Sole proprietorship or company in United Kingdom: tax comparison
Taxes and contributions for a sole proprietor under each available system and for your own company, for a resident of the chosen country with the same profit.
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Sole trader
Sole proprietorSole trader (self-employed)
You trade in your own name. On profit (turnover minus expenses) you pay Income Tax at 20 / 40 / 45% above the £12,570 Personal Allowance and Class 4 National Insurance: 6% on profit from £12,570 to £50,270 and 2% above that. Everything goes on your annual Self Assessment return.
Conditions
VAT: you must register if taxable turnover in the last 12 months goes over £90,000; VAT is not included in the calculation.
Class 2 National Insurance is no longer paid from 6 April 2024: with profits of £7,105 or more it is treated as paid (your record is protected); below that you may pay £3.65 a week voluntarily.
The £12,570 Personal Allowance goes down by £1 for every £2 of income above £100,000 and is zero from £125,140, so the effective rate between these amounts is 60%.
The company pays Corporation Tax on its profit: 19% up to £50,000, 25% from £250,000, and 25% with marginal relief in between. Profit paid to you as dividends is taxed as your income: above the Personal Allowance and the £500 dividend allowance at 10.75% / 35.75% / 39.35% (rates from 6 April 2026).
Conditions
VAT: you must register if taxable turnover in the last 12 months goes over £90,000; VAT is not included in the calculation.
The £50,000 and £250,000 limits apply to a 12-month accounting period of a company with no associated companies; with associated companies they are shared.
If you work for a client through your company in a way that would make you their employee without the company, the off-payroll working rules (IR35) apply and the income is taxed like salary.
The £12,570 Personal Allowance goes down by £1 for every £2 of income above £100,000 and is zero from £125,140, so between these amounts dividends are effectively taxed at 53.625% (35.75% × 1.5).
Business activity: IT / consulting services for business clients
One owner, tax resident of this country, no employees, no children, no other income; the business runs for the whole year.
Lives in England (rest-of-UK rates); tax year 6 April 2026 to 5 April 2027; the company has a 12-month accounting period at financial year 2026 rates (from 1 April 2026) and no associated companies.
Company: the owner is the sole shareholder and director and takes no salary; profit after corporate tax is either paid out in full as dividends in the same year or kept in the company.
Only the standard Personal Allowance; dividends are your only income, so the first £500 of taxable dividends always falls in the basic rate band.
Expenses are documented business costs fully deductible in the year they are incurred; depreciation rules, prior-year losses and voluntary pension contributions are not modelled.
VAT (or GST/HST) and sales taxes are not included: they are passed on to clients and do not reduce profit.
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