Limited Company Tax FAQs

Ask ten directors how much tax their company pays and you'll get ten different answers. Most will be wrong, and it isn't their fault. The honest answer is 19%, or 25%, or 26.5% on the last pound of profit, depending on where the company sits. That's before you even reach the personal tax side.

After years of sitting across the table from business owners, I can tell you the same eighteen or so questions come up again and again. New directors ask them. Experienced directors ask them too, usually after a rule has changed and they're not sure whether it affects them. So I've gathered them here, with straight answers for 2026/27 and a link to the full guide wherever you want more depth.

A quick note before we start. This is general guidance, not advice tailored to your own circumstances. Where the answer depends on your figures, I'll say so, and that's usually the moment a short conversation with us saves you real money.

How Much Tax Does a Limited Company Pay?

It depends on what kind of tax you mean, because a company pays more than one.

Corporation tax

This is the main one, charged on profit. For 2026/27, that's 19% on profits up to £50,000, 25% above £250,000, and a tapered rate in between.

Other taxes the company pays

If you employ people, including yourself as a salaried director, the company pays PAYE and National Insurance. Employer National Insurance is 15% on pay above £5,000 a year per employee. If you're VAT-registered, the company collects VAT and pays it over. Some companies also pay Class 1A National Insurance on benefits in kind.

Tax you pay personally

The company's tax is separate from yours. Whatever you take out as salary or dividends is then taxed on you, and we cover that below. Our [corporation tax guide](/blog/corporation-tax-limited-companies) has worked examples if you want the detail.

Is Corporation Tax 19% or 25%?

Both, and neither, depending on your profit.

If your taxable profit is £50,000 or less, you pay 19%. If it's above £250,000, you pay 25% on the lot. In between, marginal relief applies. It's worked out by taking tax at 25% and then subtracting (£250,000 minus your profit) multiplied by 3/200.

Take a company with £150,000 of profit. Tax at 25% is £37,500. Marginal relief is £100,000 × 0.015, or £1,500. So the bill is £36,000, an effective rate of 24%.

The part that surprises people: within that band, every extra pound of profit is taxed at 26.5%, which is higher than the main rate. It's worth knowing when you're deciding whether to take on one more job before year end. And if you control more than one company, the £50,000 and £250,000 limits are divided between them, so your position may be different from what you expect.

How Do I Reduce Corporation Tax Legally?

By using reliefs Parliament has deliberately provided. None of these are loopholes.

• Employer pension contributions: fully deductible, and they avoid National Insurance. See our pensions guide.
• Capital allowances: the Annual Investment Allowance lets you deduct up to £1 million of qualifying equipment in the year you buy it. New electric cars qualify for a 100% first-year allowance, currently confirmed until 31 March 2027. See our capital allowances guide.
• R&D relief: if your company solves genuine technical problems, a claim can reduce your bill or produce a cash credit. See our R&D guide.
• Allowable expenses: claiming everything you're entitled to, and keeping proper records.
• Timing: bringing forward planned spending, or moving profit between periods where you genuinely have a choice.
• Loss relief: if you've made a loss, carrying it back can produce a refund.

The dividing line is simple. Legitimate planning uses the rules as written. It doesn't dress up personal spending as business cost, or invent transactions to shift profit. HMRC has become much more targeted about that.

Is It Better to Take Salary or Dividends?

There used to be one answer. Now there isn't.

The gap has narrowed sharply because dividend tax rose again this year, employer National Insurance went up to 15%, and the dividend allowance has shrunk to £500. Here's a real comparison. Take a sole-director company with a £50,000 total budget to extract, and no other staff. As salary only, the director takes home about £35,290. As a £12,570 salary plus dividends, they take home about £38,860. Dividends still win by roughly £3,570, but the margin is far narrower than it was a few years ago.

Salary can beat dividends when you have other employees and can use the Employment Allowance, when you need salary to support personal pension contributions, when you're applying for a mortgage, or when statutory pay and your State Pension record matter. Our guide to paying yourself walks through every scenario.

How Much Salary Should I Take From My Limited Company?

For most sole-director companies with no other staff, £12,570 is a sensible starting point. It's covered entirely by your personal allowance, so no income tax is due, and it matches the primary threshold, so no employee National Insurance either. The company pays a small amount of employer National Insurance on the portion above £5,000.

There's a floor to be aware of. Earning at least £6,708, the lower earnings limit, gives you a qualifying year for the State Pension. Go below it and you lose that year for no tax gain at all.

If you employ other people and can claim the £10,500 Employment Allowance, the answer can change. So treat £12,570 as a default rather than a rule, and review it every April.

