Limited Company Tax
Limited Company Tax: Rates, Allowances & Guide 2026/27
Understand how limited company tax works in the UK, including Corporation Tax rates, Marginal Relief, allowable expenses, dividends and the key tax deadlines directors need to know.
£50,000*
£250,000*
If you run a UK limited company, understanding limited company tax means looking at more than Corporation Tax alone. Your company may have Corporation Tax, PAYE, National Insurance and VAT obligations, while directors and shareholders can also pay personal tax on salaries, benefits and dividends.
Limited Company Tax: Quick Answer
For 2026/27, a UK limited company generally pays 19% Corporation Tax on profits of £50,000 or less and 25% on profits above £250,000. Companies with profits between these limits may qualify for Marginal Relief. The thresholds can be reduced where the company has associated companies or a short accounting period.
*Standard thresholds for a 12-month accounting period with no associated companies.
What Is Limited Company Tax?
“Limited company tax” is a broad term covering the taxes that can arise when operating a limited company in the UK. The principal company tax is Corporation Tax, which is normally charged on taxable company profits.
A limited company is legally separate from its directors and shareholders. This distinction is important: the company pays tax on its profits, while directors and shareholders may separately pay personal tax when they take money from the business.
What Taxes Does a Limited Company Pay?
| Tax | Who pays it? | When might it apply? |
|---|---|---|
| Corporation Tax | Limited company | Taxable company profits and certain chargeable gains |
| Employer's National Insurance | Limited company | Where relevant salary and employment costs arise |
| PAYE | Deducted through payroll | Where directors or employees receive taxable salary |
| VAT | VAT-registered company | Where registration is required or the company registers voluntarily |
| Dividend Tax | Shareholder personally | Where taxable dividend income is received |
Important distinction: a limited company does not normally pay Income Tax on its trading profits in the way a sole trader does. Instead, the company generally pays Corporation Tax. Directors and shareholders can then have separate personal tax liabilities on money extracted from the company.
How Much Tax Does a Limited Company Pay?
For the financial year beginning 1 April 2026, the main Corporation Tax rate is 25% and the Small Profits Rate is 19%.
| Company profits | Corporation Tax treatment |
|---|---|
| £50,000 or less | 19% Small Profits Rate, subject to qualifying conditions |
| Between £50,000 and £250,000 | Main rate reduced by Marginal Relief |
| Above £250,000 | 25% Main Rate |
These figures should not be treated as universal thresholds. They can be proportionately reduced for short accounting periods and where a company has associated companies.
What Is Corporation Tax Marginal Relief?
Marginal Relief bridges the gap between the 19% Small Profits Rate and the 25% main Corporation Tax rate.
A qualifying company with profits between the relevant lower and upper limits does not simply pay a flat rate somewhere between 19% and 25%. Corporation Tax is calculated at the main rate and then reduced by the appropriate amount of Marginal Relief.
How Is Limited Company Corporation Tax Calculated?
Your accounting profit is not necessarily the same as your taxable profit. Corporation Tax calculations normally begin with the company's accounts before making adjustments required by tax legislation.
Example of Limited Company Tax
Suppose a company has taxable profits of £40,000, has no associated companies and qualifies for the Small Profits Rate.
At a 19% Corporation Tax rate:
£40,000 × 19% = £7,600 Corporation Tax
This simplified example assumes the entire £40,000 is taxable and no other adjustments or special rules apply.
What Expenses Can a Limited Company Claim?
Claiming legitimate business expenses is an important part of calculating the correct amount of limited company tax. The precise tax treatment depends on the expense and the circumstances.
Staff & Directors
Qualifying salaries, employer National Insurance, pension contributions and other employment costs.
Office & Software
Business software, accountancy systems, office supplies, telephone and qualifying technology costs.
Professional Fees
Qualifying accountancy, legal and other professional costs incurred for the company's business.
Business Premises
Qualifying rent, utilities, business rates and other costs associated with business premises.
Business Travel
Qualifying travel and subsistence costs incurred for genuine business journeys.
Equipment & Assets
Equipment and other capital expenditure may qualify for capital allowances, subject to the relevant rules.
Not every cost paid by a company automatically qualifies for Corporation Tax relief. Personal expenditure and some categories of business expenditure can be restricted or disallowed, so the facts should always be considered.
