How taxes work for limited companies

UK limited companies typically face four interconnected tax obligations: Corporation Tax on company profits, VAT if your turnover exceeds £90,000, PAYE if you employ anyone (including yourself as director on salary), and Self Assessment for your personal income as a director.

These taxes don't operate in isolation. The salary you pay yourself reduces your company's Corporation Tax liability because it's a deductible business expense. However, that same salary creates PAYE obligations and affects your personal tax position. If you also take dividends from the company, those need to be reported through Self Assessment because dividend tax isn't collected through PAYE.

Two separate compliance regimes

Limited companies must comply with two separate organizations: Companies House and HMRC. Companies House focuses on statutory company information (annual accounts, confirmation statement, company structure). HMRC focuses on tax compliance (CT600 return, VAT returns, PAYE submissions, Self Assessment).

The two organizations do coordinate - Companies House automatically notifies HMRC when you incorporate - but they operate independent penalty regimes and have different deadlines for similar information.

Key deadlines

Self Assessment deadline: 31 January following tax year (6 April to 5 April)
Annual accounts (Companies House): 9 months from accounting reference date

VAT registration: when and how to register

VAT registration thresholds, deadlines, and process for 2025/26.

VAT registration is required if taxable turnover exceeds £90,000 in any 12-month rolling period. Registration is also available voluntarily if turnover is below this threshold.

VAT registration threshold: £90,000 per year (from 1 April 2024)
Deregistration threshold: £88,000 per year
Registration deadline: Within 30 days of exceeding threshold
Penalty for late registration: Penalties and interest on VAT that should have been collected

Calculating taxable turnover

Count sales of VAT-taxable goods and services (standard, reduced, or zero-rated). Do not count:

VAT-exempt sales (insurance, education, health services)
Sales of capital assets (equipment you're selling)
Non-business income

Use a rolling 12-month calculation: At the end of each month, look back over the previous 12 months. If total taxable turnover exceeds £90,000, you must register.

Voluntary registration

VAT registration is available even if turnover is below £90,000. Benefits include:

Reclaim VAT on expenses Including startup costs (up to 4 years before registration)
Business credibility VAT registration can make businesses appear more established
Work with VAT-registered businesses They can reclaim VAT charged to them
Prepare for growth Get VAT processes in place before mandatory registration

Drawback VAT must be charged to customers, which may increase prices or reduce margins if absorbed.

Registration process

Register online via HMRC (gov.uk/register-for-vat)
Provide business information: Name, address, turnover, business activities, bank details
Choose VAT scheme (standard accounting, flat rate, cash accounting)
Receive VAT registration number within 30 working days
Start charging VAT from your effective registration date

Processing time: Usually within 30 working days
Effective date: Date you exceeded threshold, or date you choose (voluntary)
First VAT return due: By 1 month and 7 days after end of first VAT period (usually quarterly)

Current tax rates 2025-26

The following snippets contain current rates and thresholds. These are updated annually each April.

Corporation Tax rates and allowances 2025/26

Current Corporation Tax rates and thresholds for limited companies, including main rate, small profits rate, and marginal relief band.

Main rate (25%): Applies to profits over £250,000 (from 1 April 2023)
Small profits rate (19%): Applies to profits of £50,000 or less
Lower threshold: £50,000 (small profits rate eligibility)
Upper threshold: £250,000 (main rate applies above this)
Marginal relief band: £50,000 to £250,000 (tapered effective rate 19%-25%)
Associated companies rule: Thresholds divided equally by number of associated companies

The Corporation Tax rate structure changed significantly from 1 April 2023 under Finance Act 2022. The main rate increased from 19% to 25% for profits over £250,000, while small companies with profits up to £50,000 retained the 19% rate. Companies with profits between £50,000 and £250,000 benefit from marginal relief, which provides a gradual transition between the two rates.

Associated companies: If you have associated companies (connected businesses under common control), the profit thresholds are divided equally by the total number of companies. For example, with 2 associated companies, the small profits threshold becomes £25,000 each.

Corporation Tax rates

National Insurance contributions

Employer and employee NI rates and thresholds for 2025/26. Pure data reference.

From 6 April 2025, the secondary threshold was reduced to £5,000 per year (£96/week) and the rate increased to 15%.

Secondary Threshold (2025/26): £5,000 per year (£96/week)
Secondary Rate (2025/26): 15%
Employment Allowance (2025/26): £10,500 (no cap - all employers eligible)
Primary Threshold: £12,570 per year (unchanged)
Primary Rate: 12% on earnings £12,570-£50,270, 2% above

The Employment Allowance increased from £5,000 to £10,500 and the £100,000 employer liability cap was removed, meaning all employers are now eligible.

National Insurance rates and thresholds

Income Tax rates and Personal Allowance 2025/26

Current income tax rates, bands, and thresholds for England, Wales, and Northern Ireland.

Personal Allowance: £12,570 - tax-free income (reduced if income over £100,000)
Basic rate (20%): £12,571 to £50,270
Higher rate (40%): £50,271 to £125,140
Additional rate (45%): Over £125,140

Your Personal Allowance reduces by £1 for every £2 of income above £100,000. You lose it entirely once your income reaches £125,140. Scotland has different income tax rates - check gov.uk for Scottish rates and bands.

Income Tax rates and allowances

Dividend Tax 2025/26

Tax-free dividend allowance and tax rates for company shareholders.

Dividend allowance: £500 tax-free (reduced from £1,000 in previous years)
Basic rate taxpayers: 8.75% on dividends above the allowance
Higher rate taxpayers: 33.75% on dividends above the allowance
Additional rate taxpayers: 39.35% on dividends above the allowance

You still get a dividend allowance if you have no other income, but it counts towards your basic rate band. If your total income is above £125,140, you pay the additional rate on all dividends above the £500 allowance.

Dividends are taxed after other income like salary or pension. This means dividends may be taxed at a higher rate if they push you into a higher tax band.

Getting started with tax compliance

When Companies House incorporates your company, they notify HMRC automatically. Within 14 days, HMRC sends your Unique Taxpayer Reference (UTR) to your registered office. Use this to set up your HMRC Business Tax Account - a single dashboard to manage Corporation Tax, VAT, PAYE, and Self Assessment.

Explore the detailed guides below for each tax type covering registration, rates, deadlines, and compliance requirements.

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How taxes work for limited companies

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