Every few years the Budget moves the goalposts on this one, so here is the honest answer with 2026/27 numbers, worked through.

The assumptions

No other income, full Personal Allowance of £12,570, single director company paying a salary of £12,570 and the rest of its profit as dividends. A company where the director is the only employee cannot claim the £10,500 Employment Allowance, so none is included.

At £30,000 profit

Sole trader. Income tax: (£30,000 – £12,570) at 20% = £3,486. Class 4 National Insurance: £17,430 at 6% = £1,045.80. Total £4,531.80. You keep £25,468.20.

Limited company. The company pays your £12,570 salary and £1,135.50 of employer National Insurance (15% on salary above £5,000). That leaves £16,294.50 of profit, taxed at the 19% small profits rate: £3,095.96 of Corporation Tax. You draw the remaining £13,198.54 as dividends: the first £500 is tax free, the rest at 10.75% = £1,365.09. Total tax £5,596.55. You keep £24,403.45.

Sole trader ahead by £1,064.75.

At £80,000 profit

Sole trader. Income tax: £37,700 at 20% = £7,540, plus £29,730 at 40% = £11,892, total £19,432. Class 4: £37,700 at 6% = £2,262, plus £29,730 at 2% = £594.60, total £2,856.60. Combined £22,288.60. You keep £57,711.40.

Limited company. After salary and employer NI, £66,294.50 of profit. Corporation Tax at 25% with marginal relief comes to £13,818.04. Dividends of £52,476.46: £500 free, £37,200 at 10.75% and the remaining £14,776.46 at the 35.75% higher rate, so £9,281.58 of dividend tax. Total £24,235.12. You keep £55,764.88.

Sole trader ahead by £1,946.52.

Why the gap has narrowed

Two changes did it. Employer National Insurance is now 15% and starts at £5,000 of salary, which taxes the director-salary route harder. And from April 2026 the dividend rates went up, to 10.75% basic and 35.75% higher.

When the company still wins

Money you leave inside the company is taxed at 19% (up to £50,000 of profit) and sits there for later. A sole trader pays up to 40% plus National Insurance on everything, whether they spend it or not. Company pension contributions are usually a deductible expense, so £10,000 paid into your pension costs the company £8,100 after Corporation Tax relief. And if the business gets into trouble, limited liability means your house is not on the line, which has nothing to do with tax and everything to do with sleeping at night.

Sources

All pages checked 20 October 2026.

• Income Tax rates: https://www.gov.uk/income-tax-rates
• Self-employed National Insurance rates: https://www.gov.uk/self-employed-national-insurance-rates
• Corporation Tax rates: https://www.gov.uk/corporation-tax-rates
• Tax on dividends: https://www.gov.uk/tax-on-dividends
• Rates and thresholds for employers 2026 to 2027: https://www.gov.uk/guidance/rates-and-thresholds-for-employers-2026-to-2027
• Employment Allowance eligibility: https://www.gov.uk/claim-employment-allowance/eligibility

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