SearchSoda Structure Lab — Sole trader or limited company

Annual profit before tax and before any salary £100,000

Drag to see both structures change. Everything below updates together.

How much you actually need to draw out £50,000

This is the control that changes everything. A sole trader is taxed on the whole profit whether they need it or not. A company is only taxed personally on what you take out.

Extra cost of running a company, per year £900

Accountancy above what a sole trader pays, plus filing and payroll. This is the reason the usual advice is not to bother below about £30,000: the fee eats the saving.

Under £30kRarely worth it

£30k to £45kGrey zone

Over £45kUsually worth looking at

Difference in take-home, limited minus sole trader Where they break even Your profit

Sole trader

£0

Take-home after tax

Limited company

£0

Take-home after tax

This assumes you draw every penny of profit each year. Leaving money in the company changes the answer completely, and is the single biggest reason a real comparison needs a person. It also ignores pension contributions, student loan, other income, a spouse or partner in the business, IR35 if you contract, VAT, capital allowances, and what you actually need to draw. It assumes a £12,570 salary with the balance as dividends, one director, and no employment allowance, which a sole-director company cannot claim. Scotland sets its own income tax bands.

An open desk diary and pen beside a laptop

The other side of it

What incorporating actually puts in your diary

The saving is real. So is this. Most people see the tax comparison and never see the filing calendar that comes with it, which is where the penalties live.

A quiet professional office with a desk and chairs by a window

Beyond the arithmetic

Why people incorporate even when the sums say otherwise

A calculator can only weigh the tax. Several of the strongest reasons to run a limited company never appear in a figure, and they are usually why the decision goes the way it does.

Your own money is not on the line

The company is a separate legal person. If it owes money or gets sued, that generally stops at the company. A sole trader is personally liable without limit, and no tax saving compensates for that.

You decide when profit becomes income

Leave it in the company this year, draw it in a leaner one, and it may never touch the higher rate. A sole trader is taxed on the whole profit the moment it is earned, whatever their circumstances.

Pensions come out before tax

An employer contribution from the company is deductible against corporation tax and carries no income tax or National Insurance. It is usually the single most efficient way to extract profit, and it is far weaker as a sole trader.

A spouse can hold shares

Where they genuinely participate, dividends can use their allowance and basic rate band too. There is no equivalent for a sole trader.

Some work needs a company

Agencies, public sector frameworks and larger clients frequently will not contract with a sole trader at all. Occasionally the structure is the entry requirement, not a preference.

There is something to sell

Shares can be sold or the company wound up, potentially with Business Asset Disposal Relief. A sole trade is much harder to hand on as a going concern.

The reverse is true too. A company brings filing, a public record at Companies House, director duties, and fees. If your profit is close to what you need to live on, the extra machinery may buy you nothing. That is the judgement a calculator cannot make.

Making Tax Digital

And this is coming regardless of what you choose

MTD for Income Tax phases in by turnover. Quarterly submissions, from software, whether you are a sole trader or a landlord.