When Does a Limited Company Pay Corporation Tax?
For a company with taxable profits of up to £1.5 million, Corporation Tax is normally due 9 months and 1 day after the end of the Corporation Tax accounting period.
This is different from the deadline for filing the Company Tax Return (CT600), which is normally 12 months after the end of the accounting period.
| Requirement | Typical deadline |
|---|---|
| Corporation Tax payment | 9 months and 1 day after accounting period end* |
| Company Tax Return (CT600) | 12 months after accounting period end |
| Companies House annual accounts | Usually 9 months after year end for a private company |
| Confirmation statement | At least once every 12 months |
*Different Corporation Tax payment arrangements can apply to larger companies and groups.
Do Directors Pay Tax on Money Taken From a Limited Company?
Potentially, yes. The company and its director are separate for tax purposes. The tax treatment depends on how money is taken from the company.
Director's salary
Salary is generally processed through PAYE. Income Tax and employee National Insurance may apply depending on the director's circumstances, while the company may also have employer National Insurance liabilities.
Dividends
Dividends are paid to shareholders from available company profits. They are not deductible when calculating Corporation Tax. The shareholder may then personally pay Dividend Tax.
| 2026/27 dividend tax | Rate |
|---|---|
| Dividend Allowance | £500 |
| Basic rate | 10.75% |
| Higher rate | 35.75% |
| Additional rate | 39.35% |
Your actual dividend tax depends on your total taxable income and circumstances, so a director should not look at the dividend rate in isolation when deciding how to extract profits.
Director's loans
Money withdrawn that is neither salary, a dividend, repayment of money already owed to the director nor another permitted payment may be recorded through the director's loan account. Overdrawn director's loan accounts can have separate Corporation Tax and personal tax consequences.
How Can a Limited Company Reduce Its Tax Bill?
Tax planning should focus on claiming reliefs and deductions that genuinely apply to the company's circumstances rather than simply trying to achieve the lowest possible headline tax figure.
- Claim all legitimate allowable business expenses.
- Review qualifying capital expenditure and available capital allowances.
- Consider employer pension contributions where commercially and personally appropriate.
- Review salary and dividend extraction rather than considering either in isolation.
- Make appropriate use of available loss relief where applicable.
- Review timing of genuine business expenditure around the company year end.
- Consider available specialist reliefs where the company qualifies.
- Plan ahead rather than waiting until after the accounting period has ended.
Tax planning should be company-specific. A strategy that is tax-efficient for one director may not be appropriate for another because salary, dividends, pensions, other income, associated companies and personal tax circumstances can all change the result.
Does a Limited Company Pay Tax on Dividends?
A company does not deduct Corporation Tax relief for dividends it pays to its shareholders. Dividends are distributions of available profits rather than ordinary business expenses.
The shareholder receiving the dividend may have a personal Dividend Tax liability depending on their total income and available allowances.
Does a Dormant Limited Company Pay Corporation Tax?
A company that is dormant for Corporation Tax purposes will generally have no Corporation Tax to pay while it remains dormant. However, becoming dormant does not necessarily remove all company administration obligations.
Companies House filings, including dormant company accounts and confirmation statements, may still be required.
Limited Company Tax vs Sole Trader Tax
| Limited company | Sole trader |
|---|---|
| Company is a separate legal entity | Business and owner are not separate legal entities |
| Company generally pays Corporation Tax | Owner generally pays Income Tax on taxable business profits |
| Director/shareholder may pay separate personal taxes | Business profits form part of the individual's taxable income |
| Profits can potentially be retained within the company | Profits normally belong directly to the proprietor |
| Accounts and company filings required | Generally simpler statutory administration |
Limited Company Tax FAQs
What tax does a limited company pay in the UK?
What is the Corporation Tax rate in 2026/27?
How much Corporation Tax does a small limited company pay?
Is Corporation Tax charged on turnover or profit?
When is Corporation Tax due?
Are dividends an allowable expense for Corporation Tax?
Can a limited company legally reduce its Corporation Tax?
Do I need an accountant for limited company tax?
Need Help With Your Limited Company Tax?
The Online Accountants are ACCA qualified accountants specialising in owner-managed limited companies. We can prepare your company accounts, Corporation Tax calculation and CT600 and help identify legitimate opportunities to manage your company tax efficiently.
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