Limited company tax is one of those topics where a lot of people think they understand it — right up until something changes or they try to explain it to someone else. The structure is fairly logical once you see it clearly, but it does involve several different taxes interacting at once: Corporation Tax on company profits, Income Tax on your salary, Income Tax on dividends, and National Insurance sitting across all of it.

We work with a lot of owner-managed businesses where the director wears every hat, and in our experience the single biggest confusion is around how money moves from the company to your personal pocket — and what tax is triggered at each step. Get that right and the rest tends to follow. So that is what this post focuses on: the current rates, the structure, and the things that have shifted in 2026 that are worth knowing about.

A limited company pays Corporation Tax on its profits — not its turnover, and not the salary or dividends you take out. The company’s taxable profit is broadly what is left after allowable business expenses, directors’ salaries, and pension contributions have been deducted.

The rate you pay depends on how much profit the company makes:

• 19% on profits up to £50,000 (the small profits rate)
• 25% on profits above £250,000 (the main rate)
• Marginal relief applies to profits between £50,000 and £250,000, tapering the effective rate between the two

Most owner-managed businesses we work with fall somewhere in that middle band, which makes marginal relief worth understanding. It does not mean you pay two rates — you pay the main rate of 25% and then claim marginal relief to reduce it, using a standard fraction set by HMRC. The effective rate ends up somewhere between 19% and 25% depending on exactly where your profits land.

One thing that often surprises people: if you have more than one company, or the company is associated with another, the thresholds are divided between them. So a sole director with two active companies would each have a £25,000 lower threshold, not £50,000. It is a detail that catches people out, and it is worth knowing before you set up a second entity.

The typical approach for a director-shareholder is to take a low salary — usually set around the National Insurance secondary threshold — and top up income with dividends from company profits. The logic is straightforward: a salary is subject to both employee and employer National Insurance contributions, whereas dividends are not. The company also gets tax relief on salary as a business expense, which dividends do not attract.

For 2026/27, the employer National Insurance rate sits at 15%, with the secondary threshold at £5,000. That means employer NICs kick in from £5,000 of salary, not the higher figure that applied in previous years. Many directors are reviewing their salary level as a result.

Dividends are paid from post-tax company profits — meaning Corporation Tax has already been paid on those profits before they are distributed. The company itself does not pay tax on the dividend payment. But you, as the shareholder receiving them, may owe Income Tax if your dividends exceed the annual dividend allowance, which currently stands at £500.

For 2026/27, dividend tax rates are:

• 10.75% for basic rate taxpayers
• 35.75% for higher rate taxpayers
• 41.35% for additional rate taxpayers

Every dividend payment also requires a dividend voucher to be prepared and recorded — it is a legal requirement, not just good practice. Directors’ loans are a separate matter with their own tax rules, and if the loan is not repaid within nine months of the company’s year-end, there are additional charges to consider.

A few things have shifted that are directly relevant to limited company owners.

Dividend rates are higher

Dividend tax rates have increased again for 2026/27. The basic rate has moved up to 10.75%, and the higher rate to 35.75%. The additional rate sits at 41.35%. These changes make it slightly less tax-efficient to draw heavily on dividends at higher income levels than it was a few years ago — which means the salary-dividend balance is worth reviewing rather than assuming last year’s approach still works.

New Corporation Tax filing penalties

From April 2026, missing the Corporation Tax filing deadline now triggers an immediate £200 penalty. This is a change from the previous regime. The CT600 and accounts are still filed annually, and Making Tax Digital for Corporation Tax is not being introduced in the foreseeable future — so there is no requirement for quarterly updates. But the late-filing consequence is now sharper. If you are working with an accountant, this should not be something you ever encounter. If you are not, it is a real risk to be aware of.

Business Asset Disposal Relief

If you are thinking about selling or closing your company, the rate of Business Asset Disposal Relief increased to 18% from 6 April 2026. That is still lower than the main Capital Gains Tax rate, but the direction of travel matters if exit planning is on your horizon.

If you operate through a limited company and provide services to clients — particularly in IT, engineering, or professional services — IR35 is a part of the limited company tax picture you cannot afford to ignore.

The rules exist to determine whether a contractor is genuinely self-employed or effectively working as an employee of the end client, with the limited company structure sitting in between. If HMRC decides you fall inside IR35, the tax outcome is broadly the same as if you had been employed directly — you lose the tax efficiency that makes operating through a company worthwhile in the first place.

For contracts with medium and large organisations, the responsibility for determining IR35 status sits with the client, not with you. For smaller clients, you make the determination yourself. Either way, the contractor needs to understand their status and ensure it is assessed properly for each engagement.

HMRC does investigate non-compliance, and the penalties can be significant — covering unpaid tax, interest, and surcharges going back years. We work with a number of contractors across Greater Manchester and nationally, and in our view the worst outcomes tend to come from people who assumed they were fine rather than those who genuinely assessed their position and got it wrong. If IR35 applies to your work, it is worth getting a proper review rather than hoping for the best.