Should I just go Limited? Comparison Tool

Should I go limited? — sole trader vs limited company tax calculator

This is a tax comparison calculator to help you weigh up whether incorporating might make sense for your situation. Put in your figures as a sole trader and see how they compare against a limited company structure (with a few clear assumptions).

👉 Download the sole trader vs limited company calculator

But before you dive in...

Tthere's a lot of context worth understanding first. Because the answer is rarely straightforward, and some of what you've heard might not tell the whole story. Because a lot of people are asking the same question right now: in light of Making Tax Digital - should I just become a limited company now?

It's coming from a few different directions. Some people are looking at Making Tax Digital for Income Tax and wondering if incorporation is the easier path. MTD for ITSA means moving to compatible software, keeping digital records, and filing quarterly updates to HMRC — on top of your annual tax return. That's five filings a year instead of one, and for anyone who's been happily doing a once-a-year self-assessment, that's a meaningful shift.

Others have been sole traders for a while, things are getting more serious — more revenue, more risk, more complexity, bigger plans — and they're wondering if it's time to make the switch?

Or peehaps you're just starting out and considering what business structure to go with right from the beginning.

And then there's the general noise. You've probably heard that limited companies are more tax efficient. That everyone does it eventually. That you're leaving money on the table if you don't. And wondering how true this is?

There's a lot to weigh up, and it can feel pretty confusing. So let's explore a few key considerations.

It's not just a tax decision

Before we get to numbers, it's worth saying that the decision to incorporate isn't purely about tax. If you're planning to scale, bring in investors, or sell the business at some point, a limited company structure could makes that significantly easier. Limited liability is worth considering anyway — it means your personal assets are legally separate from the business, which can matter depending on the nature of your work and your risk exposure.

The tax planning opportunities in a limited company

As a sole trader, you're taxed on profits — it's simply income minus allowable expenses. Straightforward, but not hugely flexible.

In a limited company it's more complex — but that complexity creates choice and opportunity. As the business owner in a limited company set up you'll typically wear three hats: shareholder, director, and employee. That gives you more levers to pull:

  • You can vary how much you draw (commonly through a mix of salary and dividends) and when, giving you more control over your personal tax position
  • You may be able to expense certain additional things through the company that aren't available to sole traders
  • You can bring a spouse in as a shareholder or employee in some circumstances, which can create tax efficiencies then for your household (depending on each person's earnings and tax position)
  • The company can make pension contributions on your behalf, which are a deductible business expense
  • Retained profits can be kept in the company and used for investments or future planning, rather than being drawn and taxed immediately

But — some of those advantages have been significantly eroded

The tax case for incorporation has weakened in recent years and it's important to be honest about that:

  • Corporation Tax has recently increased — the 19% small profits rate still applies up to £50k, but a marginal rate applies between £50k-£250k, rising to 25% above that. For many small business owners this has reduced the tax advantage compared to a few years ago when 19% applied across the board
  • From April 2026, the dividend tax rate is going up by 2%, and the tax free amount of dividend income you can earn has dropped from £5,000 to £500
  • The recent changes to Employers NIC and the Employment Allowance have added meaningful additional tax costs for sole directors employed by their own company

This doesn't mean incorporating is no longer 'tax efficient'. But it does mean the tax saving angle might not be what they used to be.

The crossover point matters

At lower profit levels, the additional costs and pressures of running a limited company can wipe out any tax saving entirely. There's often a crossover point that varies depending on your circumstances — below which incorporation genuinely doesn't stack up financially, and the extra admin and cost can easily exceed any tax benefit.

Timing matters as well

incorporating isn't always a clean switch. There are implications for existing contracts, assets, and relationships, and the transition itself has possible tax considerations worth thinking through carefully, along with admin and brain power.

And then there's the reality of actually running a limited company

This is the bit people sometimes underestimate. Being a director isn't just a tax status — it's a legal responsibility. You'll need to get your head around:

  • Your duties and legal responsibilities as a director
  • Annual accounts and the filing requirements that come with them
  • Corporation Tax returns — separate from your personal tax return, which you still need to do
  • Payroll and confirmation statements
  • Companies House filings and deadlines

On top of that, there are ongoing running costs — Companies House fees, and accountancy costs that are typically significantly higher than for a sole trader. Those need to be weighed against any tax saving and overall rationale for going Limited, and at lower profit levels they can easily tip the balance.

You'll almost certainly need an accountant as there's a lot of technical elements to the reporting, record keeping and filing requirements. But even with good support,  it's worth going in with your eyes open, knowing what you're signing up for.

So — is it worth it?

Maybe. It depends on your expected profit levels, your goals, plans, circumstances, and what you actually want from your business. This tool gives you a starting point — a side-by-side comparison across a range of turnover levels covering income tax, NI, corporation tax, salary and dividends, pension contributions, and more, that you can put your own figures into.

It's illustrative. It's based on simplified assumptions and 2026/27 rates as known in January 2026. It won't capture every nuance of your situation.

Access the comparison tool

This tool is built in Google Sheets.

Click the link below and a copy will open automatically for you to use. You can edit it in Google Sheets or download it to use in Excel.

👉 Download the sole trader vs limited company calculator

This is not tax advice — and this is genuinely one of those areas where proper tailored advice is worth getting before you make any decisions. Happy to talk through this if it's something you need more support on.

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