A UK limited company pays corporation tax on its profits: 19% if profits are £50,000 or less, 25% if they exceed £250,000, and an effective rate in between with marginal relief. That rate structure is fixed by statute for the financial years starting 1 April 2026 and 1 April 2027. But corporation tax is only the first layer. Getting money out of the company brings dividend tax at 10.75%, 35.75% or 39.35% from 6 April 2026, or PAYE and 15% employer's National Insurance on salary, and many companies also collect VAT. This guide sets out each tax, how the layers combine, and where owner-managers most often get caught.
Corporation tax: the rates for 2026/27
Financial years run from 1 April to 31 March. Finance Act 2025 set the rates for the year from 1 April 2026, and Finance Act 2026 has already confirmed the same structure for the year from 1 April 2027.
| Taxable profits | Rate |
|---|---|
| £50,000 or less | 19% (small profits rate) |
| £50,001 to £250,000 | 25% less marginal relief (fraction 3/200) |
| Over £250,000 | 25% (main rate) |
Marginal relief makes the band between the two limits more expensive at the margin than either rate suggests. Tax at 25% less 3/200 of the shortfall below £250,000 means each extra £1 of profit in that band costs 26.5p in corporation tax (25% plus 1.5%), so the effective marginal rate is 26.5%. The same works in reverse: a deductible expense or pension contribution that reduces profit within the band saves 26.5%, not 25%.
The £50,000 and £250,000 limits are reduced proportionately for an accounting period shorter than 12 months, and they are divided by the number of associated companies plus one. Two associated companies therefore each have limits of £25,000 and £125,000, which can push both into marginal relief at much lower profit levels. Our guide to corporation tax rates works through the marginal relief formula and periods that straddle 1 April.
What the company is taxed on, and when it pays
Corporation tax is charged on trading profits, investment income and chargeable gains. A UK-resident company is taxed on its worldwide profits. Taxable profit is accounting profit adjusted for tax: some expenses, such as client entertaining, are specifically disallowed, and capital spending is relieved through capital allowances rather than depreciation.
There is no tax bill. The company must work out its own liability and:
- Pay. Nine months and one day after the end of the accounting period, if taxable profits are £1.5 million or less;
- Pay in instalments. Normally four quarterly instalments, two of them before the period ends, if taxable profits exceed £1.5 million;
- File. The Company Tax Return within 12 months of the end of the accounting period, even if the company made a loss or has nothing to pay.
Taking money out: salary, dividends and loans
Profits belong to the company, so the owner pays a second layer of tax on whatever they take out. The three main routes for 2026/27 are taxed quite differently.
- Salary. Deductible for corporation tax. It goes through PAYE: income tax, employee National Insurance at 8% between £12,570 and £50,270, and employer National Insurance at 15% on earnings above the £5,000 secondary threshold. The £10,500 Employment Allowance can reduce the employer's bill, but not where the only employee paying secondary contributions is the company's sole director;
- Dividends. Paid from profits after corporation tax, so not deductible. The first £500 of dividend income is covered by the dividend allowance; the rest is taxed at 10.75% in the basic rate band, 35.75% in the higher rate band and 39.35% in the additional rate band. The two lower rates each rose by two percentage points from 6 April 2026;
- Directors' loans. Money taken out and not repaid within nine months of the year end triggers a temporary corporation tax charge under section 455, set at the dividend upper rate: 35.75% for loans made in 2026/27. The tax is repayable once the loan is repaid, released or written off, but relief is not given until nine months after the end of the accounting period in which that happens, so the cash is tied up in the meantime.
Worked example: £100,000 of profit
Sam is the sole director and shareholder of a consultancy with no associated companies. For the year to 31 March 2027 the company's taxable profit, after deducting Sam's salary of £12,570 and the employer's National Insurance on it, is £100,000. At £12,570 the salary is covered by Sam's personal allowance and sits exactly at the primary threshold, so he pays no income tax or employee National Insurance on it.
Corporation tax. Tax at the main rate is £25,000 (25% of £100,000). Marginal relief is 3/200 × (£250,000 − £100,000) = £2,250. The bill is £22,750, an effective rate of 22.75%, leaving £77,250 of post-tax profit.
Dividend. Sam takes a £50,000 dividend in 2026/27. The salary uses his £12,570 personal allowance, so all of the dividend falls into the tax bands:
- Dividend allowance. £500 at 0%;
- Basic rate band. The remaining £37,200 of the £37,700 band at 10.75% = £3,999.00;
- Higher rate band. £12,300 at 35.75% = £4,397.25.
Sam's dividend tax is £8,396.25, payable through Self Assessment. Because the company has only one employee, Sam, and he is its sole director, the Employment Allowance is not available, so the company pays employer's National Insurance on the part of his salary above £5,000: 15% × £7,570 = £1,135.50, which is deductible for corporation tax and already reflected in the £100,000 profit figure. The salary and dividend mix, and the timing of dividends across tax years, is worth reviewing every year.
VAT and the other taxes a company handles
- VAT. Registration is compulsory once taxable turnover over the previous 12 months exceeds £90,000, or is expected to exceed it in the next 30 days. The company then charges VAT on its sales and reclaims VAT on most purchases;
- PAYE. Once anyone is paid through payroll, including the director, the company becomes an employer collecting income tax and National Insurance for HMRC;
- Capital allowances. These reduce rather than add tax, but the rules changed for 2026/27: the main-rate writing-down allowance fell from 18% to 14% for corporation tax periods beginning on or after 1 April 2026, so assets that miss full expensing or the annual investment allowance are relieved more slowly.
Common mistakes
- Ignoring associated companies. A second company under common control halves both profit limits, often costing thousands in lost small profits rate;
- Paying dividends without distributable reserves. A dividend can only be paid out of accumulated realised profits less accumulated realised losses, and a shareholder who knew, or had reasonable grounds to believe, that a dividend was unlawful is liable to repay it;
- Treating the director's loan account as a current account. Balances still owed nine months after the year end trigger the 35.75% section 455 charge, and if more than £10,000 is outstanding at any time in the year and interest is charged below HMRC's official rate, the director is also taxed on a benefit in kind;
- Using old dividend rates. Projections built on the 8.75% and 33.75% rates understate 2026/27 dividend tax.
Sources: Corporation Tax rates and reliefs; Finance Act 2025, ss 13–14; Finance Act 2026, ss 11–12; CTA 2010, s 18D; Pay Corporation Tax; ITA 2007, s 8; Tax on dividends; Rates and thresholds for employers 2026 to 2027; CTA 2010, s 455. See also our guides to corporation tax and dividend tax.
Acumon's corporation tax advisers prepare returns and model salary and dividend strategies for owner-managed companies, and our accountants for limited companies handle the year-round compliance.