Sole trader or limited company \u2014 which keeps more?
Enter your annual profit, choose how much salary a director would draw, and see the all-in tax bill on both sides — including Corporation Tax marginal relief and dividend tax.
Sole trader
WinnerLimited company
Compares only tax + NI. Doesn’t account for accountancy fees (~£700–1,500/year for a Ltd), pension contributions (Ltd has bigger headroom via employer contribution), IR35 risk, or limited-liability protection.
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What you might calculate next
How it works
Sole trader path
You pay Income Tax (20% / 40% / 45%) on profit after the £12,570 Personal Allowance, plus Class 4 NI (6% / 2%) on the same profit. Class 2 NI is voluntary from April 2024.
Limited company path
The company pays Corporation Tax on profit (19% up to £50k, marginal relief £50k–£250k, 25% main rate above). You then draw the post-tax cash as a small salary + dividends.
Why a £5,000 director salary
Pitching salary at the £5,000 employer NI Secondary Threshold (from April 2025) gives the company a deductible expense and you a State Pension qualifying year — without triggering employer NI. £12,570 (the PT) is the other common pick.
Corporation Tax marginal relief
Profits between £50,000 and £250,000 get a tapered rate using HMRC's 3/200 fraction — effectively 26.5% marginal on the slice in that range. Above £250,000 the full 25% applies.
Dividend tax 2026/27
£500 dividend allowance (taxed at 0%), then 8.75% / 33.75% / 39.35% by income band. Dividends sit ON TOP of salary, filling whichever band you're in.
Other factors not modelled
Pension contributions (massive for Ltd), the £108 (2025/26) IR35 / off-payroll rules, VAT thresholds, accountancy fees, and the limited liability protection of a company. This is a tax comparison only.