Written for the 2026/27 tax year. Checked against GOV.UK on 6 October 2026.
A sole trader is the simplest business structure to set up and keep records for. A limited company is legally separate from the people who own it. This guide compares the two for the 2026/27 tax year: liability, registration, tax rates and what you have to file. It does not tell you which to choose, because that depends on your own figures. It comes from Wainwrights Accountants in Bromborough, Wirral. We work with sole traders and limited companies across the UK.
Key figures for 2026/27
| What | 2026/27 figure | Source |
|---|---|---|
| Personal Allowance | £12,570 | GOV.UK: Income Tax rates and Personal Allowances |
| Income Tax rates (England, Wales and Northern Ireland) | 20% basic rate, 40% higher rate, 45% additional rate | GOV.UK: Income Tax rates and Personal Allowances |
| Class 4 National Insurance for the self-employed | 6% on profits over £12,570 up to £50,270, then 2% | GOV.UK: self-employed National Insurance rates |
| Corporation Tax, small profits rate | 19% on profits of £50,000 or less | GOV.UK: Corporation Tax rates |
| Corporation Tax, main rate | 25% on profits over £250,000 | GOV.UK: Corporation Tax rates |
| Dividend allowance | £500 | GOV.UK: tax on dividends |
| Tax on dividends above the allowance | 10.75% basic rate, 35.75% higher rate, 39.35% additional rate | GOV.UK: tax on dividends |
| When a sole trader must register | If you earn more than £1,000 in a tax year (GOV.UK lists other reasons too) | GOV.UK: become a sole trader |
| Registering a company with Companies House online | £100 | GOV.UK: register your company |
What is the difference between a sole trader and a limited company?
A sole trader runs the business as an individual: you keep all the profits after tax and are personally responsible for its debts. A limited company is legally separate from its owners, who are responsible for its debts only up to the value of their investment. The company pays its own tax.
GOV.UK compares the two like this:
- Liability. A sole trader has unlimited liability. A limited company has limited liability. GOV.UK notes that either may still need business insurance.
- Money. A sole trader keeps all the profits after paying tax. Directors must follow rules when taking money out of a company, for example as salary, dividends or a director’s loan.
- Records. A sole trader must keep records from the day they start trading. Directors must also file accounts and tax returns for the company.
- Name. A sole trader can trade under their own name or choose a trading name. A company name must follow the Companies House rules.
How is a sole trader taxed in 2026/27?
A sole trader pays Income Tax and National Insurance on the profits of the business, through a Self Assessment tax return. For 2026/27 the Personal Allowance is £12,570. Income Tax is then 20%, 40% or 45%, depending on the band. Class 4 National Insurance is 6% on profits over £12,570 up to £50,270 and 2% above that.
The basic rate band runs from £12,571 to £50,270 and the higher rate band from £50,271 to £125,140. Income Tax bands are different if you live in Scotland. The Personal Allowance goes down by £1 for every £2 of adjusted net income above £100,000.
If your profits are £7,105 or more, Class 2 National Insurance contributions are treated as having been paid. Below that you pay nothing, but you can choose to pay voluntary Class 2 contributions at £3.65 a week.
The online tax return and the tax you owe are due by 31 January after the tax year ends.
How is a limited company taxed in 2026/27?
The company pays Corporation Tax on its profits. The rate is 19% if profits are £50,000 or less and 25% if they are more than £250,000. Between the two, the company may be entitled to Marginal Relief. You then pay Income Tax on what you take out of the company, depending on how you take it.
Those two profit thresholds are reduced for short accounting periods and for companies with associated companies.
GOV.UK sets out the ways of taking money out:
- Salary. The company must register as an employer, take Income Tax and National Insurance from your pay and send them to HMRC, with employer National Insurance. Our guide for employers in 2026/27 has the rates.
- Dividends. A company can pay dividends to shareholders if it has made a profit. Dividends are not a business cost for Corporation Tax, and a company must not pay out more than its available profits.
- A director’s loan. Money you take that is not salary or a dividend, and is more than you have put in. Records must be kept, and detailed tax rules apply.
