The crossover has gone
The entire premise of this kind of calculator is that there is a profit level where incorporating starts to win. For 2026/27, if you draw all your profit out, that level has effectively disappeared.
Stack the rates and it is not close:
- Basic rate. A company pays 19% corporation tax and then 10.75% dividend tax on what is left, so 1 − (0.81 × 0.8925) = 27.71%. A sole trader pays 20% income tax plus 6% Class 4 National Insurance = 26.00%.
- Higher rate. In the marginal corporation tax band the company pays 26.5% and then 35.75% dividend tax, so 1 − (0.735 × 0.6425) = 52.78%. The sole trader pays 40% plus 2% = 42.00%.
The company is behind by 1.71 points at basic rate and by more than ten points higher up. Modelling every profit from £10,000 to £300,000 on full extraction, the sole trader wins throughout.
Why almost every calculator still says otherwise
They quote a crossover somewhere around £30,000 to £50,000 and tell you to incorporate above it. That figure was correct once. Three things broke it:
- Dividend rates rose two points on 6 April 2026, from 8.75% and 33.75% to 10.75% and 35.75%. Any tool still carrying the old pair is a year out of date.
- The 26.5% marginal corporation tax band is ignored. Most apply a flat 19% or 25% and miss the band between £50,000 and £250,000 entirely, which is exactly where an incorporating business tends to sit.
- Class 4 at 6% is now well below the employee's 8%. The self-employed National Insurance advantage got bigger, not smaller.
Deferral is where a company still wins
The rate comparison misses this entirely: profit left inside a company is taxed once, at corporation tax, and not taxed again until it is drawn out.
So a business that does not need all its profit is running a different calculation from one that does. If you would leave £40,000 in the company to fund next year's stock, or a hire, or simply because you do not need it, the comparison shifts materially in the company's favour. The tool has a box for exactly that, because a full-extraction comparison gives a misleading answer to somebody who was never going to extract it all.
Worth being honest about what deferral is, though: the tax on drawing that money later has been postponed, not removed. It is a timing advantage and a valuable one. It is still not a discount.
The cost everybody forgets
A sole director who is the only person paid above the £5,000 secondary threshold cannot claim the Employment Allowance, under NICA 2014 s2(4A). So a £12,570 director salary costs £1,135.50 of employer National Insurance rather than nothing.
Calculators that quietly apply the allowance flatter the company side by that amount every single year, and it is the cost most comparisons miss entirely. Take on one employee paid above the threshold and it becomes available.
Making Tax Digital is tested on turnover, not profit
From 6 April 2026, sole traders and landlords with qualifying income over £50,000 must use Making Tax Digital for Income Tax. 2026/27 is the first mandated year, so this is live now rather than coming.
The trap is the measure. It is turnover before expenses rather than profit. A low-margin business with £60,000 of sales and £18,000 of profit is mandated into digital records and quarterly updates. A consultant with £45,000 of sales and £40,000 of profit is not. Same profit, opposite obligation.
And none of this is the whole decision
Tax is one input. Limited liability is a real protection that a sole trader simply does not have, and for anybody carrying meaningful commercial risk it can outweigh a few points of effective rate on its own.
Running the other way: statutory director duties, three filing deadlines against a sole trader's one, accounts on public record, identity verification at Companies House which became a legal requirement for directors and people with significant control on 18 November 2025, and six years of records to keep. None of that shows up in a percentage.
Common questions
At what profit should I incorporate?
On 2026/27 rates, and if you intend to draw all the profit out, there is no such level across the ordinary range. Modelling every profit from £10,000 to £300,000 with a tax-optimal salary and full extraction, the sole trader wins throughout. The crossover figure of £30,000 to £50,000 that most calculators still quote was built on the old 8.75% and 33.75% dividend rates, which were replaced on 6 April 2026.
Why has the answer changed?
Three things moved at once. Dividend rates rose two percentage points in April 2026, to 10.75% and 35.75%. The 26.5% marginal corporation tax band between £50,000 and £250,000 is routinely ignored by calculators that apply a flat 19% or 25%. And Class 4 National Insurance at 6% is now well below the employee rate of 8%, so the self-employed advantage widened. Stack them and a company pays 27.71% at basic rate against a sole trader’s 26%, and 52.78% at higher rate against 42%.
So is a limited company never worth it now?
Not on rate, if you extract everything. It is worth it on deferral. Profit left inside the company is taxed once at corporation tax and not again until it is drawn, so a business that does not need all its profit out is running a different calculation from one that does. Put the amount you would leave in the company into the retained box and the comparison changes. Note the tax on drawing it later has been postponed, not removed.
What is the single most commonly missed cost?
The Employment Allowance. A sole director who is the only person paid above the £5,000 secondary threshold cannot claim it, under NICA 2014 s2(4A). That makes a £12,570 salary cost £1,135.50 in employer National Insurance rather than nothing. Calculators that apply the allowance flatter the company side by exactly that amount every year.
Do I have to do quarterly filing as a sole trader now?
If your qualifying income is over £50,000, yes, from 6 April 2026, and 2026/27 is the first mandated year so it is live rather than approaching. The trap is that Making Tax Digital is tested on turnover before expenses, not on profit. A business with £60,000 of sales and £18,000 of profit is mandated into quarterly updates, while a higher-margin business on the same profit is not.
Does owning another company change it?
Yes, and it makes the company side worse. The £50,000 and £250,000 corporation tax limits are divided by the number of associated companies plus one, so somebody who already owns one other company hits the 26.5% marginal band at £25,000 of profit rather than £50,000. Associates are counted worldwide and need no group relationship.
Is tax the whole decision?
No, and for a lot of people it is not even the main part. Limited liability is a genuine protection a sole trader does not have. Against it sit statutory director duties, three filing deadlines instead of one, accounts on public record at Companies House, identity verification which became a legal requirement in November 2025, and six years of records. None of that appears in any of the figures here.