Compare net take-home as sole trader vs limited company.
Sole trader net
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Ltd Company net
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Your breakdown
Updates live as you type| Sole trader | Amount |
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The structure choice in one decision
Every UK person who works for themselves eventually faces the same fork. Stay a sole trader and report profit through Self Assessment, paying Income Tax plus Class 4 National Insurance on the whole lot. Or incorporate, draw a small salary, pay Corporation Tax on what is left, and extract the rest as dividends. This tool runs both routes on the same annual profit and tells you which leaves more cash in your pocket. It is built for the freelancer, contractor, or small consultancy weighing up whether the limited-company paperwork is worth it.
Where the popular advice quietly breaks
You will read everywhere that a limited company wins once profit clears roughly £40,000 to £50,000. That rule of thumb dates from when small-company Corporation Tax was a flat 19% and dividend rates were lower. It no longer holds cleanly in the middle of the range. Since April 2023 profits between £50,000 and £250,000 sit in the marginal-relief band, where each extra pound of company profit is effectively taxed at 26.5%. Stack the 33.75% higher-rate dividend charge on top of that and the combined bite at the margin is around 51%. A higher-rate sole trader, by contrast, pays 40% Income Tax plus just 2% Class 4 above the upper earnings limit, so 42%. In that band the simpler structure can genuinely come out ahead.
A worked comparison at £80,000 profit
Take the default figure of £80,000. The sole trader pays Income Tax on income above the £12,570 personal allowance, Class 4 NI at 6% between £12,570 and £50,270, then 2% on the rest. The limited company pays a £12,570 salary that uses up the allowance, Corporation Tax with marginal relief on the remaining profit, then dividend tax on what is distributed.
The company route taxes £67,430 of post-salary profit. Marginal relief produces Corporation Tax of £14,119, leaving £53,311 of dividends. After the £500 dividend allowance, that is taxed at 8.75% inside the basic band and 33.75% above it, a dividend bill of £8,399. Net take-home lands at £57,482. The sole trader finishes £229 ahead before you even count accountancy fees.
What this calculator leaves out on purpose
The model assumes you take the full personal allowance as salary and draw every remaining penny as dividends. Real limited companies have levers this tool ignores. The biggest is employer pension contributions, which are a deductible company expense and sidestep dividend tax entirely. A director funnelling £20,000 a year into a SIPP through the company can flip the result back in the company's favour at exactly this profit level. The tool also ignores retained profit left in the company for a future low-income year, and it does not model a salary set at the National Insurance secondary threshold instead of the full allowance. Treat the output as the floor of what good planning achieves, not the ceiling.
Two questions worth answering
Does Scotland change the comparison?
Income Tax does, dividends and Corporation Tax do not. Scottish taxpayers have separate bands and a 21% intermediate rate plus a 42% higher rate that starts lower, so the sole trader side of the comparison is harsher for many Scots. Dividend rates and Corporation Tax are UK-wide and set by Westminster, so the company route is unaffected. For a Scottish higher earner that tilt can make incorporation more attractive than this England-and-Wales model suggests.
When is the extra admin clearly worth it?
Once profit comfortably clears £100,000, the company route usually pulls ahead by enough to swallow the £800 to £1,500 a year in accountancy and filing costs, and the ability to control the timing of dividends becomes genuinely valuable. Below that, run the numbers for your exact figure rather than trusting any threshold. A profit that sits squarely in the marginal-relief band is precisely where the answer is least obvious and most worth checking.