The sole-practitioner tax position

A solicitor practising as a sole practitioner is self-employed. The profit of the practice is assessed to income tax and Class 4 National Insurance through Self Assessment. There is no salary to set, no payroll to run and no corporation tax to think about. The entire profit belongs to you and, after tax, comes out as take-home.

That simplicity is also the key tension in the sole-practitioner tax discussion. Above certain profit levels the self-employed income tax and NI burden becomes heavier than what the same individual would pay extracting equivalent value through a limited company. This guide explains where that crossover lies and what drives it.

Income tax and NI as a self-employed sole practitioner

Income tax rates 2026/27

  • Personal allowance: £12,570 (tapers above £100,000; eliminated above £125,140)
  • Basic rate: 20% on income from £12,571 to £50,270
  • Higher rate: 40% on income from £50,271 to £125,140
  • Additional rate: 45% on income above £125,140

National Insurance as self-employed

  • Class 2: flat weekly charge on profits above the Small Profits Threshold (£12,570 from April 2024)
  • Class 4: 6% on profits between £12,570 and £50,270; 2% on profits above £50,270

The 2% upper-tranche Class 4 is sometimes overlooked. It adds meaningfully to the effective rate. At a £120,000 profit, the Class 4 contribution is approximately £3,651: roughly 3% of the entire profit, on top of the higher-rate income tax already paid.

Worked example: £120,000 profit

The online calculator and the accompanying workbook produce the same result from the same inputs. At £120,000 annual profit with no pension contribution:

  • Income tax: approximately £41,435 (personal allowance applied, higher rate on income above £50,270)
  • Class 4 NI: approximately £3,651
  • Take-home: approximately £74,914

Run the figures in the workbook for your own profit level to get the precise answer. The tax constants are locked to 2026/27 rates and match the online tool.

The limited company model

Why a company structure can reduce the overall tax

In a limited company, the profit is first subject to corporation tax (25% on profits above £250,000; marginal relief between £50,000 and £250,000; 19% small-profits rate below £50,000). After corporation tax, the remaining profit belongs to the company, not the individual. The individual extracts money through a combination of salary and dividends.

Dividends are not subject to NI. At the basic rate, dividends are taxed at 8.75% (from April 2026: 10.75%), at the higher rate at 33.75% (from April 2026: 35.75%), and at the additional rate at 39.35%. These rates are lower than the equivalent income-tax rates on employment income, and the absence of NI on dividends widens the gap further.

Why a salary is still usually worth having

Most owner-director solicitors take a salary just above the NI Secondary Threshold (£5,000 from April 2025) or just above the NI Primary Threshold (£12,570). This has two effects: the salary is deductible against corporation tax (saving 19-25%), and it keeps the individual in the NI qualifying year record for state pension purposes, which matters over a career of 35+ years.

Taking a salary above about £12,570 starts to eat into personal tax allowances in ways that reduce the benefit, so most sole practitioners incorporating take a salary in the £5,000-£12,570 range and take the balance as dividends.

Worked example: £120,000 profit via limited company

At £120,000 firm profit, extracted as an optimal salary plus dividends (no pension contribution), the net position is approximately £72,279. This is lower than the partnership take-home in this example. The gap between the structures is smaller at higher profit levels and larger at mid-range profits. The crossover depends heavily on the personal allowance taper and the dividend rates in each year.

The workbook models both structures at the same gross profit so you can see the gap directly. If you contribute to a pension, add that figure: it reduces both corporation tax (in the company) and your adjusted income (as a sole trader), so its impact differs by structure.

When incorporation actually makes financial sense

The financial case for incorporation is strongest when:

  • The profit is above roughly £50,000 per year (below this the corporation tax rate and the compliance overhead erode much of the advantage)
  • The solicitor does not need to extract all the profit each year (retained profits in the company are only taxed at corporation tax rates until they are extracted as dividends)
  • The solicitor has dependants or a spouse who can hold shares and take dividends at a lower marginal rate (income splitting, subject to the settlements legislation)
  • The practice has been operating for several years and the administrative burden of a company is acceptable

The case is weaker when the SRA's authorisation and compliance requirements for an ABS or recognised sole practitioner company are onerous for the firm's particular regulatory profile, when the solicitor expects to sell the firm within a few years (which has its own CGT implications), or when the volume of work does not support the additional compliance overhead.

SRA authorisation and the entity choice

A sole solicitor practising through a limited company must apply to the SRA for the company to be an authorised body: either a recognised sole practice (if the solicitor is both the sole shareholder and sole director) or a licensed body. This is separate from and additional to the individual solicitor's own authorisation. It carries its own SRA fees and compliance requirements. You should factor this into the comparison before making a structural decision.

Using the take-home model

The accompanying workbook has two sheets side by side:

  • Partnership / sole trader: enter your profit level and any pension contribution. The model calculates income tax (with the personal allowance taper if applicable), Class 4 NI and net take-home.
  • Limited company: the same gross profit, modelled as an optimal salary (at the NI Secondary Threshold) plus the remaining profit as dividends, after corporation tax. The model shows the corporation tax, the personal tax on salary and dividends, and the net take-home for direct comparison.

Both sheets use the same locked Rates constants: 2026/27 income tax rates, FA 2026 NI thresholds and FA 2026 dividend rates (10.75% / 35.75% / 39.35%). They match the online calculator.

Getting advice

The decision to incorporate is not purely a numbers exercise. It affects your regulatory status, your professional indemnity, your ability to take on practice staff, your exit options and, if you ever sell, the CGT treatment of the disposal. A specialist who works only with law firms can model the full picture for your specific situation. The first call is free.