For 2026/27 the dividend allowance is £500. Above it, dividends are taxed at 10.75% in the basic rate band, 35.75% in the higher rate band and 39.35% in the additional rate band. You pay no tax on dividend income that falls within your Personal Allowance.
What does each have to register and file?
A sole trader registers for Self Assessment with HMRC and sends one tax return a year. A limited company is registered with Companies House before it starts trading, and its directors must keep company records, prepare annual accounts and file a Company Tax Return and a confirmation statement.
Sole trader. You can start trading straight away. You must register for Self Assessment if you earn more than £1,000 in a tax year, and tell HMRC by 5 October after that tax year ends. Making Tax Digital for Income Tax applies to sole traders whose qualifying income is over the threshold: see our guide to Making Tax Digital for sole traders.
Limited company. Registering online with Companies House costs £100, and GOV.UK says a company is usually registered within 24 hours. The company is usually set up for Corporation Tax at the same time. It needs at least one director and at least one shareholder, who can be the same person. Directors may need to verify their identity before registering.
GOV.UK is clear that directors can hire an accountant to manage these things day to day, but they are still legally responsible for the company’s records, accounts and performance. Our limited company accountants page lists each filing and when it is due.
Which one pays less tax in 2026/27? A worked illustration
On the assumptions below, and with all the profit taken out, the sole trader takes home more than the limited company at each of the seven profit levels we tested from £20,000 to £100,000. The two are almost level at about £60,000, where the difference is about £20 a year, and just above that the company edges ahead by a few pounds before falling behind again. This is an illustration, not advice: change an assumption and the answer changes.
The assumptions. One person, who is the only director and the only shareholder. No other income. England, Wales or Northern Ireland. A 12-month accounting period and no associated companies. All the profit after tax is taken out each year. The director takes a salary of £12,570, which is the Personal Allowance and the level at which employee National Insurance starts, so the salary itself bears no Income Tax or employee National Insurance, and the rest as dividends. The company cannot claim the Employment Allowance, because GOV.UK says a company cannot claim it if it has just one director and that director is the only employee liable for employer National Insurance. No pension contributions, benefits or student loan. Accountancy fees are left out of the tables and shown separately below.
As a sole trader. Income Tax is 20% on profit between £12,570 and £50,270 and 40% above that. Class 4 National Insurance is 6% on the same band and 2% above it.
Sole trader: tax and take-home on each profit, 2026/27
| Profit before tax | Income Tax | Class 4 National Insurance | Sole trader take-home |
|---|---|---|---|
| £20,000 | £1,486 | £446 | £18,068 |
| £30,000 | £3,486 | £1,046 | £25,468 |
| £40,000 | £5,486 | £1,646 | £32,868 |
| £50,000 | £7,486 | £2,246 | £40,268 |
| £60,000 | £11,432 | £2,457 | £46,111 |
| £80,000 | £19,432 | £2,857 | £57,711 |
| £100,000 | £27,432 | £3,257 | £69,311 |
As a limited company. The company pays employer National Insurance at 15% on the salary above £5,000, which is £1,136. It pays Corporation Tax on the profit left after the salary and that National Insurance: 19% up to £50,000, and above that the 25% main rate less Marginal Relief. The rest is paid as a dividend. The salary uses the Personal Allowance, so the dividend is taxed: the first £500 at 0%, then 10.75% in the basic rate band and 35.75% above it.
Limited company: tax and take-home on each profit, 2026/27
| Profit before salary | Employer National Insurance | Corporation Tax | Dividend | Tax on dividend | Company take-home |
|---|---|---|---|---|---|
| £20,000 | £1,136 | £1,196 | £5,099 | £494 | £17,174 |
| £30,000 | £1,136 | £3,096 | £13,199 | £1,365 | £24,403 |
| £40,000 | £1,136 | £4,996 | £21,299 | £2,236 | £31,633 |
| £50,000 | £1,136 | £6,896 | £29,399 | £3,107 | £38,862 |
| £60,000 | £1,136 | £8,796 | £37,499 | £3,977 | £46,091 |
| £80,000 | £1,136 | £13,818 | £52,476 | £9,282 | £55,765 |
| £100,000 | £1,136 | £19,118 | £67,176 | £14,537 | £65,210 |
Take-home compared
| Profit | Sole trader take-home | Limited company take-home | Difference (company minus sole trader) |
|---|---|---|---|
| £20,000 | £18,068 | £17,174 | -£894 |
| £30,000 | £25,468 | £24,403 | -£1,065 |
| £40,000 | £32,868 | £31,633 | -£1,235 |
| £50,000 | £40,268 | £38,862 | -£1,406 |
| £60,000 | £46,111 | £46,091 | -£20 |
| £80,000 | £57,711 | £55,765 | -£1,947 |
| £100,000 | £69,311 | £65,210 | -£4,102 |
Figures are rounded to the nearest pound, so some rows may differ by £1.
