How Much Tax Does a Limited Company Pay in 2026?
As the director of a limited company, it can be hard to know exactly how much tax you should be paying. Often, directors will miss out on reliefs and strategies to reduce tax liabilities purely through not being aware of them.
Therefore, professional advice is essential for efficient business growth. At Carston ETL, our expert accountants can ensure your tax structures are compliant and as efficient as possible, meaning you can focus on the areas of your business that mean the most to you.
Current UK Corporation Tax Rates
Currently, the UK’s corporation tax rates are as follows for business’s taxable profits per accounting period:
- For profits up to £50,000 you pay 19% (small profits rate)
- For profits from £50,001 – £250,000 you pay 19-25% (marginal relief applies)
- For profits over £250,000 you pay 25% (main rate)
For companies within the marginal relief rate, you pay a tapered rate of tax depending on how high your taxable profits are, this stops sudden jumps in corporation tax for businesses earning over £50,000.
Dividends Vs Salary
For most UK company directors, the most tax-efficient strategy is usually to pay yourself through a combination of salary and dividends. But the exact mix depends on tax thresholds, National Insurance (NI) rules, company profits, and your wider financial situation.
As a director, your salary is treated in the same way as employee income, so it’s subject to income tax, employee NI, and employer NI. However, all salaries are deductible for corporation tax, meaning they reduce the company’s taxable profits.
Dividends are payments made to shareholders from company profits, and unlike salary, dividends aren’t subject to NI contributions, instead being taxed at their own dividend tax rates, which are usually lower than the tax rates salaries face.
Therefore, paying yourself through a combination of dividends and salary is often the most tax efficient way to pay yourself. For tailored advice relating to your specific situation, speak to our expert team at Carston ETL today.
Common Tax Planning Mistakes Directors Make
There are several common errors made by directors when calculating their tax liabilities, below we run through three of the most common mistakes and how to avoid them.
1. Missing Legitimate Business Expenses
Directors sometimes assume that if a transaction is in the system, it’s been handled correctly. But usually, systems will record transactions without assessing whether certain costs qualify as allowable expenses. There are five categories that get missed the most:
- Professional memberships required for your role or industry
- Software subscriptions used in day-to-day operations
- Training that refreshes or maintains existing professional skills
- Equipment that falls below the capital threshold
- Home office costs where the business operates partly from home
Reviewing expenses periodically throughout the year helps ensure you’re making full use of the deductions available to you, helping you to reduce your corporation tax and stay compliant with HMRC.
2. Forgetting Pension Contributions
Company pension contributions are one of the most effective tools you have available for limited company tax planning. When a company contributes to a director’s pension, that payment is generally treated as a deductible business expense – reducing taxable profit for that year.
Despite this, pension contributions often get pushed back until accounts are being finalised. At that stage, the opportunity to act has sometimes already passed. Pension contributions are also tax free up to £60,000 a year, regardless of your declared income, with the ability to carry forward any unused allowances from the previous three years.
3. Not Timing Equipment Purchases
Many assets used in your business will qualify for capital allowances, which allow the cost of certain equipment to reduce your taxable profit. What can sometimes be overlooked is the timing of a purchase, as this affects which tax year the relief falls into.
If your business has had a stronger-than-expected year, then it’s wise to purchase necessary equipment during the current tax year, as it would mean a reduction in your tax bill. While it’s not suggested to buy things you don’t need solely to reduce your tax bill, it is worth timing useful purchases to align with profitable years.
FAQs
For advice on how to minimise your tax liabilities book a free 15-minute tax-planning consultation with us at Carston ETL today.
