How much more would a Limited Company save you over sole trader?

A Limited Company opens up four major deductions that a sole trader simply cannot use. First, your director's salary (typically £5,000 or £12,570) is a company expense that reduces Corporation Tax before you ever pay personal tax on it. Second, company pension contributions reduce Corporation Tax with no Employer NIC. Third, you can make your spouse or partner a 50% shareholder, splitting dividends across two Personal Allowances, two basic rate bands and two dividend allowances. Fourth, a long list of tax-free benefits (mobile phone, trivial benefits, annual party, working-from-home allowance) come out of the company tax-free. Stack those together and most freelancers earning £40,000 or more save £4,000 to £12,000 per year over sole trader.

Director's salary (deductible against Corporation Tax). Spouse or partner salary if they genuinely work in the business. Company pension contributions (no Employer NIC, fully deductible). Mobile phone provided by the company (completely tax-free benefit-in-kind). Trivial benefits up to £300 per year per director (gifts, vouchers, meals out). Annual party or event up to £150 per head. Working-from-home allowance £6 per week without receipts. Health insurance and Relevant Life cover. Director's loan up to £10,000 interest-free. None of these are available to sole traders in the same way. The Tax Planning Workshop maps the full set against your specific situation.

Making your spouse or partner a 50% shareholder (no work test required, just shares) splits dividends across two Personal Allowances (£25,140 instead of £12,570 tax-free), two basic rate bands and two £500 dividend allowances. For a household with one earner on £80,000 profit and a non-earning spouse, this typically saves £3,000 to £5,000 in dividend tax per year. The calculator above models this when you toggle "Spouse as 50% shareholder" to On. We handle the share issue and HMRC settlements legislation positioning as part of the £1,200 Tax Planning Workshop.

From 6 April 2026, dividend tax rates rise by 2 percentage points on the ordinary rate (from 8.75% to 10.75%) and the upper rate (from 33.75% to 35.75%). The additional rate stays at 39.35%. Toggle the calculator above to the 2026/27 tax year to see the impact. Limited Company is still the winner for most freelancers and contractors after this change, particularly when spouse shareholding and pension are factored in. The change just makes the case for proper planning even more important.

By default, sole director without Employment Allowance: £5,000 (Secondary Threshold) so no Employer NIC at all. With Employment Allowance available (multi-employee businesses with at least one employee other than the director): £12,570 (full Personal Allowance, all Employer NIC covered by the £10,500 Employment Allowance). You can switch between these in the calculator. Most freelance or contractor Limited Companies are single director without Employment Allowance, so £5,000 is the default. Adding a spouse or family member to payroll opens up a higher salary structure and Employment Allowance access.

Sole trader is genuinely better for two profiles: profits under £25,000 where the £505 accountancy fee uplift outweighs the tax saving, and one-person businesses with no pension goal, no spouse and no plans to retain earnings. For everyone else, Limited Company saves more once you factor in spouse shareholding, company pension and tax-free benefits. Even when the pure tax math is close, Limited Company gives you limited liability protection, professional credibility with bigger clients, easier access to funding and a simpler exit if you ever sell or pass the business on.

Yes. UK Limited Company formation is £400 one-off and includes Companies House filing, share structure setup (single or joint shareholding), registers, and VAT and PAYE registration where needed. Existing sole traders incorporating mid-trade need careful handling of trade transfer, Capital Gains Tax incorporation relief and Stamp Duty Land Tax considerations on any business assets. We model the full picture in the £1,200 Tax Planning Workshop before you commit. See our Ltd Co Formation service page for the full service detail.