Limited Company Tax: Everything You Need to Know in 2025/26
In this guide, we explain what limited company tax is, how it’s calculated, what tax returns you need to submit, and tips to legally reduce your tax bill — all with updated information for the 2025/26 tax year.
How much is Corporation Tax for a limited company?
Understanding how limited company tax works in the UK is crucial for business owners, directors, and entrepreneurs. From Corporation Tax rates to allowable expenses and dividend tax, knowing your obligations can help you minimise liabilities and stay compliant with HMRC regulations.
What Taxes Do Limited Companies Pay?
A UK limited company is a separate legal entity from its directors or shareholders. As a result, the company itself is responsible for paying:
| Type of Tax | Description |
|---|---|
| Corporation Tax | Paid on profits (trading, investments, asset sales). |
| VAT (if applicable) | Charged on goods and services if turnover exceeds £90,000 (2025/26 threshold). |
| PAYE & National Insurance | On employee salaries, including directors. |
| Dividend Tax (Shareholders) | Paid personally by shareholders receiving dividend income. |
🔎 Important: Unlike sole traders, limited companies don’t pay Income Tax or Class 2/4 National Insurance.
Corporation Tax Rates for 2025/26
Since April 2023, Corporation Tax in the UK operates on a tiered system based on a company’s profits:
| Taxable Profit | Corporation Tax Rate |
|---|---|
| Up to £50,000 | 19% (Small Profits Rate) |
| £50,001 to £250,000 | Tapered Marginal Relief |
| Over £250,000 | 25% (Main Rate) |
➡ Marginal Relief applies to profits between £50,001 and £250,000, effectively creating a sliding tax scale.
📌 Example: If your company earns £100,000 in taxable profits, you won’t pay a flat 25% — Marginal Relief reduces your effective rate.
How Is Corporation Tax Calculated?
Here's a simplified breakdown:
Start with total company income
Subtract allowable business expenses (staff costs, rent, software, utilities, etc.)
Subtract capital allowances on eligible assets like equipment or vehicles
Add back any disallowed expenses (like client entertainment)
Apply the Corporation Tax rate based on the final profit figure
Allowable Expenses for Limited Companies
Claiming all eligible expenses is one of the best ways to reduce your tax bill legally. Common examples include:
| Category | Examples |
|---|---|
| Staff Costs | Salaries, employer NICs, pensions |
| Premises | Rent, utilities, business rates |
| Travel & Subsistence | Public transport, accommodation, meals (business only) |
| Office Costs | Computers, internet, stationery |
| Professional Fees | Accountant, legal advice, software subscriptions |
Deadlines and Filing Requirements
| Requirement | Deadline |
|---|---|
| Company Tax Return (CT600) | 12 months after accounting year end |
| Corporation Tax Payment | 9 months and 1 day after accounting year end |
| Annual Accounts to Companies House | Usually 9 months after year-end |
| Confirmation Statement (CS01) | Every 12 months from incorporation date |
💡 Tip: HMRC doesn’t send reminders for Corporation Tax returns — it’s your responsibility to file on time.
Do Directors Pay Tax Separately?
Yes. Directors who receive a salary are taxed via PAYE just like employees. If they take dividends, they pay Dividend Tax on top:
| Dividend Income Band | Tax Rate (2025/26) |
|---|---|
| Up to £1,000 (allowance) | 0% |
| Basic rate | 8.75% |
| Higher rate | 33.75% |
| Additional rate | 39.35% |
How to Reduce Limited Company Tax Legally
Here are some practical and fully legal ways to reduce your limited company’s tax bill:
✅ Claim all allowable business expenses
✅ Use the Annual Investment Allowance (AIA) for equipment
✅ Pay into a director’s pension scheme (tax-deductible)
✅ Time income and expenditure strategically at year-end
✅ Pay a tax-efficient mix of salary and dividends
⚠️ Be cautious of aggressive tax avoidance schemes — these can trigger penalties and HMRC investigations.
What Happens If You Miss a Deadline?
Failing to file or pay Corporation Tax on time can result in:
Late filing penalties (starting at £100)
Daily fines for continued non-compliance
Interest on unpaid tax
Potential HMRC investigations or audits
Timely submissions and accurate bookkeeping are critical.
Do Dormant Companies Pay Tax?
No — if your limited company is dormant (i.e. not trading), you won’t have to pay Corporation Tax. However, you still need to notify HMRC and file certain forms like a confirmation statement and dormant accounts.
Summary: Key Takeaways
Limited companies pay Corporation Tax, not Income Tax
2025/26 Corporation Tax rates range from 19% to 25%
Shareholders and directors pay separate taxes on salary/dividends
Claiming expenses and smart planning can reduce tax bills
Keep on top of HMRC deadlines to avoid penalties
Frequently Asked Questions
1. What is the current Corporation Tax rate for small limited companies?
Small companies with profits up to £50,000 pay 19% Corporation Tax.
2. Can I reduce my tax by paying dividends instead of salary?
Yes, a balanced combination of salary and dividends can be tax-efficient, but it depends on your total income and thresholds.
3. Do I need an accountant to file Corporation Tax?
Not legally, but using a qualified accountant ensures compliance and can help you save money by structuring things more efficiently.
4. Is VAT part of Corporation Tax?
No. VAT is separate — it’s a sales tax charged on goods/services and submitted via VAT returns.
5. What happens if I overpay Corporation Tax?
HMRC will either refund the overpayment or credit it toward future tax liabilities.