The short answer: does a limited company still save a restaurant tax in 2026/27?
Not much, if you draw all the profit out. In 2026/27 a sole trader restaurant owner and a limited company owner who takes salary plus dividends land within a few hundred pounds of each other up to around £75,000 of profit, and the sole trader is usually the one slightly ahead. The tax case for incorporating a restaurant has quietly collapsed.
Why has it changed? Two things moved. From 6 April 2026 the dividend tax rates rose two percentage points, so the ordinary rate is now 10.75 percent (up from 8.75 percent) and the upper rate is 35.75 percent (up from 33.75 percent). Employer National Insurance sits at 15 percent on salary above the £5,000 secondary threshold. Together they eat almost all of the gap that used to make a limited company the obvious answer.
None of this means the limited company is a bad idea. It means the reason to choose one has moved off the tax return and onto the balance sheet and the lease. A restaurant carries risk a hairdresser or a bookkeeper does not: a long property lease, tens of thousands in supplier credit, a payroll full of staff, and the odd customer or environmental-health claim. That is where a company earns its keep now, and we come back to it below. For the wider picture on running a hospitality business tax-efficiently, our hospitality accountants page sets out how the pieces fit together.
One more framing point before the numbers. The structure question and the extraction question are separate. Deciding to be a limited company is a business decision. Deciding how to pull money out of that company, salary versus dividends versus pension, is a tax decision you make afterwards. Muddling the two is where a lot of restaurant owners talk themselves into the wrong setup.
The 2026/27 take-home maths at three profit levels
At £30,000, £50,000 and £75,000 of profit the two structures finish within roughly £250 to £900 of each other, with the sole trader marginally ahead. The chart below assumes the owner draws everything out, takes a £12,570 salary from the company and the rest as dividends, and that the restaurant already has staff so the £10,500 Employment Allowance is available to cover the employer National Insurance on that salary.
Take a real setup. A single-site London restaurant turning a £50,000 profit. As a sole trader the owner pays income tax and Class 4 National Insurance (the profit-based National Insurance the self-employed pay), landing on about £40,270 take-home. Run the same £50,000 through a company on a £12,570 salary plus dividends and the owner nets about £39,680. The company is £590 behind, not ahead.
Push the profit up to £75,000 and the pattern holds. The sole trader nets around £54,810, the company around £53,940, a gap of roughly £870 in the sole trader's favour. Go the other way to £30,000 and they are almost identical, within about £250.
Now the important caveat, and it is a restaurant-specific one. Most restaurants have a proper team, and if your total wage bill uses up the £10,500 Employment Allowance on the wider staff, the director's own salary carries real employer National Insurance on top. In that common case the company slips a further £800 or so behind at each level, so the sole trader lead widens to roughly £1,065 at £30,000, £1,406 at £50,000 and £1,407 at £75,000. Either way, the direction of travel is the same: on pure take-home, incorporating no longer pays.
Where the maths actually tips, and why it barely does now
There is no clean tipping point on take-home in 2026/27, which is the real headline. The limited company advantage sits close to zero across the whole range a typical single-site restaurant earns, only nudging a couple of hundred pounds positive in a narrow band around £55,000 to £70,000 of profit before falling away again as the higher dividend rate bites. The line below tells the story better than any rule of thumb.
What pulls the line down at the top? Once profit rises past about £75,000, more of the company's dividends fall into the upper rate at 35.75 percent, while a sole trader on the same money pays 40 percent income tax but only 2 percent Class 4 National Insurance on that slice. The combined bill on extracted profit ends up higher through the company, so the sole trader pulls clearly ahead again at £100,000, by around £3,570 on our modelling.
So where, honestly, does a limited company win on tax? When you stop taking everything out. Leave £20,000 of profit in the company to fund a kitchen refit and it is taxed at 19 percent corporation tax, not the 40 percent-plus a higher-rate sole trader would pay on the same profit whether they spend it or not. That is the genuine tax lever, and it has nothing to do with the extraction maths above. If you want to see how the picture shifts across profit levels, our sole trader versus limited company at £50K guide walks through the general case.
What really decides it for a restaurant: four non-tax factors
Because the tax gap is now small, the decision comes down to four things a spreadsheet does not show. These are the reasons most restaurant owners who do incorporate should, and they matter far more than a few hundred pounds of take-home either way.
Limited liability on the lease and suppliers
A restaurant signs long property leases and runs large supplier and drinks accounts. A limited company ring-fences your home and savings if the business fails, whereas a sole trader is personally liable for every penny. The catch: landlords and banks often ask directors for a personal guarantee, which reopens that risk, so read what you sign.
Retained profit for a refit or a second site
This is where the company genuinely saves tax. Profit you leave in to fund a fit-out, new kitchen kit or a second unit is taxed at 19 percent corporation tax, not the 40 percent-plus a higher-rate sole trader pays on profit whether it is spent or not. If you are growing, the company keeps far more of each pound working.
Pension and planning levers
A company can pay employer pension contributions straight from pre-tax profit with no National Insurance and full corporation tax relief, a cleaner route than a sole trader's personal contributions. You also get more control over when income lands, which helps in a seasonal trade with a strong December and a quiet January.
