How the comparison works
As a sole trader, you pay income tax and Class 4 National Insurance on all your profit.
As a limited company, the company pays corporation tax on its profit. You then take money out in two ways: a small salary, which the company can deduct as a cost, and dividends from what is left after corporation tax. Dividends are taxed at lower rates than salary and don't attract National Insurance.
The calculator tries two common salary levels and shows whichever leaves you more.
What the calculator leaves out
- Running costs. A company needs annual accounts, a confirmation statement and a registered office. An accountant typically charges more for a company than for a sole trader's tax return.
- Keeping money in the company. You don't have to pay out all profit as dividends. Leaving some in the company can reduce your personal tax in a year.
- Pensions, student loans, other income and benefits. All of these change the result.
- Non-tax reasons. A company also protects your personal assets (limited liability) and can look more established to customers and lenders.
Use the result as a starting point, then talk to an accountant about your own situation. When you're ready, you can form your company online from £290 including VAT and the Companies House fee.