How Much Dividend Can I Take?

As much as your company's distributable reserves allow, and no more.

Distributable reserves are your realised profits after corporation tax. They aren't the same as the money in your bank account. I once had a client who saw a healthy balance and paid himself a large dividend, only to find that most of it was VAT and PAYE owed to HMRC. The reserves couldn't support the payment, and it had to be reclassified as a director's loan. It took weeks to unpick.

Check up-to-date management accounts before you pay any significant dividend, and keep the paperwork: a board minute and a dividend voucher for each payment.

Do Directors Pay Tax on Dividends?

Yes, once you go above the £500 dividend allowance. Above that, the rates for 2026/27 are 10.75% in the basic rate band, 35.75% in the higher rate band, and 39.35% in the additional rate band.

Dividends are treated as the top slice of your income. So if you also have rental income, savings interest, or another job, your dividends may be taxed at a higher rate than you expected. And because dividend tax isn't deducted at source, it builds up quietly until your Self Assessment is due on 31 January. Put the tax aside on the day you pay yourself. Our director's tax guide covers the full picture.

Can I Take Money Out of My Company Whenever I Want?

Physically, yes. Legally and tax-wise, only through certain routes.

You can take money out as salary, as dividends paid from real reserves, as repayment of genuine business expenses, or as a properly recorded director's loan. Anything else risks being reclassified, often as a loan, with a tax charge attached.

The company's money is not your money. It belongs to the company, and you're taking it out through a recognised channel each time. Keep that in mind and most problems never arise.

What Happens If I Take Too Much Money From My Company?

Usually, it becomes a director's loan, and that has consequences.

If your loan account is overdrawn at your year end and you haven't repaid it within nine months, the company pays Section 455 tax on the balance, at 35.75% for 2026/27. If the balance goes above £10,000 and is interest-free, there may also be a personal benefit-in-kind charge, based on the official interest rate of 3.75%.

The Section 455 tax is refundable once the loan is repaid, but it can take a while to come back. And repaying then quickly re-borrowing doesn't work. If you repay £5,000 or more and borrow £5,000 or more again within 30 days, HMRC can treat the repayment as not having happened. Our [director's loan guide](/blog/directors-loan-account-guide) sets out the rules and how to avoid trouble.

What Expenses Can a Limited Company Claim?

Anything incurred wholly and exclusively for the business. It's a simple test, and applying it takes care.

What you can claim

Office costs, professional fees, marketing, business insurance, business travel, equipment, and pension contributions. Mileage on your own car is 55p a mile for the first 10,000 business miles, then 25p. Your company can also pay you £6 a week tax-free for working from home.

What you can't claim

Client entertaining is disallowed for corporation tax, however sensible it feels. Fines, ordinary commuting, and personal costs dressed up as business ones are out too.

Keep receipts and a note of the business purpose. The clients who breeze through an HMRC enquiry are the ones with tidy records. Our allowable expenses guide has the full list.

Can My Limited Company Pay for My Phone?

Yes, tax-free, with a few conditions. The company can provide one mobile phone contract per employee, held in the company's name, without a benefit-in-kind charge, even if you also use it privately.

The exemption is narrower than people assume. A second phone doesn't qualify. Neither does simply reimbursing a personal contract that's in your own name, which can create a taxable benefit. The simplest fix is to put the contract in the company's name from day one. Our benefits in kind guide covers this and the other perks.

Can My Company Pay My Pension?

Yes, and it's one of the most tax-efficient things a profitable company can do.

An employer pension contribution is deductible against corporation tax and avoids National Insurance. It isn't tied to your salary, so a director on a modest salary can still receive a substantial contribution. The annual allowance is £60,000 for most people, and unused allowance from the past three tax years can be carried forward.

Compare the same £10,000 of profit two ways. Drawn as a dividend by a higher-rate taxpayer, with the company paying 19% corporation tax, about £5,200 reaches your pocket. Paid into your pension, the full £10,000 goes in. The catch is that pension money is locked away until your late fifties at the earliest, so it suits profit you don't need right now. Our pensions guide explains the limits.

Is an Electric Company Car Tax Efficient?

Currently, very much so.

Fully electric cars have a benefit-in-kind rate of 4% for 2026/27, rising to 5%, 7% and 9% over the following three years. Petrol and diesel cars sit in bands from 17% up to 37%. On a £40,000 car, a 40% taxpayer pays roughly £53 a month on an electric car and around £400 on a typical petrol one.

The company benefits too. A new, unused electric car qualifies for a 100% first-year capital allowance, currently confirmed until 31 March 2027, so the whole cost can come off your taxable profit in the year of purchase. Do check your own numbers, though, because if you drive a lot of business miles in a petrol car, claiming mileage in your own vehicle can still come out ahead. Our company cars and mileage guide has a full worked comparison.

What Is a Director's Loan?

It's any money moving between you and your company that isn't salary, a dividend, or a repayment of a genuine expense.

It's tracked in a running account. Every personal withdrawal adds to it, and every repayment reduces it. If the account is in credit, the company owes you. If it's overdrawn, you owe the company, and that's where the tax risk lies.

There's nothing wrong with borrowing from your company, provided you keep track and repay on time. The problems come from losing track. Reconcile the account regularly, and talk to us before a large withdrawal. It's far easier to plan than to fix.

When Does a Limited Company Need to Register for VAT?

Once your taxable turnover passes £90,000 in any rolling 12-month period.

It isn't your financial year or the tax year. It's any 12 months, checked continuously. Zero-rated sales count towards the threshold, which surprises many people, though exempt sales don't. You have 30 days to notify HMRC once you've crossed it.

You can also register voluntarily, which often makes sense if your customers are VAT-registered businesses who can reclaim the VAT, or if you have significant start-up costs. Since 2022, all VAT-registered businesses must keep digital records and file through compatible software. Our VAT guide explains the schemes and the traps.

What Are the Limited Company Tax Deadlines?

Here they are in one place. They come from different bodies, and none of them line up neatly.

• Corporation tax payment: nine months and one day after your year end
• Company Tax Return (CT600): twelve months after your year end
• Companies House accounts: nine months after your year end for a private company, with 21 months for your first accounts
• Confirmation statement: within 14 days of the end of your review period, with a £50 online fee
• PAYE and National Insurance: by the 22nd of the following month if paid electronically, or the 19th if by post
• Director's Self Assessment: 31 January for filing and payment

Late filing carries automatic penalties. A late CT600 costs £100 straight away, and late accounts start at £150 and rise to £1,500. Since April 2026, tax returns and accounts also have to be filed separately, so check that your process reflects that. Our Limited Company Tax Guide sets everything out.

Do Limited Company Directors Need to Complete Self Assessment?

Almost always, yes. Being a director is one of the triggers for needing a Self Assessment return, even if PAYE has already collected all the tax on your salary.

You'll report your salary, dividends from every company you hold shares in, and any other income such as rent or savings interest. If you're new to Self Assessment, register by 5 October after the tax year in which you first need to. Filing and payment are both due by 31 January.

Watch out for payments on account. If your bill is over £1,000 and less than 80% was collected at source, HMRC will ask for advance payments towards next year, which means paying a year and a half of tax in a single January. Budget for it early. And remember that, since November 2025, directors also need to verify their identity with Companies House, which is separate from tax but easy to miss. Our Companies House guide explains the deadlines.

Can I Close My Limited Company Without Paying Tax?

Rarely entirely, but the route you choose can change the bill dramatically.

Striking off

For a company with modest reserves, striking off is the simplest option. If distributions come to £25,000 or less, they can generally be treated as capital rather than income. Above that, they're taxed as dividends unless you use a formal liquidation.

Formal liquidation

For larger reserves, a Members' Voluntary Liquidation lets you take the money out as capital. That can make you eligible for Business Asset Disposal Relief, which taxes qualifying gains at 18% for 2026/27, up to a £1 million lifetime limit. There are fees involved, but for substantial reserves, the tax saving usually far outweighs them.

Selling the company

A share sale is normally taxed as a capital gain, at 18% or 24% for most people, or 18% where Business Asset Disposal Relief applies. The £3,000 annual exempt amount comes off first.

Whichever route you take, the company must settle its own corporation tax first, and your director's loan account should be cleared before you begin. The order in which you extract money matters enormously, so speak to us before you start, not after. Our guide to selling or closing a company covers each route.

If your own question isn't answered here, ask it. I'd much rather field a question in October than untangle a mistake in January. Get in touch with the team at Cannon Accountants, and we'll give you a straight answer based on your actual figures.

For the wider picture of how all of this fits together, head back to our complete Limited Company Tax Guide 2026/27: Corporation Tax, Dividends & Director Tax →.

Disclaimer:

The content of this blog is for general informational purposes only and should not be considered professional tax advice. The information is correct at the time of publishing but may change following future UK budget announcements or updates to HMRC guidance. Individual circumstances vary, and tax obligations can differ based on your personal situation. We strongly recommend consulting with us or a qualified tax professional to receive advice tailored to your specific needs.