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Kestrel & Co Accountants is not a real firm. This article demonstrates WrittenRank's standard deliverable. Tax figures are the real 2026-27 UK rates (sources: gov.uk rate pages; cross-checked against the verified figures used in our published tax guides). General information, not advice — and the article says so, because an accountancy client's content must be ASA- and professional-standards-safe.

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When is it worth switching from sole trader to limited company in 2026-27?

For most people, incorporation starts to be worth serious consideration once profits are consistently above roughly £50,000 — the point where sole-trader income hits 40% tax — and is rarely worth it below £30,000 once you account for the extra running costs and admin. Between those two figures sits a judgement call that depends on how much profit you leave in the business, whether you need to protect personal assets, and how much paperwork you'll tolerate. This article sets out the actual 2026-27 numbers so you can see where you sit. It's general information, not personal advice — the crossover point moves with your circumstances.

What does a sole trader pay in 2026-27?

Two charges on your profit:

So a sole trader keeps roughly 74p of each pound earned in the basic-rate band, and roughly 58p in the higher-rate band.

What does the same profit look like through a limited company?

A company pays Corporation Tax on its profits first: 19% up to £50,000, 25% above £250,000, and a tapered effective rate in between (marginal relief). You then pay personal tax on whatever you take out, typically as a small salary plus dividends:

That is the first honest headline: for profit you take out and spend, the 2026-27 tax gap between the two structures is modest at basic-rate levels. The meaningful differences appear elsewhere.

Where does a limited company actually win?

1. Profit you leave in the business. A sole trader pays up to 47% on everything in the year it's earned, whether or not they spend it. A company pays 19–25% Corporation Tax, and the personal layer only lands when you extract the money. If you're building a cash buffer, investing in kit, or planning to smooth income across good and bad years, that deferral is genuinely valuable.

2. Higher-rate territory. Once profits push well past £50,270, the ability to cap extraction at the basic-rate band and retain the rest at 19–25% pulls the blended rate down in a way a sole trader cannot replicate.

3. Limited liability. The company's debts are the company's. For anyone signing leases, taking on stock, or working in a field where a claim could exceed insurance cover, this is often a better reason to incorporate than tax.

4. Perception and contracts. Some larger customers and platforms simply prefer — or require — dealing with a limited company.

Where does staying a sole trader win?

1. Running costs are real. Accountancy for a small company (statutory accounts, Corporation Tax return, payroll, confirmation statement, your Self Assessment) typically costs £700–£1,500+ a year more than sole-trader accounts. At £35,000 profit, that alone can wipe out the tax difference.

2. Admin and exposure. Company accounts are filed at Companies House and your name and the company's filing history are public. Dividend paperwork, payroll runs and director responsibilities are all obligations that don't exist for a sole trader.

3. Employer's National Insurance on salary. Since April 2025 employer's NI runs at 15% above a £5,000 salary threshold — and a company whose only employee is its sole director cannot claim the Employment Allowance against it. This is one reason the standard advice is a small salary with the rest as dividends, and one more moving part to get right.

4. Making Tax Digital is arriving for sole traders on a timetable. Sole traders and landlords with qualifying income over £50,000 came into MTD for Income Tax from 6 April 2026, with the threshold dropping to £30,000 in April 2027 and £20,000 in April 2028. That means quarterly digital updates — but it's software admin, not extra tax, and it isn't by itself a reason to incorporate.

So where is the crossover in practice?

A fair 2026-27 summary, before personal circumstances move it:

What should you do before deciding?

  1. Work out how much of your profit you actually spend personally each year — the answer drives the whole comparison.
  2. Price the switch: incorporation is cheap, but ongoing accountancy, payroll and filing are annual costs. Get a fixed quote.
  3. Check the non-tax factors — liability, customer requirements, mortgage applications (lenders assess company directors differently).
  4. Take advice on timing: mid-tax-year switches complicate both returns.

Kestrel & Co runs this comparison with real numbers as a fixed-fee piece of work. (Demo CTA — fictional firm.)

This article is general information based on 2026-27 rates and thresholds, not financial or tax advice. Rates change; check gov.uk or take advice before acting.

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