Sole Trader vs Limited Company Calculator
Enter your trading profit and how much you want to draw out this year to compare total tax and National Insurance as a sole trader against a limited company.
How this is calculated
As a sole trader, you pay Income Tax on your full profit above the £12,570 personal allowance. The first £37,700 above the allowance is taxed at 20%, the next slice at 40%, and anything above £125,140 of taxable profit at 45%. The allowance itself is withdrawn by £1 for every £2 of profit above £100,000, so profit in that band carries an effective rate of 60%. On top of that, Class 4 National Insurance charges 6% between the Lower and Upper Profits Limits and 2% above them. Drawings make no difference. You are taxed on profit whether or not you take it out of the business.
As a limited company, the company pays Corporation Tax on its full profit first, at the 19% small profits rate up to £50,000, the 25% main rate above £250,000, with marginal relief in between. You then draw a dividend from what is left, taxed personally above the £500 dividend allowance at 10.75%, 35.75% or 39.35% depending on your total income.
This comparison assumes dividends-only extraction, with no salary paid through payroll. Many one-person companies pay a small salary alongside dividends, which this tool does not model. See the warnings below the result.
The two structures also differ outside tax: limited companies are out of scope for Making Tax Digital for Income Tax, while a sole trader above the qualifying income threshold must keep digital records and send quarterly updates.
Worked example
Suppose you make £60,000 of trading profit and want to draw £40,000 this year. On these figures the limited company pays £1,156.38 more tax than the sole trader, because Corporation Tax is charged on the whole profit whether or not you draw it:
| Sole trader | Limited company | |
|---|---|---|
| Trading profit | £60,000 | £60,000 |
| Income Tax / Corporation Tax | £11,432 | £12,150 |
| Class 4 National Insurance | £2,456.6 | — |
| Dividend tax on drawings | — | £2,894.98 |
| Total tax and NIC | £13,888.6 | £15,044.98 |
| Take-home from drawings | £46,111.4 | £37,105.03 |
| Left in the company | — | £7,850 |
Open this example in the calculator to change any figure.
Sources
Frequently asked questions
- Why does the result not include a salary?
- To keep the comparison to figures with a direct, sourced tax rate, this tool models dividends-only extraction. A combined salary-and-dividend strategy commonly used by one-person companies can reduce combined tax further, and depends on circumstances this tool does not model.
- Does the sole trader figure change if I draw out less money?
- No. A sole trader is taxed on business profit as it is earned, regardless of how much cash is actually withdrawn from the business during the year.
- What happens if I ask to draw more than the company can pay?
- The tool caps the dividend at the profit remaining after Corporation Tax. A company cannot legally pay a dividend it has not got.
- Is a limited company always more tax-efficient at higher profit?
- Not automatically, and this dividends-only model does not settle the question on its own. The comparison depends heavily on how much profit is drawn out versus retained, and whether a salary is used alongside dividends.
- Does Making Tax Digital affect which structure I should choose?
- It is a genuine compliance factor: a sole trader above the qualifying income threshold must keep digital records and send quarterly updates to HMRC, while a limited company does not, regardless of its profit.
- Does this include the cost of running a limited company?
- No. Accountancy fees, payroll costs, confirmation statement and other company administration costs are not modelled and should be weighed alongside the tax figures above.
- What is marginal relief on Corporation Tax?
- It tapers the effective Corporation Tax rate between the small profits rate and the main rate for profits between £50,000 and £250,000, rather than jumping straight from one rate to the other.