Take-home now plus retained profit, after eventual extraction
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⚠ Estimates only. Based on 2026/27 HMRC rates, profit split equally and (for the company) extracted as an optimal salary plus dividends. It excludes one-off incorporation costs such as CGT on goodwill and SDLT on property. Not financial advice — speak to an accountant about your own circumstances.
Quick Answer
Is a limited company more tax-efficient than a partnership?
Not automatically. For 2026/27, when all profit is drawn each year, a partnership can leave owners with similar or even higher take-home pay than a limited company — once you account for corporation tax, 15% employer National Insurance and the higher dividend rates (10.75% and 35.75% from April 2026). A limited company usually wins when profit is retained and reinvested rather than fully extracted, because retained profit is taxed only at corporation tax. Enter your figures above to compare.
When a limited company wins vs when a partnership wins
A limited company is usually better when…
You do not need all the profit personally
You retain and reinvest earnings in the business
Profits are pushing partners into higher or additional rate
Limited liability protection matters
You are planning a future sale or bringing in investors
Employer pension contributions form part of the plan
A partnership is usually better when…
Every pound of profit is drawn each year
Profits are modest and within the basic rate band
You want minimal admin and filing
You want to avoid one-off incorporation costs
Flexibility over profit shares matters more than tax
The business holds property where SDLT would bite
How the two structures are taxed in 2026/27
In a partnership, each partner is taxed personally on their share of profit whether or not they draw it — income tax at 20%, 40% or 45%, plus Class 4 National Insurance at 6% and then 2%. There is no separate business-level tax.
A limited company pays corporation tax first — 19% on profits up to £50,000, rising to 25% above £250,000, with marginal relief giving an effective rate of up to 26.5% in between. Directors then pay income tax on salary and dividend tax (10.75%, 35.75% or 39.35%) on dividends above the £500 allowance. Crucially, profit left in the company is taxed only at corporation tax, which is what creates the planning advantage.
Is a limited company more tax-efficient than a partnership?
Not automatically. For 2026/27, when profit is fully drawn, a partnership can match or beat a limited company on take-home once corporation tax, 15% employer NI and the higher dividend rates are included. A company wins mainly when profit is retained rather than fully extracted.
How is a partnership taxed compared to a limited company?
Partners pay income tax and Class 4 NI on their profit share whether or not they draw it. A company pays corporation tax first, then directors pay income tax on salary and dividend tax on dividends. Profit kept in the company is taxed only at corporation tax.
When should a partnership become a limited company?
Usually when owners can retain earnings rather than draw everything, when limited liability matters, or when planning a future sale. If all profit is extracted each year, the tax saving is now small or can be negative. Weigh one-off costs such as CGT on goodwill and SDLT on property too.
What taxes does a limited company pay in 2026/27?
Corporation tax at 19% up to £50,000 and 25% above £250,000, with marginal relief (up to 26.5% effective) in between. Directors pay income tax on salary, employee and employer NI on salary above the thresholds, and dividend tax at 10.75%, 35.75% or 39.35% above the £500 allowance.
Does retaining profit in a limited company save tax?
In the year it is earned, yes — retained profit is taxed only at corporation tax, not dividend rates. But it is a deferral: you pay dividend tax when you later draw it, or capital gains tax (with Business Asset Disposal Relief at 18% for 2026/27) if you extract it on winding up. Use the retention layer above to see the net position under each route.
Thinking about incorporating?
Get a personalised view of whether a limited company would actually save you tax — including the one-off costs — from AccTek's qualified UK accountants.
AccTek is a member firm of the Institute of Certified Practising Accountants (ICPA). Our accountants have a wide range of qualifications and accreditations from trusted professional bodies such as the AAT, ICPA, and ACCA.
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