At what profit should I become a limited company in 2026/27?

Under ~£30,000 profit — sole trader

Below the higher-rate band, the company’s advantages largely disappear, and the cost of running one — accountancy, Companies House filings, payroll, dividend paperwork — isn’t justified by the small tax difference (GOV.UK — Corporation Tax rates).

At this profit level the sole trader pays Income Tax at 20% and Class 4 NI at 6%on profit above the £12,570 personal allowance, and that’s the whole calculation. A limited company would pay 19% Corporation Tax then dividend tax at 10.75% on top — and would still need the extra year-end accounts, CT600, payroll for the director, dividend vouchers and Confirmation Statement that come with the structure. The headline saving doesn’t survive the admin cost.

~£30,000 – £50,000 — usually sole trader

In this band a sole trader is usually still the better choice on tax alone. A company is only worth it here if you can use its extras: splitting dividends with a spouse who has unused allowances, or retaining profit at 19% in the company rather than drawing it all.

The qualifier matters. If your spouse genuinely contributes to the business and can be a real shareholder, splitting dividends between two sets of personal allowances and basic-rate bands typically lifts a marginal case into a clear company win. And if you plan to leave a meaningful slice of profit inside the business — taxed at 19% Corporation Tax until you draw it later — the company’s timing flexibility starts to earn its keep. Without one of those, stay simple.

~£50,000 – £70,000 — the break-even zone

This is where the answer becomes a genuine question rather than a default. On full extraction (taking every pound of profit as salary + dividends each year) a limited company might save £500–£2,000 a yearversus a sole trader at 2026/27 rates. That’s the same order of magnitude as the extra accountancy and compliance cost the company creates — which is why this band is genuinely break-even.

Two levers move the number meaningfully in this band:

• Employer pension contributions. Paid by the company, no NI, corporation-tax-deductible — more efficient than any extraction route. A £10,000–£20,000 employer pension contribution in this profit band usually swings the calculation toward the company by several thousand a year of tax efficiency, plus the deferred pension wealth.
• Spousal dividends. A genuine spouse-shareholder using their personal allowance and basic-rate dividend band lifts the saving into the £2,000– £4,000 range at the top of this profit window.

Without either of those levers, the case for incorporating at £50k–£70k is real but slim. With one or both, it’s usually clear.

~£80,000+ — usually a limited company

Above roughly £80,000 of annual profit the limited company is normally clearly ahead. Two effects compound. First, the sole trader is now firmly in the 40% Income Tax band on most of their profit, while the limited company is paying 19% Corporation Tax up to £50,000 of company profit (and marginal relief above) before dividend tax — the gap on full extraction widens as profit rises (GOV.UK — Income Tax rates).

Second, employer pension contributions become materially valuable. A £30,000–£40,000 annual employer pension contribution at this profit level shifts thousands of pounds of tax — and several thousand more of long-term pension wealth — compared with a sole trader who can only make personal contributions out of taxed income. The saving over a sole trader at £80,000+ profit typically runs to several thousand pounds a year plus the deferred pension build-up.

Past about £100,000 the 60% personal allowance taper kicks in for sole traders directly; a company director can plan around it with extraction timing. The arithmetic moves further in the company’s favour the higher you go.

The honest takeaway

The “incorporate as soon as you’re profitable” advice is outdated. For 2026/27, the tax-only case for incorporating often doesn’t stack up until profits are comfortably into five figures — and even then, the structural and non-tax reasons (covered in the beyond tax spoke) frequently matter more than the headline saving. This is precisely the calculation worth doing properly for your figures.

Most online “sole trader vs limited” content was written when Corporation Tax was a flat 19% and dividend rates were 7.5% / 32.5% / 38.1%. Two changes since — the 2023 jump to 19%–25% Corporation Tax, and the April 2026 dividend tax rise to 10.75% / 35.75% / 39.35% — moved the crossover up materially. We explain that shift in the has the tax advantage shrunk? spoke.

Run your own numbers

The bands above are starting points. The cases that flip the answer at any given profit level are typically: employer pension contributions, a genuine spousal shareholder, meaningful profit retention, fluctuating annual profit, and other income (rental, employment, a partner’s salary) that uses your personal allowances. To model your own case in two minutes, try the free Salary vs Dividend Optimiser — it shows the take-home for sole trader vs limited company at your actual profit number.

For the mechanics of extractingprofit from a company once you’ve incorporated, see our salary vs dividend guide and the director pay with pensions and spouses spoke — the two pieces of the picture that decide how much of the “Ltd is ahead” number you actually realise.