Same money, three ways

Run the same profit through an employer's payroll, as a sole trader and through your own limited company. Since employer NI rose to 15% in April 2025 and dividend tax rose 2 points in April 2026, the old advice to "go limited" no longer holds for everyone.


Your business

Gross. Sole trader: personal pension with tax relief. Company: employer contribution (no NI, cuts corporation tax). Employee: salary sacrifice.
Accountant, payroll, Companies House fees.

You

Student loan

Your company's other taxes

Ex-VAT purchases you could reclaim on.
0 = work from home.
 
 

Side by side

Take-home as profit grows

Each line pays out everything (except the company line when you take out only what you need). Admin costs and pension contributions as set on the left.

Beyond the tax bill

  • Liability: a company's debts are its own. A sole trader is personally liable for everything.
  • Keeping profit in the business: profit left in a company has paid only corporation tax (19–25%). Take it out later, in a lower-income year or on retirement, and you can pay less overall.
  • Pensions: a company can pay into your pension before corporation tax, with no NI. That's one of the strongest reasons to incorporate.
  • Paperwork: a company needs annual accounts, a corporation tax return, a confirmation statement, payroll and a business bank account. Its details are public at Companies House.
  • IR35: contractors working like employees for medium or large clients can be taxed as employees anyway, wiping out most of the difference.
  • Mortgages and benefits: lenders want 2 years of accounts either way. Low salaries can affect Statutory Maternity Pay, and dividends don't count for some benefits.
  • Making Tax Digital: sole traders with income over £50,000 now send quarterly updates; companies don't (yet).

VAT

Business rates

The full cost of hiring someone

An illustration for England, not tax or business advice. It assumes one director-shareholder, no associated companies, a 12-month accounting period matching the tax year, no other income, profits taken in the same year, and costs that are allowable for both structures. It ignores losses, capital allowances timing, IR35, the cost of extracting retained profits later and dividend timing. Talk to an accountant before you incorporate.