Limited company tax UK 2026: corporation tax, salary vs dividends and what you owe

Tax

TL;DR

UK limited companies pay corporation tax on profits: 19 percent for profits up to £50,000 and 25 percent for profits above £250,000 (with marginal relief between). Directors who are also shareholders typically take a combination of a low salary (to avoid income tax and NI) and dividends from post-tax profits. The dividend allowance is £500 for 2025/26; dividends above this are taxed at 8.75 percent (basic rate), 33.75 percent (higher rate) or 39.35 percent (additional rate). IR35 rules can reclassify contractor income as employment income where the working arrangements resemble employment.

Key facts (2026)

The UK corporation tax main rate is 25 percent for profits above £250,000; the small profits rate is 19 percent for profits up to £50,000; marginal relief applies on a sliding scale between these thresholds (HMRC corporation tax rates 2025/26, in force from April 2023).
The dividend allowance for 2025/26 is £500 per person; dividends above this are taxed at 8.75 percent (basic-rate taxpayers), 33.75 percent (higher-rate taxpayers) or 39.35 percent (additional-rate taxpayers) (HMRC dividend tax rates 2025/26).
Directors of UK limited companies are required to file a Self Assessment tax return annually; the company itself must file a Corporation Tax return (CT600) within 12 months of the end of its accounting period and pay any corporation tax within nine months and one day (HMRC CT filing and payment deadlines).
IR35 (off-payroll working rules) can reclassify income earned through a personal service company as employment income if the working arrangements would be employment in the absence of the intermediary; from April 2021 the responsibility for IR35 determination lies with the end client in most cases (HMRC IR35 rules 2021 reform).
A director's loan account records transactions between the director and the company; overdrawn director's loans outstanding nine months after the accounting year end trigger a Section 455 corporation tax charge of 33.75 percent on the outstanding balance (HMRC S455 rules 2025/26).

Corporation tax rates and how marginal relief works

UK corporation tax has two main rates: a small profits rate of 19 percent on profits up to £50,000 and a main rate of 25 percent on profits above £250,000. Between these thresholds, marginal relief applies, increasing the effective rate gradually from 19 to 25 percent. The marginal relief fraction is applied to the profits between £50,000 and £250,000; the effective rate at profits of £150,000 is approximately 22 percent. Where a company has associated companies (companies with common control), the thresholds are divided by the number of associated companies - so a director who controls two companies has a threshold of £25,000 and £125,000 per company rather than the full thresholds. Corporation tax is calculated on taxable profit (revenue minus allowable deductions), not gross income. Allowable deductions include salary payments (which reduce profit before tax), business expenses, capital allowances on equipment and plant, and pension contributions.

Salary versus dividends: the optimal split in 2025/26

The most tax-efficient extraction strategy for a director-shareholder depends on their personal tax position, but the standard approach for a basic-rate taxpayer with no other income is: take a salary up to the National Insurance secondary threshold (£9,100 per year in 2025/26), which avoids both employee and employer NI contributions while still generating a qualifying NI year for State Pension purposes; and extract remaining profits as dividends, which are taxed at lower rates than employment income (8.75 percent basic rate versus 20 percent income tax plus NI on salary). The corporation tax paid on the profits before dividend is the price of the lower dividend tax rate; the combined effective rate of corporation tax plus dividend tax is lower than the equivalent salary plus income tax and NI for most basic-rate directors. Higher-rate directors face higher dividend tax rates (33.75 percent) that narrow but do not eliminate the advantage. The precise optimal split changes with each Budget; calculate for your specific situation at each tax year start.

Director responsibilities for company tax

Directors of UK limited companies have legal responsibilities for filing and paying company taxes. The company must file a corporation tax return (CT600) with HMRC within 12 months of the end of its accounting period, and must pay any corporation tax owed within nine months and one day of the accounting year end - note that payment is due before the return in most cases. Directors are also personally responsible for ensuring that PAYE and National Insurance deductions are made correctly from any salary paid by the company, and that employer NI is paid to HMRC on time. VAT returns and payments must be made as required by the company's VAT registration. Late filing and late payment attract automatic penalties and interest; HMRC does not provide automatic extensions. Directors can be held personally liable for unpaid company tax in cases of fraud or deliberate non-compliance.

IR35 and off-payroll working: the key rules

IR35 (Intermediaries Legislation, ITEPA 2003 Chapter 8) targets contractors who provide services through a personal service company (PSC) in circumstances where the working relationship with the end client resembles employment. If IR35 applies, the income from the contract is treated as employment income for the contractor, subject to income tax and NI as if they were directly employed - eliminating the tax efficiency of the company structure. Since April 2021, the responsibility for determining IR35 status has shifted from the contractor to the end client for medium and large private sector companies and all public sector bodies. The end client issues a Status Determination Statement (SDS) setting out its assessment; if the contractor disagrees, they can use HMRC's Check Employment Status for Tax (CEST) tool or seek independent legal advice. Small company end clients (those meeting two of three criteria: turnover below £10.2m, balance sheet below £5.1m, fewer than 50 employees) are exempt from the IR35 determination responsibility, leaving the assessment with the contractor.

