We built the calculator expecting to confirm the usual advice. It did the opposite, so here is the full table and the caveats rather than just the headline.
We have been building a set of free calculators for UK small businesses. The first one compares take-home pay as a sole trader against running a limited company, because it is the question people ask most often and the answer is usually delivered as a rule of thumb rather than a number.
The rule most people have heard is that incorporating starts paying for itself somewhere around thirty to forty thousand pounds of profit. We built the calculator expecting to confirm it. We did not.
What the numbers actually say
Here is take-home pay under both structures at 2025/26 rates, assuming all profit is extracted in the same year and the company pays a £12,570 director's salary. England, Wales and Northern Ireland rates.
| Annual profit | Sole trader | Limited company | Difference |
|---|---|---|---|
| £30,000 | £25,468 | £24,657 | −£811 |
| £40,000 | £32,868 | £32,049 | −£820 |
| £50,000 | £40,268 | £39,440 | −£828 |
| £60,000 | £46,111 | £46,831 | +£720 |
| £70,000 | £51,911 | £51,935 | +£24 |
| £80,000 | £57,711 | £56,804 | −£907 |
| £100,000 | £69,311 | £66,543 | −£2,768 |
| £150,000 | £92,040 | £87,178 | −£4,862 |
| £200,000 | £118,540 | £108,006 | −£10,534 |
At £30,000, the profit level where the old rule says you should incorporate, a sole trader is £811 better off. The company only pulls ahead across a narrow band roughly between £55,000 and £75,000, and at £70,000 it wins by twenty-four pounds a year. Above £80,000 the gap widens against the company and keeps widening.
A limited company costs roughly £500 to £1,500 a year in accountancy and filing. That is larger than the entire tax advantage at every profit level where the company wins. On take-home pay alone, incorporating currently does not pay for itself anywhere.
Why the old rule stopped working
The rule was not wrong when people started saying it. It assumed two things that were true for years and are not true now.
Corporation tax was a flat 19%. Since April 2023 it has been 19% up to £50,000 of profit, 25% above £250,000, and a marginal rate of effectively 26.5% in between. A company earning £100,000 of profit now pays an effective 22.75%, not 19%.
Class 4 National Insurance was 9%. It was cut to 8% in January 2024 and to 6% in April 2024. That is a three point reduction in the main cost of being self-employed, and it went almost unremarked in the incorporation conversation.
Those two changes moved in opposite directions and both favoured the sole trader. Add the April 2025 employer National Insurance rise to 15%, with the threshold dropping from £9,100 to £5,000, and the director's salary got more expensive too.
Company profit is taxed twice. Sole trader profit is taxed once. When corporation tax was 19% and Class 4 was 9%, the company absorbed that and still won. At 25% and 6%, it often cannot.
Why it gets worse at higher profits
The £200,000 row is the one that surprised us most. A sole trader keeps £10,534 more.
Two things compound there. The company profit meets the 25% corporation tax band, and then the dividends meet the higher and additional dividend rates on the way out. Worse, once salary plus dividends passes £100,000, the personal allowance tapers away on the total, so the director's £12,570 salary stops being tax free and picks up income tax as well.
The self-employed person pays income tax and 2% National Insurance on the same profit. Once. That is a structurally cheaper route at high income when everything is extracted.
Where this analysis is limited
We want to be straight about what the calculator does not model, because the caveats matter more than usual here.
This is the big one. A company only looks bad because we take all the profit out annually. Leave profit in the company and it has paid corporation tax and nothing more. Draw it in a later, lower-income year and the dividend tax falls. That flexibility is real and the table cannot show it.
It also excludes employer pension contributions, which are deductible against corporation tax and skip National Insurance and dividend tax entirely. For someone making serious pension contributions, the company case strengthens considerably.
And it prices none of the non-tax reasons to incorporate: limited liability, winning work from clients who will not contract with sole traders, bringing in a shareholder, or eventually selling shares rather than a trade.
What we take from it
Incorporating is no longer a tax decision for most small businesses. It is a liability and credibility decision that happens to be roughly tax neutral, and at higher profits it is a decision you make despite the tax rather than because of it.
That is a genuinely different conclusion from the advice still being repeated in most places, including by people who ought to have updated it. We would encourage anyone about to incorporate purely to save tax to run their own figure first.
You can do that in the sole trader vs limited company calculator, which handles Scottish rates too, and the structure guide covers the non-tax side properly.
If you spot an error in our working, we would genuinely like to know. The method is documented in full on the calculator page, and the rates all come from a single configuration file we review each April.