Limited company tax isn’t complicated in principle, but the details matter more than many owners realise — and some of those details have shifted in 2026 in ways that deserve attention. If you’re running an owner-managed limited company, the tax decisions you make (or don’t make) around salary, dividends, and company profits can have a meaningful impact on what you actually take home.

In our experience working with owner-managed businesses, the clients who stay on top of their limited company tax obligations don’t just avoid nasty surprises — they make better decisions throughout the year. The ones who think about it only at year-end tend to miss planning opportunities that can’t be recovered retrospectively.

This post covers the current Corporation Tax rates, how the salary-dividend combination works, what changed in April 2026, and one tax trap that catches directors more often than it should.

Corporation Tax is charged on your company’s taxable profits — that’s broadly your revenue minus allowable business expenses, before you draw anything out as salary or dividends. The rate you pay depends on how much profit the company makes in its accounting year.

As of the 2026 tax year, the structure looks like this:

• 19% on profits up to £50,000 (the small profits rate)
• 25% on profits over £250,000 (the main rate)
• Marginal relief for profits between £50,000 and £250,000, which tapers the effective rate between the two

For most owner-managed limited companies turning over under £500,000, the 19% small profits rate is the one that applies — but it’s worth knowing that marginal relief exists, because the effective rate through that middle band isn’t simply one or the other.

One thing that trips people up: Corporation Tax is a tax on the company’s profit, not on what you take out. You can’t reduce your tax bill simply by drawing a large salary or dividend at year-end. The salary reduces profit before Corporation Tax is calculated (because it’s a business expense), but dividends come out of after-tax profit — they don’t reduce the Corporation Tax bill itself.

That distinction matters a lot when you’re planning how to pay yourself.

The most common tax-efficient strategy for limited company directors is to take a modest salary up to or around the National Insurance secondary threshold, and draw the rest of their income as dividends. The logic is straightforward: dividends are taxed at lower rates than employment income, and a company doesn’t pay Employer’s National Insurance on dividends.

However, the dividend allowance has been cut significantly in recent years and now sits at just £500 for 2026/27. Anything above that is subject to Income Tax at dividend rates — 8.75% for basic rate taxpayers, 33.75% at higher rate, and 39.35% at additional rate.

For a director taking, say, £40,000 in dividends on top of a small salary, the tax on those dividends above the £500 allowance adds up. It’s still generally more efficient than taking everything as salary, but the gap has narrowed compared to five years ago.

The right balance between salary and dividends depends on your other income, your marginal tax rate, and what the company can afford. There’s no universal answer — but there is a calculation worth doing each year, rather than defaulting to the same split you set up when you incorporated. This is one of the areas where proactive advice genuinely pays for itself.

If you or your previous accountant previously used HMRC’s free online service to file your company’s accounts and tax return, that option no longer exists. The ‘File your accounts and Company Tax Return’ service closed on 31 March 2026.

From 1 April 2026, all limited companies must use commercial accounting software to submit their Company Tax Return (CT600) and accompanying accounts to HMRC. Paper filing remains possible only in very limited circumstances — essentially where a company has a reasonable excuse or is filing in Welsh.

This change is part of HMRC’s broader move towards Making Tax Digital and standardising how tax data is submitted. A separate consultation on modernising and standardising the format of company tax return computations is also underway through 2026.

In practice, if you’re already working with an accountant who uses professional software, nothing changes for you — they’ll continue to file on your behalf using compliant tools. But if you’ve been filing yourself using HMRC’s free portal, you’ll need either commercial software or an accountant to handle this going forward.

It’s also worth noting that accounts still need to be filed with Companies House separately. HMRC and Companies House are different recipients with different deadlines — a point that’s easy to overlook.

One of the most common issues we see with owner-managed limited companies is the directors’ loan account — specifically, what happens when a director has taken more money out of the company than their salary and declared dividends add up to.

When you draw funds from your company informally — perhaps because the business has cash and you need it — those drawings are recorded as a loan from the company to you. If that loan isn’t cleared within nine months of the company’s year-end, HMRC charges the company an additional tax known as S455 tax, currently set at 35.75% of the outstanding balance.

That’s not a penalty — it’s a tax charge. The company pays it, and while it can be reclaimed once the loan is repaid, the cash flow impact in the meantime can be significant. On a £20,000 overdrawn director’s loan, that’s over £7,000 sitting with HMRC until you sort it out.

The fix is planning. Knowing what you can legitimately draw as salary and dividends — and declaring dividends formally rather than informally — keeps the loan account clean. It’s not complicated to manage, but it does require someone to be keeping an eye on it throughout the year rather than discovering the problem when the accounts are prepared.

There’s a pattern we see regularly with new limited company clients: they incorporated, set things up, and then effectively left the tax side to sort itself out — checking in once a year when accounts are due. For some very simple situations that’s manageable. For most, it means missed opportunities and occasional surprises.

Limited company tax has enough moving parts — Corporation Tax on profits, salary structuring, dividend planning, the directors’ loan account, VAT if applicable, and payroll — that a once-a-year conversation with your accountant doesn’t really cut it if you want to optimise your position.

The businesses we work with that have the clearest picture of their tax position are the ones who receive regular management information, understand their numbers month to month, and have their accountant flag anything that needs attention before it becomes a problem. That might sound like a big commitment, but for most owner-managed companies it’s a relatively light-touch process once the systems are set up properly.

The goal isn’t to spend more time thinking about tax — it’s to spend less time worrying about it, because you know it’s being handled. That’s the difference between compliance and genuine financial clarity.