 10.75% in the basic rate band and 35.75% in the higher rate band, both 2 points higher from 6 April 2026. A sole trader pays income tax plus Class 4 at 6% on profits between £12,570 and £50,270 and 2% above. As of Oct 2026.
Finance Act 2026 s.4 (dividend rates); HMRC rates and thresholds for 2026/27
What a company must file
Accounts to Companies House within 9 months of the year end (21 months from incorporation for the first set), Corporation Tax paid 9 months and 1 day after the year end for most companies, the CT600 within 12 months, and a confirmation statement every 12 months. Late accounts cost £150 to £1,500, doubled if late two years running. As of Oct 2026.
Companies Act 2006 ss.442, 453 and 853A; GOV.UK Pay Corporation Tax; GOV.UK Company Tax Returns
Outside Scotland, at 2026/27 rates, paying everything out of a company leaves you with less at these profits. Retained profit, pension contributions paid by the company and limited liability are what tip it the other way.
Scotland is different. Scottish income tax bands apply to a sole trader's profit but not to dividends, so a company paying everything out keeps more at £50,000, £70,000 and £80,000 of profit, and still loses at £30,000 (As of Oct 2026).
Moving an existing business into a company is a disposal of its goodwill. Incorporation relief can defer the gain when the whole business moves in exchange for shares (TCGA 1992 s.162), so take advice before the move, not after it.
I am a [sole trader or limited company] in [England, Scotland, Wales or Northern Ireland] making roughly [profit] a year, and I would leave about [amount] a year in the business. Model both structures at my numbers for 2026/27, including the cost of running a company, and tell me which I should be.
Every lesson ends with a question to hand to a Greymill specialist, who answers with what it knows about your business.