The Sole Trader vs Limited Company Numbers Your Accountant Isn't Showing You
If you earn £50,000 as a sole trader and incorporate tomorrow, going limited will cost you approximately £1,100 a year in extra tax. Not save you £1,100. Cost you. And that’s before you’ve paid a penny in limited company accountancy fees.
That figure sits at odds with almost everything you’ve read about this decision. The LinkedIn posts, the accountancy firm blogs, the colleague who incorporated two years ago and made it sound obvious. So let me show you where it comes from.
The comparison nobody commits to
The sole trader versus limited company question has a genuinely calculable answer. It isn’t mysterious. It’s just spread across four or five parts of the tax system that no single guide explains together, and nearly everyone who writes about it stops one paragraph short of a number, retreating instead to “it depends on your circumstances.”
I ran this comparison properly at five income levels, using 2025/26 rates, with the limited company given its best possible case: the optimal £9,100 director salary with the rest taken as dividends, a sole director, no IR35 exposure, no other income. Here is what it shows.
| Profit | Sole trader take-home | Limited company take-home | Gross saving |
|---|---|---|---|
| £40,000 | £32,900 | £31,800 | -£1,100 |
| £50,000 | £40,300 | £39,200 | -£1,100 |
| £60,000 | £46,100 | £46,600 | +£500 |
| £70,000 | £51,900 | £51,700 | -£200 |
| £80,000 | £57,700 | £56,600 | -£1,100 |
Read that middle column again. At four of the five bands, the limited company structure produces a lower take-home than the sole trader. The one exception is £60,000, where going limited leaves you £500 better off in gross terms. That’s the entire case for incorporation across this income range, before costs. Five hundred pounds, at one band.
Why the picture changed
If this doesn’t match what you were told a few years ago, that’s because the ground has moved. The dividend allowance stood at £2,000 in 2022/23. It now stands at £500. The 2023 Corporation Tax changes pushed company profits above £50,000 into the marginal relief zone. And from April 2025, the employer NI secondary threshold dropped to £5,000 and the rate rose to 15 per cent, which means the standard £9,100 director salary now attracts £615 of employer NI where previously it attracted none.
Each change was small on its own. Together, they’ve dismantled the arithmetic that made incorporation the standard advice. Any calculation you read from before April 2025 is describing a tax system that no longer exists.
Then you add the accountancy bill
The table above compares tax with tax. It doesn’t yet include the cost of running the structure, and that cost is not symmetrical.
Sole trader self-assessment, professionally prepared, typically costs £200 to £500 a year. Many of you file your own for nothing, or use software at £30 to £50 a year. A basic limited company service, covering year-end accounts, the Corporation Tax return, the confirmation statement, and director payroll, typically runs £1,200 to £3,000 a year.
Take a realistic midpoint premium of £1,500 a year, based on a £1,800 limited company fee against a £300 self-assessment cost. Apply it to the table. At £40,000 and £50,000, the net position is approximately minus £2,600 a year. At £70,000, minus £1,700. At £80,000, minus £2,600. And at £60,000, the one band with a positive gross saving, the £500 does not survive contact with the fee: the net position is approximately minus £1,000.
There is no crossover point anywhere between £40,000 and £80,000 at which the net saving turns positive under 2025/26 rates. Not one.
Why you haven’t heard this before
Here is a structural fact worth sitting with. An accountant who moves you from sole trader self-assessment to limited company accountancy increases their annual fee for your account, typically by somewhere between £700 and £2,500. That isn’t an accusation. Limited company work genuinely involves more compliance, and the higher fee reflects real work. But the commercial incentive runs in one direction, and “the numbers don’t support it at your income level” is advice that’s worth less to the practice than the alternative.
I spent four years inside an accountancy practice before a decade as a sole trader, and I was three days from incorporating when I ran these numbers for myself. The figure my accountant and I had been discussing was a gross saving. The fee differential had never entered the conversation in specific terms. When I added it, the case collapsed.
So before you sign anything, ask two questions. What is the net saving at my exact profit level after your fees? And have you assessed my IR35 position with my current client mix? If the answers are specific, you can verify them. If they aren’t, the analysis isn’t finished.
You don’t need a framework for thinking about this decision. You need your number. Under 2025/26 rates, for most sole traders earning £40,000 to £80,000, that number says stay put.
The full calculation, worked through at all five income bands with IR35, Making Tax Digital, and the admin reality included, is in my book “Your Number: The UK Freelancer’s Exact Guide to Knowing When Going Limited Actually Pays Off”, available at www.amazon.com. It’s the book I needed when I was three days from a decision I hadn’t fully calculated.
About the author: Kate Perrin is an ACA-qualified chartered accountant who spent four years in practice in Bristol before more than a decade as a sole trader, advising creative and independent businesses on their numbers. She writes about UK tax structure decisions for freelancers and independent professionals.