What the tables show. Up to about £50,000 of profit, most of the gap is the £1,136 of employer National Insurance on the salary, which a sole trader does not pay. On top of that, each extra pound of profit bears slightly more tax through the company (19% Corporation Tax, then 10.75% on the dividend that is left, about 27.7% in all) than it does for a sole trader (20% Income Tax plus 6% National Insurance, 26% in all), so the gap grows slowly as profit rises. Around £60,000 the sole trader has started paying 40% Income Tax while the director’s dividends are still in the basic rate band, so the gap almost closes. Above that, the dividends reach the 35.75% rate and the company’s profits move above the 19% Corporation Tax rate, and the gap widens again.
What the tables leave out. They assume every pound is taken out, and that assumption drives the result. A company pays Corporation Tax on its profit, and its owners pay Income Tax only on what they take. If you do not need all the profit, leaving some in the company, or choosing the year in which you take it, can mean less tax is paid that year than a sole trader would pay on the same profit. The tax on that money is delayed, not removed: it is usually taxed when it is later paid out. The comparison also changes with other income, more than one shareholder, pension contributions paid by the company, or a different salary. We tested lower salaries of £5,000 and £6,708 as well, and on these assumptions they left the company further behind. Our published starting prices differ too: £60 a month + VAT for a sole trader and £80 a month + VAT for a limited company, which is £240 + VAT a year more for the company.
Tax is also only part of the decision. A limited company gives you limited liability, and it comes with more to file each year. We can’t promise that one structure will cut your tax bill. We run the numbers for both on your own figures.
Can you change from a sole trader to a limited company later?
Yes. GOV.UK says you can move from one business structure to another, and that it is usually easier to move from being a sole trader to a limited company. It also says most people set up as a sole trader when first starting out as a business.
When should you talk to an accountant?
The useful times are before you register a company, and whenever your profits or plans change. We run the numbers for both structures, so you can decide with the facts in front of you.
Whichever you choose, we can set it up. Registering a new sole trader with HMRC is included in our sole trader price, from £60 a month + VAT. Our limited company price is from £80 a month + VAT. Forming a company is a charged service; we will quote you. See our sole trader accountant service, our limited company accountants and our prices.
What do people ask about sole traders and limited companies?
Is a sole trader the same as being self-employed?
A sole trader is classed as self-employed. GOV.UK describes a sole trader as someone who works for themselves and makes all the business decisions. You can be a sole trader as your only job, or be employed and self-employed at the same time.
Do I have to register as a sole trader?
Yes, if you earn more than £1,000 from self-employment in a tax year. You register by registering for Self Assessment, and you must tell HMRC by 5 October after the end of that tax year.
Does a limited company pay Income Tax?
No. The company pays Corporation Tax on its profits. Its directors and shareholders may pay Income Tax on the money they take out, such as salary and dividends.
How much does it cost to set up a limited company?
Companies House charges £100 to register a company online, or £124 by post. If you ask us to form the company for you, that is a charged service and we will quote you.
Can one person run a limited company?
Yes. A company needs at least one director and at least one shareholder, and GOV.UK says the shareholder can be a director.
Can Wainwrights help me decide?
Yes. We run the numbers for both so you can decide with the facts in front of you. Book a free call to go through your own figures with an accountant.
The rates in this guide are for the 2026/27 tax year, and how they apply depends on your own figures. To talk yours through with an accountant in Bromborough, get a quote or book a free call.