If you set up a limited company mainly to save tax, it’s worth checking whether it still works as you expected.

For years, “go limited and save tax” was often presented as the obvious answer. But following last November’s Budget, the tax position has changed. For many owner-managers, the savings are now more limited than they were.

I speak to founders who are trying to work out whether their company structure still suits them. It’s a fair question. Incorporating is no longer an automatic tax win.

The right answer depends on what your business earns, how much you need to take out, and what you plan to do next.

What changed to dividend tax?

Dividend tax rates for some taxpayers increased from 6 April 2026, following the November 2025 Budget. The additional-rate dividend tax rate was unchanged.

That matters because dividends are one of the main ways many limited-company directors take money from their business. The company pays Corporation Tax on its profits first. If you then take some of what remains as a dividend, you may also pay personal dividend tax.

When the personal tax on those dividends rises, the overall benefit of taking profits from a company can shrink. That doesn’t mean every limited company is suddenly the wrong choice. It does mean you should review the numbers rather than rely on an old rule of thumb.

The government’s guidance on tax on dividends explains how dividend income is taxed. The figures and your personal position should be checked for the relevant tax year.

The calculation is bigger than the Corporation Tax rate

It’s easy to compare Corporation Tax with the tax you might pay as a sole trader and stop there. That misses several parts of the picture.

A proper comparison looks at the whole journey from company profit to money in your pocket, including:

• The company’s Corporation Tax bill.
• Your salary and any employer’s or employee’s National Insurance due.
• Dividend tax on dividends you receive.
• Payroll and Self Assessment responsibilities.
• Accountancy fees and the cost of running a company.
• Companies House filings and other administration.

Salary and dividends are treated differently. Salary is generally a business expense for Corporation Tax purposes, but it goes through payroll and can bring National Insurance costs. Dividends are paid from profits after Corporation Tax and are not a deductible business expense.

There are also practical costs. You need company accounts, filings and records, and you have to keep company money separate from your personal finances.

As dividend tax rises, the potential advantage can narrow quickly. If you need to withdraw most of the profit to cover your living costs, there may be little left to benefit from keeping money in the company. After tax and running costs, the difference could be small, or disappear.

For current Corporation Tax information, see GOV.UK’s Corporation Tax rates and allowances. A comparison needs to consider both company and personal tax, not one rate in isolation.

A company can still be right for reasons beyond tax

Tax is important. It isn’t the only reason to incorporate.

A limited company may suit you if you want to:

• Keep profits in the business. If you don’t need to take all the profit out, leaving some in the company may help fund investment or future plans. The tax treatment of any later withdrawal still needs considering.
• Separate business and personal finances. A company is a separate legal entity, with its own accounts and responsibilities. That separation can make the financial picture clearer.
• Work with larger clients. Some contracts or procurement processes may expect, or prefer, suppliers to trade through a limited company.
• Plan when you take money out. A company can offer more choices about the timing and mix of salary and dividends, although each option needs to be reviewed against your circumstances.
• Consider limited liability. The company is usually responsible for its own debts. This is not a guarantee against personal liability: director responsibilities and personal guarantees can still matter.

Who should still consider going limited?

You may want to explore a limited company if:

• You expect to retain some profits to reinvest.
• Your business is growing and your contracts or clients make incorporation practical.
• You want a clear legal and financial structure for the business.
• You’re prepared to manage the extra reporting and administration.
• A comparison using your own figures shows the structure fits your plans.

A limited company accountant can help you understand the compliance involved as well as the tax position. The decision should reflect how you actually run your business, not a headline claim about savings.

Who probably shouldn’t incorporate just for the tax?

You may want to pause before setting up a company if:

• Your main reason is the promise of a tax saving.
• You need to take most of your profits out to live on.
• You’re not ready for the added filings, records and running costs.
• You’re choosing a structure based on someone else’s figures or an old comparison.
• Your business plans, income or personal circumstances have changed since you incorporated.

That doesn’t automatically mean you should return to being a sole trader. Changing structure can have legal, tax and administrative consequences, so it’s worth getting advice before you act.

If you’re still weighing up the basic differences, you can also read our guide to sole trader or limited company.

What should you do before deciding?

Ask for a comparison based on your own numbers. It should look at what the business earns, how much you need to draw, what you might leave in the company, and the costs of running each structure.

Timing matters, too. Reviewing things before your company year end gives you more room to understand your options and plan. Waiting until the year has finished may leave fewer choices.

That’s why I encourage clients to look at their numbers before the end of the year, not just after it. A month 9 check-in can give you time to consider your position while there’s still time to plan.

I’m an FCA with more than 25 years of technical experience, including a decade running my own practice. My job isn’t to tell you that incorporation is always worthwhile. It’s to help you see what makes sense for your business and tell you plainly if it doesn’t.

Frequently asked questions

Have dividend tax rates gone up?

Yes. Rates for some taxpayers increased from 6 April 2026 following the November 2025 Budget. The change affects the personal tax due on dividends; check the current figures and how they apply to you.

Does that mean I should go back to being a sole trader?

Not necessarily. The change may make the tax advantage of a company smaller, but it doesn’t remove other considerations such as retained profits, client requirements, liability and administration. Moving back also has consequences to review first.

Is it still worth incorporating?

It can be, depending on your circumstances and plans. The important point is not to assume that incorporation will save tax. Model the full costs and tax position before you decide.

Can I be a sole trader and run a limited company at the same time?

It may be possible to have both, for example if you have distinct activities. But you’ll need to keep the finances and records clear, and understand how the arrangement is treated for tax. Get advice before splitting or moving income between them.

When should I review my structure?

Review it when your business or personal needs change, and ahead of your year end where possible. That gives you time to consider the figures and plan your next steps.

Make the decision with your own numbers

A limited company may still be the right fit. It just shouldn’t be chosen on the assumption that it automatically means a meaningful tax saving.

If you’d like to understand your options, you’re welcome to get in touch and ask about a month 9 check-in. We’ll review the figures with you, explain the trade-offs and help you decide what to consider next.

P.S. The most useful answer isn’t always “go limited” or “stay limited”. It’s knowing why your structure fits, and reviewing it when your circumstances change.