Credibility, funding and a clean sale
Landlords, franchisors, brewers and lenders often prefer to deal with a limited company, and bringing in a business partner or investor is far simpler through shares than a partnership. If you ever sell, a company is a tidier asset and can qualify for Business Asset Disposal Relief at 18 percent on the gain.
Set against those, a company is not free. You file annual accounts and a corporation tax return at Companies House and HMRC, keep a confirmation statement current, run stricter bookkeeping, and take on directors' duties. Getting money out is less casual too: dividends need distributable profit and proper paperwork, and dipping into the company account for personal spending creates a director's loan that has its own tax traps. For a single-site owner drawing everything to live on, that admin can outweigh a saving that is not really there.
The restaurant-specific wrinkles a generic accountant misses
Several things move the restaurant answer that never come up for a plumber or a consultant, and a generalist rarely weighs them. VAT is the big one: a restaurant crosses the £90,000 registration threshold fast because eat-in and hot takeaway food is standard-rated at 20 percent, and that is true for a sole trader and a company alike, so VAT never decides the structure but it does dominate the cashflow.
Tips are the next wrinkle. Since the Tipping Act came into force on 1 October 2024, all tips must be passed to staff, and a properly run tronc (a separate arrangement for sharing tips) can save National Insurance for both the business and the team. The tronc works whichever structure you choose, but it is exactly the sort of saving a hospitality specialist sets up and a generalist forgets. If tips are a real part of your service, our dividend vs salary calculator is a useful companion once you have decided on a company, because how you pay yourself interacts with the tronc.
Staff costs are the third. The National Living Wage rose to £12.71 an hour from 6 April 2026 for workers aged 21 and over, and employer National Insurance runs at 15 percent above the £5,000 secondary threshold, so a restaurant's biggest controllable cost is payroll. The £10,500 Employment Allowance offsets some employer National Insurance, but a busy kitchen usually exhausts it on the wider team, which is exactly why the director's own salary in a company carries real cost. Business rates matter too: the temporary 40 percent retail, hospitality and leisure relief that ran through 2025/26 has been replaced for 2026/27 with permanently lower multipliers for qualifying hospitality premises, which changes your fixed costs but not your structure. For the underlying figures, HMRC's guidance on tax on dividends and on corporation tax rates is the authoritative source.
Put together, these wrinkles are why "should a restaurant be a limited company" is not the same question as "should a freelancer be a limited company". The tax gap is thin, but the operational reality, big VAT position, heavy payroll, tips, long leases, is where a specialist actually earns the fee. If you want that context first, the hospitality accountants hub covers the full service. Setting the company up correctly, if that is the way you go, is a job for limited company formation done properly rather than a rushed online incorporation.
Here is how the three common approaches actually compare when a restaurant owner is deciding whether to incorporate:
| What you need | DIY / software | Generic accountant | LOYALS specialist |
|---|---|---|---|
| Models both structures on your actual restaurant numbers | ✗ You guess | ● If asked | ✓ Built into onboarding |
| Factors in tips, tronc and the NIC saving | ✗ | ● | ✓ Tronc set up correctly |
| Weighs limited liability on lease and supplier debt | ✗ | ● | ✓ Part of the advice |
| Times any switch to the year end, VAT and MTD | ✗ | ● | ✓ Planned, not rushed |
| Open Mon to Sat for urgent trading decisions | ✗ | ✗ Mon to Fri 9 to 5 | ✓ 10am to 7pm Mon to Sat |
| Fixed monthly fee, no surprise invoices | ✓ | ● Hourly billing common | ✓ Fixed monthly |
This is why most restaurant owners weighing up incorporation move from a generic accountant to a hospitality specialist.
What this means for you: how to decide
Decide on the business reasons first, then extract tax-efficiently once the structure is set. That single reordering saves most restaurant owners from chasing a tax saving that is not there in 2026/27. Here is the practical sequence.
- Check whether you draw it all or reinvest. If every penny of profit goes on living costs, the tax case for a company is weak. If you are funding a refit or a second site, the company's 19 percent corporation tax on retained profit is a real saving.
- Weigh your liability honestly. A long lease, big drinks accounts and a full team raise the case for the limited liability a company gives. Just remember a personal guarantee on the lease or a bank loan claws some of that protection back.
- Model your actual number, not a rule of thumb. The old "incorporate above £50K" line no longer holds after the April 2026 dividend rise. Put your real profit through the maths before you move.
- Mind the timing. If you do switch, line it up with your accounting year end, your VAT position and Making Tax Digital for Income Tax, which is mandatory from April 2026 for sole traders with gross income above £50,000. A messy mid-year switch creates avoidable work.
- Get the extraction right afterwards. Once you are a company, the salary, dividend and pension mix is where the real planning happens. That is a separate, ongoing job, not a one-off.
None of this is exotic. It is sequencing and honest numbers. Done in the right order the structure lands cleanly and you keep more. Done backwards, chasing a headline saving, you can end up with more admin, a director's loan you did not plan for, and no gain to show for it. You can check which way your restaurant points in a free call with LOYALS.