FORM by AI Finance Partners
Sole trader or limited, in plain English
Don't think in business profit. Think in what you want to land in your bank account. Tell FORM what you want to take home each month and it shows what your business needs to make under each route, using UK 2026/27 rules. No jargon. Nothing leaves your device.
Tell us what you want to take home
Most people don't think about their business as profit. They think about what hits their bank account. Start there. We'll work out what the business needs to make under each route.
After all tax. The number that lands in your account.
Edit either box or drag either slider, the other updates.
Salary from a job, rental income, pension. Leave at 0 if your business is the only thing.
What an accountant would charge to run the limited company side. Sole traders rarely need most of this.
Before you read the maths
Most people incorporate for these reasons. The tax is the smaller story.
Drawing every penny out, the maths below shows sole trader winning under the new 2026/27 rules. That is honest, and it is also incomplete. Here is the longer list of why people actually pick limited. If any of these apply to you, treat the maths below as a sanity check, not the decision.
Limited liability protection
Your house, savings, and personal assets stand behind the business as a sole trader. A limited company is a buffer between the business and you. Becomes urgent the moment you hire staff, take on premises, or sign bigger contracts.
Company pension contributions
A pound paid by the company into your pension costs the company about 75p after Corporation Tax relief, and skips the income tax and dividend tax you'd pay to extract it. For higher earners this is often the biggest single tax win in the UK.
Looks more established to buyers
Bigger clients and procurement teams often won't onboard a sole trader. A company number and filed accounts signal permanence. Common in tech contracting, agency work, B2B services and anything selling into FTSE listed or government buyers.
Banks and finance treat you differently
Limited companies can build their own credit profile. Equipment finance, invoice discounting, asset finance and commercial loans get easier with two years of company accounts behind you. As a sole trader, every funding decision is just your personal credit.
Leave profit in the business
A sole trader is taxed on every pound the business makes whether they spend it or not. A limited company can park profit at Corporation Tax rates (19% to 26%) and let you draw it later, when it suits. This is where incorporating starts to pay back the friction.
Selling the business later
A limited company is sold by transferring shares, often qualifying for Business Asset Disposal Relief (14% CGT). A sole trader can only sell assets, and the buyer rebuilds the business under their name. If you might exit, limited is the only sensible structure.
Bringing in a partner or investor
Issue them shares. Clean and standard. A sole trader bringing in a partner becomes a partnership, which is messier and worse for the same goal.
The 15 director perks below
Tax free phone, EV through salary sacrifice, £10,000 interest free director's loan, professional subscriptions, trivial benefits, the lot. Each has a catch but together they easily clear the £2,500 of running costs.
Worth knowing. Hiring an employee does not force you into a limited company. A sole trader can register as a PAYE employer with HMRC and run payroll just like a limited director. The decision is usually liability and credibility, not the hire itself.
The chart, your lifestyle as a line
Read it this way. Across the bottom is what your business makes. Up the side is what lands in your bank. The dashed horizontal line is your target. Where each route's line crosses it, that's the business profit you'd need under that route.
Sole trader
Limited company
Your target take home
The honest extra bit
The numbers above are the strict tax compare, drawing every penny out every year. There are three things that compare leaves out, and any one of them can flip the answer towards limited.
- Leaving money in the company. A limited company can park profit at Corporation Tax rates and let you draw it later, when it suits. A sole trader pays their full personal tax on everything the business makes, whether they spent it or not.
- Pension. A limited company can pay straight into your pension. A pound in costs the company about 75p once the tax relief is counted, and you skip the income tax and National Insurance that would normally apply to taking it as cash.
- The 15 perks below. Tax free phone, electric car through salary sacrifice, the £10,000 interest free director's loan, the lot. None of these are loopholes. They are written into the rules. Each has a catch, so your accountant sets them up properly.
If you do incorporate, what it involves
A limited company is a real commitment, not just a tax setting.
- Register the company at Companies House and keep its details current with a yearly confirmation statement.
- Annual statutory accounts, a Corporation Tax return, and the tax paid on time.
- Payroll if you take a salary, dividend paperwork for what you draw, and your own Self Assessment.
- Legal duties as a director, with real penalties for missing deadlines.
A pension perk worth knowing. A company can pay into your pension directly, before any tax and with no National Insurance. For higher earners that is often a bigger win than the salary and dividend split. One to raise with Isaacs & Co.
