How Much Tax Does a Limited Company Pay in the UK?
Knowing how much tax a limited company pays in the UK is essential for financial planning — particularly for entrepreneurs, contractors, and small business owners. Limited companies benefit from specific tax efficiencies, but understanding how Corporation Tax, dividend tax, and allowable expenses work together is key.
This guide explains the tax obligations of a UK limited company and outlines legal ways to reduce tax while staying compliant.
What Taxes Does a UK Limited Company Pay?
A limited company is a separate legal entity, meaning it pays tax on business profits rather than personal income.
Core Taxes for Limited Companies
- Corporation Tax on net profits after allowable expenses
Additional Taxes (Depending on Business Activity)
- Employer National Insurance Contributions (NICs) — if employees are paid via payroll
- VAT — if turnover exceeds the VAT registration threshold
- PAYE and Employee NICs — if directors or employees receive a salary
- Business Rates — if operating from commercial premises
Not every limited company pays all of these taxes, but it is important to recognise which apply to your business.
Current UK Corporation Tax Rates (2023–2025)
The UK uses a tiered Corporation Tax system, based on taxable profit:
| Annual Profit | Tax Rate | Description |
|---|---|---|
| Up to £50,000 | 19% | Small Profits Rate |
| £50,000–£250,000 | Tapered Rate | Calculated using marginal relief (blended 19–25%) |
| Over £250,000 | 25% | Main Corporation Tax Rate |
Example
A company with £80,000 profit does not pay the flat 25%.
Its Corporation Tax is calculated using marginal relief to reach a blended mid-rate.
Allowable Business Expenses
Limited companies can reduce taxable profit by claiming legitimate business expenses.
Common Allowable Expenses
- Salaries and employer pension contributions
- Marketing and advertising
- Insurance and professional services (legal, accounting)
- Software subscriptions, tools, and IT equipment
- Office rent, utilities, stationery
- Business travel and accommodation
- Training and professional development
Expenses must be wholly and exclusively for business purposes.
How Dividends Work for Company Directors
After paying Corporation Tax, a company can distribute remaining profits to shareholders as dividends.
- Dividends do not reduce Corporation Tax
- Directors often combine a small salary + dividends for tax efficiency
Dividend Tax Rates (Personal)
| