Answers · UK 2025/26
Is it more tax-efficient to be a sole trader or a limited company in 2026/27?
It depends on profit. At modest profits a sole trader is often simpler and similar in tax; as profits rise, a limited company taking a small salary plus dividends can pay less because dividend tax rates (10.75% basic, 35.75% higher) and Corporation Tax (19% to GBP 50,000) can beat combined income tax and Class 4 NI.
Full answer
There is no universal answer; the crossover depends on profit level, how much you withdraw, and admin appetite. A sole trader pays income tax plus Class 4 NI on all profit. A limited company pays Corporation Tax on profit, then you pay personal tax on salary and dividends you extract. Sole trader example: GBP 60,000 profit. Income tax after the GBP 12,570 allowance is 20% on GBP 37,700 (GBP 7,540) plus 40% on GBP 9,730 (GBP 3,892) = GBP 11,432. Class 4 NI is 6% on GBP 37,700 (GBP 2,262) plus 2% on GBP 9,730 (GBP 194.60) = GBP 2,456.60. Total GBP 13,888.60. Limited company example: GBP 60,000 company profit. Corporation Tax at 19% on the first GBP 50,000 plus 25% with marginal relief above means an effective rate just over 19% here; say roughly GBP 11,475 on GBP 60,000 once the GBP 50,000-to-GBP 250,000 marginal relief (3/200 fraction) is applied. Extracting profit as dividends then incurs the GBP 500 dividend allowance and 10.75% basic and 35.75% higher dividend rates. The split of salary versus dividends materially changes the outcome. A company also brings filing costs, payroll and accounts. Use the dividend-vs-salary and corporation-tax calculators to model extraction, and the self-employed-tax calculator for the sole-trader side. Confirm current rates and reliefs at gov.uk.
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This answer is informational only and does not constitute financial, tax or legal advice. Figures are for the 2025/26 UK tax year. See our methodology and sources.