Sole trader or limited company in 2026/27? The maths just changed

For years the standard advice was simple: once profits pass roughly £30,000, incorporate and save thousands. The April 2026 dividend tax rises quietly rewrote that rule, and for many businesses the gap has nearly closed. Before you restructure either way, run your numbers.

What changed

Dividend tax rose by two percentage points in April 2026, to 10.75% at the basic rate and 35.75% at the higher rate. Stack that on top of employer National Insurance at 15% on salaries above £5,000, which single-director companies pay with no Employment Allowance to offset it, and the classic salary-plus-dividends model keeps less than it used to.

A worked example

Take £60,000 of profit, all drawn to live on. As a sole trader, income tax plus Class 4 National Insurance comes to roughly £13,900. Through a company, with a £12,570 salary and the rest as dividends, the combined bill of employer NI, Corporation Tax and dividend tax lands within about £20 of the same figure. The tax advantage that used to fund the extra admin has, at this profit level and drawing pattern, essentially gone.

So is the limited company dead?

No, and this is where the generic advice gets people into trouble. A company still wins clearly when you reinvest profits rather than draw them, since retained profit suffers only Corporation Tax. It wins on liability protection, on image with larger clients, on pension flexibility, and at higher profits where the planning options multiply. It loses on admin, accountancy costs and, now, on pure take-home for the draw-everything owner at moderate profits.

Decide on your numbers, not folklore

The calculator shows the tax side in seconds. The full decision deserves half an hour with an accountant: book a free consultation and we will map it against your actual plans, not last decade’s rules of thumb.

Leaning towards a company? See exactly what a salary and dividend mix would leave in your pocket with our free director take-home calculator.