“Should I go limited?” is one of the questions we get most. Here’s the straight answer for 2025/26.
The short version
For most people, the tax break-even is somewhere between £30,000 and £45,000 of profit. Below that, going limited usually doesn’t save enough to justify the extra admin. Above that, it can save thousands.
But tax isn’t the only reason — credibility, limited liability, and easier fundraising can all push you to incorporate even when the maths is borderline.
The maths, side by side
Let’s compare a sole trader and a Ltd company at three profit levels for 2025/26:
£30,000 profit
Sole trader:
- Income tax (after PA): (£30,000 − £12,570) × 20% = £3,486
- Class 4 NI: (£30,000 − £12,570) × 6% = £1,046
- Total tax: £4,532
- Take-home: £25,468
Ltd company (£12,570 salary + dividends):
- Salary £12,570 (covers PA, no income tax)
- Profit after salary: £17,430 (assuming small employer’s allowance covers ER NI)
- Corporation Tax: £17,430 × 19% = £3,312
- Net profit available for dividends: £14,118
- Dividend tax: (£14,118 − £500) × 8.75% = £1,191
- Total tax: £4,503
- Take-home: £25,497
Sole trader and Ltd are basically tied at £30k. Sole trader is simpler, so usually wins on this profit.
£60,000 profit
Sole trader:
- Income tax: £37,700 × 20% + (£60,000 − £50,270) × 40% = £7,540 + £3,892 = £11,432
- Class 4 NI: £37,700 × 6% + £9,730 × 2% = £2,262 + £195 = £2,457
- Total tax: £13,889
- Take-home: £46,111
Ltd company:
- Salary £12,570
- Profit for tax: £47,430
- Corporation Tax: £47,430 × 19% = £9,012
- Net for dividends: £38,418
- Dividend tax: (£38,418 − £500 allowance, all in basic band) × 8.75% = £3,318
- Total tax: £12,330
- Take-home: £47,670
Ltd wins by about £1,500/year. Worth the extra admin if you can cope with it.
£100,000 profit
Sole trader:
- Income tax: ~£27,432
- Class 4 NI: £2,857
- Total tax: £30,289
- Take-home: £69,711
Ltd company:
- Salary £12,570
- Profit for tax: £87,430
- Corporation Tax: £50,000 × 19% + £37,430 × 25% with marginal relief ≈ £18,608 (rough, depends on associated companies)
- Net for dividends: ~£68,822
- Dividend tax: ~£500 allowance, basic band on first ~£37,200 at 8.75% = ~£3,212; remainder ~£31,122 at 33.75% = ~£10,504
- Total tax: ~£32,324
- Take-home: ~£67,676
At £100k, sole trader actually wins if you take it all out as dividends — because Corporation Tax + dividend tax adds up faster than Income Tax + NI at this level. Where Ltd wins big is when you don’t take it all — leave money in the company, reinvest, take it out in lower-income years, or use it for pension contributions.
When Ltd makes sense regardless of the maths
- Limited liability — a Ltd can fail without taking your house with it
- Credibility — bigger clients, lenders, and suppliers often prefer dealing with a company
- Reinvestment — if you’re growing and don’t need all the profit personally, paying 19% corp tax then leaving it in the company beats paying 40%+ income tax to take it all
- Pension funding — employer pension contributions through a Ltd are deductible and not capped at your relevant earnings the way personal contributions are
- Selling the business — easier to sell shares of a Ltd than to transfer a sole trader business
When sole trader is still right
- Profit consistently below £30k — saving £100/year isn’t worth the admin
- You want maximum simplicity — one return per year, no Companies House, no payroll
- You hate paperwork — Ltd has more of it
- You’re winding down — no point starting a Ltd if you’re going to stop in 2-3 years
The hidden cost: admin
Running a Ltd company adds:
- Companies House confirmation statements (£15/year + your time)
- Payroll for the director (or accountant fees to run it)
- Statutory accounts and Corporation Tax return
- More record-keeping and decision-making
Most people use an accountant. We charge from £100/month + VAT for a fully managed Ltd package (£200/month + VAT if you’re VAT-registered). So your tax saving needs to clear that hurdle before you’re properly ahead.
Coming next
In our next post we’ll look at the most tax-efficient salary/dividend mix for Ltd directors in 2025/26 — including whether to go below or above the £12,570 personal allowance threshold.
Want a personalised side-by-side for your situation? Book a free 20-minute call — we’ll model both options on your actual numbers.