Once you account for 2025/26 corporation-tax bands, dividend rates, the £500 dividend allowance and the £5k employer-NI threshold, the answer is closer than the old folklore suggests.
£1,395 in favour of sole trader
Sole trader wins on this configuration. Once you push into additional-rate dividend territory (above £125k personal income), the dividend stack can lose to a straight 40% / 45% income-tax + 2% NI combination. Marginal corporation-tax relief between £50k and £250k profit also erodes the Ltd edge.
2025/26 bands embedded: PA £12,570 (tapered above £100k, gone by £125,140), basic 20% / higher 40% / additional 45%, Class 4 NI 6% / 2%, Class 2 NI £179, employer NI 15% above £5k, marginal corporation tax between £50k and £250k profit, dividend tax 8.75% / 33.75% / 39.35% with a £500 allowance. IR35 not modelled, if inside, expect roughly sole-trader equivalent outcome.
Worth runs both structures against your full tax picture, including pension contributions from the company and any IR35 exposure. Join the waitlist.
If you're providing services to a single end-client in a way that looks like employment, IR35 rules can deem your engagement as employment for tax purposes, eliminating the Ltd Co tax advantage. The end-client determines status in the private sector (from April 2021) and public sector (from 2017). If you're inside IR35, expect roughly sole-trader equivalent outcome regardless of structure.
Yes. Employer pension contributions from the company reduce corporation tax (allowable expense) and don't count toward the personal allowance taper. Annual allowance £60k. For high-earners, this is the most tax-efficient way to extract company profit, often more efficient than dividends above the higher-rate threshold.
The classical Ltd-wins narrative was built on 19% flat corporation tax, lower dividend rates, and a £2k dividend allowance. Today's 25% main corporation-tax rate (with marginal relief), higher dividend rates, and the £500 allowance have eroded the edge. The advantage is still real at low-to-medium profits with minimum salary, but at additional-rate income it can flip.