Sole trader vs Ltd in 2026 — the actual numbers
The break-even point shifted in April. Here's the working maths for UK self-employed people deciding whether to incorporate this year.
The April 2026 NIC and dividend tax changes shifted the maths on incorporating. The old "incorporate above £40k profit" rule of thumb is no longer accurate. Here's the updated working summary.
What changed in April 2026
- Employer NIC threshold dropped to £5,000 (from £9,100). Director's salary now carries Class 1 NIC much earlier.
- Dividend allowance held at £500. Dividend tax rates unchanged (8.75% / 33.75% / 39.35%).
- Corporation Tax remains tiered: 19% under £50k profit, 25% over £250k, marginal relief between.
- Class 4 NIC for self-employed held at 6% / 2%.
The combined effect is to push the sole-trader-vs-Ltd break-even point up by roughly £8–12k of profit, depending on dividend mix.
Quick scenarios (profit before any salary/dividend)
| Profit | Sole trader take-home | Ltd take-home | Ltd vs ST |
|---|---|---|---|
| £30,000 | £24,920 | £25,200 | +£280 |
| £50,000 | £37,440 | £39,180 | +£1,740 |
| £75,000 | £52,300 | £56,890 | +£4,590 |
| £100,000 | £66,140 | £72,830 | +£6,690 |
Assumes single director, no other income, standard tax code, optimal salary-dividend mix, no employer pension contribution. Indicative figures — confirm with an accountant before deciding.
When Ltd makes sense beyond the numbers
Even when the £-take-home difference is small, Ltd has structural advantages:
- Liability protection. Personal assets ring-fenced from business liabilities.
- Pension flexibility. Employer pension contributions deductible against Corporation Tax, no NIC, often the biggest single tax win not shown in take-home calcs.
- Income smoothing. Retain profit in the company in good years, pay out in lower-income years.
- Credibility with B2B customers. Some procurement processes effectively require Ltd suppliers.
- Investor-readiness. Sole traders can't take outside equity. Companies can.
The break-even is about £35–40k profit in 2026. Below that, sole trader is usually cleaner. Above that, Ltd is usually right — but the strongest reasons are non-tax.
What incorporating looks like through Incorpwise
- £99 one-off for standard Ltd formation. Filed directly with Companies House (we're an ACSP).
- £299 for Business in a Box — adds bank account intro, payroll setup, first-year accounting plan.
- Filed within 4 working hours of payment. Incorporated typically inside 24 hours.
If you're sitting at the break-even or above, the next step is the 10-minute online formation. Start from the home page.
Ready to form your company or get RRA-compliant? £99 to start, £299 for the full Business in a Box.
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