Limited Company Tax

A limited company is a separate legal entity from its owners, offering protection from personal liability and often providing tax advantages over sole tradership. However, it comes with greater administrative obligations: you must file annual accounts with Companies House, submit a CT600 Corporation Tax return to HMRC, operate payroll for yourself and any employees, and comply with company law. The key tax decisions for a director-shareholder centre on how to extract profits from the company in the most tax-efficient manner.

Corporation Tax

Limited companies pay Corporation Tax on their worldwide profits. The current rates are 19% for profits up to £50,000 (small profits rate) and 25% for profits above £250,000, with marginal relief for profits between these thresholds. Dividends received from other UK companies are generally exempt from Corporation Tax. The company's accounting period determines the due date for payment: nine months and one day after the year-end for most companies, or quarterly instalments for large companies. See our dedicated Corporation Tax guide for full details.

Director's Salary vs Dividends

The classic tax-efficient strategy for a director of a small limited company is to pay yourself a low salary and extract the remaining profits as dividends. The salary should ideally be at or just above the National Insurance lower earnings limit (£6,396 in 2025/26) to build qualifying years for State Pension and benefits, without triggering significant Income Tax or National Insurance. The company gets a Corporation Tax deduction for the salary but not for dividends. Dividends are paid from post-tax profits and attract no National Insurance. Each shareholder has a dividend allowance (£500 in 2025/26) and pays tax on dividends above that at 8.75% (basic rate), 33.75% (higher rate), or 39.35% (additional rate).

IR35 and Off-Payroll Working

IR35 is anti-avoidance legislation designed to catch workers who operate through an intermediary (typically their own limited company) but would be classified as employees if engaged directly. If IR35 applies, the deemed employment income is subject to Income Tax and National Insurance as if the worker were an employee. Since April 2021, medium and large clients in the private sector are responsible for determining the IR35 status of engagements (the off-payroll working rules). If the client is outside the scope of the off-payroll rules, the responsibility falls on the worker's limited company. A found IR35 engagement can be financially damaging, as the company's Corporation Tax deduction is lost on the deemed payment. Use HMRC's CEST (Check Employment Status for Tax) tool as a starting point for determining status, but take specialist advice for borderline cases. See our Employee vs Contractor guide for more.

Company Formation and Filing Obligations

You can incorporate a limited company online via Companies House for £12 (typically completed within 24 hours). You will need a registered office address, at least one director and one shareholder, and a memorandum and articles of association. Within 30 days of trading, you must register the company for Corporation Tax with HMRC. Each year you must file: Annual accounts (statutory accounts) with Companies House within nine months of the year-end — small companies can file abbreviated accounts, Confirmation statement (formerly annual return) with Companies House each year, confirming company details are up to date, CT600 Corporation Tax return with HMRC within twelve months of the year-end, RTI payroll submissions (FPS) if you pay any salary through PAYE.

Failing to file on time results in automatic penalties from both Companies House and HMRC. Late filing of accounts at Companies House attracts escalating penalties from £150 to £1,500, with additional daily penalties for persistent lateness. Late CT600 returns incur penalties starting at £100.

Explore more UK business and employer guides or try our calculators.