Sole trader or limited company in 2026/27?

How a sole trader is taxed

Your profit is added to your other income and taxed through Self Assessment at Income Tax rates, after your Personal Allowance of £12,570. You also pay Class 4 National Insurance at 6% on profits between £12,570 and £50,270, and 2% above that. Admin is light: one return a year, plus Making Tax Digital updates if your income is over the threshold.

How a limited company is taxed

The company pays Corporation Tax on its profit: 19% on profits up to £50,000, 25% over £250,000, with Marginal Relief in between. You then take money out as salary and dividends.

Dividends are taxed at 10.75% for basic rate taxpayers and 35.75% at higher rate, with a £500 dividend allowance. A small salary is often paid as well. Employer National Insurance is 15% on salary above £5,000, and a company whose only employee is a director cannot claim Employment Allowance.

Beyond tax

• Limited liability: company debts generally stay with the company
• Credibility: some clients and agencies only work with limited companies
• Admin: annual accounts, Corporation Tax return, confirmation statement and payroll
• Identity verification at Companies House for directors
• Privacy: company details and directors appear on the public register
• IR35: contractors need to consider employment status rules

When a company tends to make sense

As a rough guide, a company becomes worth looking at once profits are steady and comfortably above the higher rate threshold, especially if you do not need to take all the profit out each year. Below that, the extra admin and costs often outweigh the saving. The only reliable way to decide is to compare both options on your own numbers.