Sole Trader or Limited Company: What a Mobile Mechanic Actually Pays in 2026/27

Every mobile mechanic asks this in the first year, usually after someone in the trade says "you want to go limited, mate, you'll save a fortune". For a long time that was roughly true. For the 2026/27 tax year it often is not, and the reason is a change most people have not noticed yet.

From 6 April 2026 the dividend ordinary rate rose to 10.75% and the upper rate to 35.75%. Those are the rates a company director pays on the money they take out as dividends, and they were 8.75% and 33.75% before. Put that alongside employer National Insurance at 15% on salary above £5,000, and the gap that used to make incorporating obviously worthwhile has mostly closed for a one person business that takes all of its profit out.

This is not tax advice, and your situation will have details this article cannot know about. It is a worked comparison so you can see the shape of it before you pay an accountant to do it properly.

How each one is taxed

As a sole trader you are taxed on your profit, whether or not you take it out of the business. You get a personal allowance of £12,570, then 20% income tax up to £37,700 of taxable income, then 40%. On top of that you pay Class 4 National Insurance at 6% on profits between £12,570 and £50,270, and 2% above that.

As a limited company the company pays Corporation Tax on its profit: 19% where profits are £50,000 or less, 25% at £250,000 or more, with marginal relief in between that works out at about 26.5% on the slice in the middle. You then pay yourself, usually a small salary plus dividends, and the dividends are taxed again in your hands at the rates above, after a £500 dividend allowance.

That second layer of tax is the whole story. The company pays, then you pay.

At £45,000 of profit

Take a mobile mechanic with £45,000 of profit before any tax, taking everything out to live on.

As a sole trader, income tax comes to about £6,500 and Class 4 National Insurance to about £1,950. Total tax around £8,450, leaving roughly £36,550.

As a limited company, taking a £12,570 salary and the rest as dividends, the company pays employer National Insurance of about £1,140 on that salary, then Corporation Tax at 19% on what is left, around £5,950. That leaves about £25,350 to pay out as dividends, on which you pay roughly £2,670 of dividend tax. Total take home around £35,250.

The sole trader is better off by roughly £1,300, before you have paid an accountant anything to file the company accounts.

At £80,000 of profit

The usual advice is that incorporating wins once you earn more, because the higher dividend rate of 35.75% is below the 40% income tax plus 2% National Insurance a sole trader pays at that level. It is closer than it looks.

As a sole trader on £80,000, income tax is about £19,450 and Class 4 National Insurance about £2,860, leaving roughly £57,700.

As a limited company on the same profit, Corporation Tax is higher because marginal relief has started to bite, around £13,800. After dividend tax of roughly £9,150, take home is about £55,900.

Still ahead as a sole trader, by about £1,800. The marginal relief band is doing the damage: profits between £50,000 and £250,000 are effectively taxed at about 26.5%, not 19%.

So when is a limited company still right?

Tax is not the only reason to incorporate, and for a lot of mobile mechanics the other reasons matter more than the arithmetic.

You are not taking all the profit out. This is the big one. The comparisons above assume you spend everything you earn. If you leave money in the company to buy a van, build a float, or smooth out a quiet winter, it has only been taxed once at 19%, and you decide when to take it and pay the second layer. A sole trader is taxed on the profit whether it sits in the business account or not.

Limited liability. You are working on other people's cars and then handing them back to be driven at speed. Your insurance should be the first line, but a company is a separate legal person and a sole trader is not.

Who you want to work for. Some fleet operators, dealer groups and warranty networks will only place work with limited companies. If that is the work you want, the decision is made for you.

Bringing someone in. Shares are easier to split than a sole trade.

Against all that, a company brings real costs: annual accounts, a Corporation Tax return, a confirmation statement, a payroll scheme if you pay yourself a salary, and an accountant who charges more than they would for a self assessment. Somewhere between £600 and £1,500 a year is normal, and that comes straight off the comparison above.

What to do with this

Work out your realistic profit for the year, not your turnover. Decide honestly how much of it you need to live on. If the answer is "all of it" and you are under roughly £80,000, the sole trader route is probably simpler and often cheaper in 2026/27. If you are retaining profit, chasing fleet work, or carrying real risk, the company case is about more than the tax.

Then check the current figures before you act on any of this. Rates move, and the thresholds above are frozen until 2030/31 but the rates on top of them are not. HMRC publishes the income tax rates and allowances, the dividend tax rates and the Budget 2026 rates annex in full.

Whichever way you go, the thing that actually decides whether the year was any good is whether you invoiced everything you did and got paid for it. If you are still writing jobs in a notebook, that is the more expensive problem. Autera is built for exactly this kind of one van operation, and there is more on getting the money in at mobile mechanic invoicing and on the wider setup in how to start a mobile mechanic business in the UK.