Sole Trader vs Limited Company in 2026: Which Saves More Tax?

If you’re self-employed — or thinking about starting a business — one of the biggest questions you’ll face in 2026 is:

Should I stay a sole trader, or set up a limited company?

The answer affects:

• How much tax you pay

• How you take money out

• Your legal liability

• Your public profile

• Your long-term growth

Let’s break it down clearly.

👤 What Is a Sole Trader?

A sole trader is the simplest way to run a business.

You:

• Keep all profits

• Are personally responsible for debts

• File a Self-Assessment tax return

• Pay Income Tax + National Insurance

It’s easy to set up and low cost to run.

🏢 What Is a Limited Company?

A limited company is a separate legal entity.

• The company pays Corporation Tax

• You take money via salary + dividends

• Your personal assets are usually protected

• Accounts must be filed with Companies House

It’s more structured — but potentially more tax efficient.

💰 Tax Comparison in 2026

Here’s where it gets interesting.

🔹 Sole Trader Tax (2026)

You pay:

• Income Tax (20%, 40%, 45%)

• Class 2 & Class 4 National Insurance

Example:

Profit: £50,000

You could pay roughly:

• £7,540 income tax

• ~£3,000 National Insurance

Total around: £10,000+

(Exact figures depend on allowances and thresholds.)

🔹 Limited Company Tax (2026)

The company pays:

• Corporation Tax (currently 19%–25% depending on profits)

You then pay:

• Dividend tax when withdrawing profits

Example:

Company profit: £50,000

Corporation Tax approx: £9,500–£12,500

But with structured salary + dividend planning, total personal tax may be lower overall than sole trader tax.

This is where planning makes the difference.

📊 When Does a Limited Company Save More?

Generally, once profits exceed around:

👉 £35,000–£50,000 per year

A limited company often becomes more tax efficient.

The higher your profit, the bigger the potential saving.

But tax isn’t the only factor.

⚖️ Other Key Differences

🔐 Liability

Sole trader → You are personally liable.
Limited company → Liability usually limited to the company.

📈 Credibility

Limited companies can appear more established to:

• Clients

• Suppliers

• Investors

📂 Administration

Sole trader:

• Simpler

• Fewer filing requirements

Limited company:

• Annual accounts

• Confirmation statement

• Corporation tax return

• Payroll (if paying salary)

🏠 Privacy

As a sole trader, your address may be public if trading under your own name.

As a limited company, your registered office address is public on Companies House — which is why many directors use a private registered office service (like ours) instead of their home address.

🚨 2026 Considerations

With Making Tax Digital expanding:

• Digital record keeping is becoming mandatory

• Reporting requirements are increasing

• HMRC visibility is growing

Operating as a limited company may require more structured compliance — but also allows better planning opportunities.

📱 How Rebate My Tax Helps

Whether you’re:

• Staying sole trader

• Switching to limited company

• Unsure which is best

We can:

• Calculate your tax comparison

• Set up your limited company

• Provide a registered office address

• Handle bookkeeping

• Submit your returns

• Connect your bank securely for easy reporting

Everything managed in one app.

🟢 So Which Is Better in 2026?

It depends on:

• Your profit level

• Your growth plans

• Your risk exposure

• How you want to extract income

For lower profits → Sole trader is often simpler.
For growing profits → Limited company can be more tax efficient.

The smartest move?

Get the numbers calculated properly before deciding.

Download the Rebate My Tax app and we’ll show you which structure saves you more.