Contractors, check IR35 first. If you would work through your company for what is really one employer, the IR35 rules can treat you as employed and strip out most of the tax benefit shown here.
The bit nobody tells you
Once you are a Director, here is what you can legally claim that sole traders cannot
A limited company is also a box of tax free perks a sole trader simply cannot use. None of these are loopholes. They are written into the rules. Each has a catch, so your accountant sets them up properly.
If you go limited, the perks a sole trader cannot touch
1. Trivial benefits, £300 a year tax free
Up to £50 a gift, six gifts a year. Tax free, no National Insurance.
Worth about £550 of gross salary at higher rate.
Catch: not cash, not a bonus, not a reward for work.
2. Working from home, £6 a week
A flat £312 a year if you ever work from home, no proof needed.
Or claim the proportional real cost if higher.
Catch: keep it reasonable.
3. Company mobile phone, fully tax free
One contract phone in the company name: calls, data and line rental all tax free.
Saves the tax on a whole phone bill a year.
Catch: contract must be the company's.
4. Business mileage, 55p then 25p
Tax free for your own car on business journeys: 55p for the first 10,000 miles, 25p after.
10,000 miles a year is £5,500 tax free.
Catch: keep a simple log.
5. Annual staff event, £150 a head
A Christmas or summer party up to £150 a head including VAT. Sole director plus partner is £300 a year tax free.
£300 of entertaining, tax free.
Catch: must be annual and open to all staff.
6. Eye test and screen glasses
A free eye test for anyone using a screen for work, paid by the company. Glasses for screen use only are tax free too.
Test plus screen glasses on the company.
Catch: glasses must be solely for screen work.
7. Long service award, £50 a year
After 20 years' service, up to £50 for each completed year, tax free.
20 years in, £1,000 tax free and climbing.
Catch: minimum 20 years.
8. Company pension contributions
The company pays into your pension as an allowable expense: no employer NI, no income tax, and it cuts Corporation Tax.
A pound in costs the company about 75p after CT relief.
Catch: within the £60,000 annual allowance.
9. Health screening, one a year
One annual health check or screening per director, tax free.
A private medical, paid pre-tax.
Catch: one a year, and a genuine screening.
10. Salary sacrifice electric car
An EV through the company on salary sacrifice carries tiny benefit in kind tax and saves income tax and NI on the sacrificed salary.
Often 30 to 40% cheaper than buying it personally.
Catch: low rate is electric only.
11. Cycle to Work, up to £3,000
A bike and kit up to £3,000 via salary sacrifice through the company.
Around 42% off list for a higher rate taxpayer.
Catch: it is a hire then transfer.
12. Director's loan, up to £10,000
Borrow up to £10,000 from the company interest free at any time, no tax charge.
£10,000 interest free, on tap.
Catch: over £10,000 becomes a benefit in kind.
13. Professional subscriptions
Memberships like CIMA, ICAEW, ACCA, RICS or BMA paid by the company are tax free if on HMRC's approved list.
Your professional body, paid pre-tax.
Catch: must be on the approved list.
14. Working lunches
Meals provided at work can be tax free if available to all staff.
Genuine staff catering, tax free.
Catch: conditions are tight.
15. Pension carry forward
Use up to three prior years of unused pension allowance through the company. A director with £200k profit can put £160k+ into pension in one go.
Can cut Corporation Tax to almost nothing that year.
Catch: get advice first.
Each of these has rules, and getting them wrong can cost more than it saves. This is exactly what an accountant sets up in year one. Quote FORM at Isaacs & Co below.
If you stay a sole trader, what you still get
You are not left out entirely. As a sole trader you still get business mileage at the same 55p then 25p rates, the flat £6 a week home working allowance, business equipment as an expense, your professional subscriptions, your phone proportion for business use, and pension contributions personally. What you cannot do: trivial benefits, the annual event allowance, the company mobile, the £10,000 interest free loan, salary sacrifice EVs and cycle to work, and most importantly you cannot leave profit in the business to be taxed only at Corporation Tax rates.
Real accountants. Real Setup.
Want this done properly? Isaacs & Co.
FORM gives you the maths. A real Chartered Management Accountant sets up the company, the payroll, the dividend timing and the perks above so they actually save you money. Quote FORM for a free 30 minute first call.
Isaacs & Co
AI Finance Partners
hello@aifinancepartners.co.uk
AI Finance Partners
hello@aifinancepartners.co.uk