Director's loan accounts: avoiding the Section 455 charge

A director's loan account (DLA) records money owed between a director and their company. When a director withdraws more money from the company than they have put in as salary, dividends or legitimate expense reimbursements, the DLA becomes overdrawn. An overdrawn DLA outstanding nine months after the company's accounting year end triggers a Section 455 corporation tax charge of 33.75 percent on the overdrawn balance. This charge is a temporary tax paid by the company and is repayable to the company by HMRC when the loan is repaid - but the timing mismatch creates a significant cash flow cost. Directors with overdrawn DLAs should plan to repay or formally convert the balance to dividends or salary before the nine-month deadline. Maintaining accurate DLA records is essential; the DLA balance must be reconciled to supporting documentation at each year end as part of the statutory accounts.

Annual accounts, confirmation statements and filing deadlines

UK limited companies must comply with several annual filing obligations. The confirmation statement (formerly the annual return) must be filed with Companies House at least once every 12 months confirming the company's registered details; failure to file results in the company being struck off the register. Statutory accounts must be filed with Companies House within nine months of the accounting year end for private companies (six months for public companies). The accounts must comply with UK GAAP or IFRS; micro-entity accounts under FRS 105 are available for the smallest companies (turnover below £632,000, balance sheet below £316,000, fewer than 10 employees). HMRC requires the company's corporation tax return (CT600) within 12 months of the year end; the accompanying statutory accounts are filed with the CT600. Directors who also have employment income, dividends, or other income outside the company must file personal self-assessment returns by 31 January following the tax year end.

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Frequently asked questions

Can I pay myself via dividends with no salary at all?

Technically, yes, but this is rarely advisable. Taking no salary means you do not generate a qualifying NI year for State Pension purposes unless you pay Class 3 voluntary contributions separately. It also means the company pays no employer NI, removing the allowable deduction that salary provides against corporation tax. The employment allowance (which reduces employer NI by up to £5,000 per year for eligible companies) is not available to companies where the sole employee is also the sole director. A small salary at the NI threshold (£9,100 in 2025/26) is standard practice.

What is Making Tax Digital for Corporation Tax?

HMRC's Making Tax Digital (MTD) programme currently covers VAT (mandatory for all VAT-registered businesses) and is being extended to income tax self-assessment (MTD ITSA) from April 2026 for those with income above £50,000. MTD for Corporation Tax has been proposed but has not yet been mandated with a confirmed start date as of May 2026. Companies should follow HMRC's MTD announcements on gov.uk for updates on the corporation tax timeline. Currently, CT600 returns are filed using commercial software or through HMRC's own filing service.

How do I know if IR35 applies to my contract?

IR35 status is assessed using three primary tests: substitution (can you send a substitute to do the work?), control (does the client control how, when and where you work?), and mutuality of obligation (is the client obliged to offer work and you obliged to accept it?). These are the common law tests for employment status. HMRC's CEST tool provides a determination based on answers to these questions; while CEST is not binding on HMRC in all cases, it provides a useful starting point. A specialist employment or tax lawyer can provide a more robust assessment for higher-value or complex contracts.

What happens if I miss the corporation tax payment deadline?

HMRC charges late payment interest on corporation tax paid after the nine-months-and-one-day deadline. The interest rate is linked to the Bank of England base rate and is currently above 7 percent per year. Late filing of the CT600 attracts automatic penalties starting at £100 (one day late) and increasing with further delays. HMRC can also open an enquiry into the return if it considers the accounts or tax computations unreliable. Persistent late filing or payment can result in surcharges and, in serious cases of deliberate non-compliance, criminal investigation.

Can my limited company contribute to my pension?

Yes. Employer pension contributions made by the company to a registered pension scheme are an allowable business expense that reduces the company's taxable profits before corporation tax is applied. This makes employer contributions more tax-efficient than salary or dividends for extracting profits from the company for long-term saving. The total pension contribution (employer plus employee) cannot exceed the annual allowance of £60,000 for 2025/26; the contribution must also not exceed the employee's earnings for the year if the employee has employment income from the company.

How we verified this guide

Corporation tax rates and marginal relief thresholds were confirmed from HMRC's corporation tax rates guidance updated for 2025/26. Dividend tax rates and the £500 allowance were confirmed from HMRC's dividend tax guidance 2025/26. IR35 2021 reform responsibility shift was confirmed from HMRC's off-payroll working rules guidance. Section 455 charge rate was confirmed from HMRC's director's loan account guidance updated 2025/26.

Disclaimer: This guide is information only, not financial, legal or tax advice. Rates, allowances and rules change. Always check the primary sources cited and consult a regulated adviser for decisions about your own circumstances.

Primary sources

Last reviewed: May 2026.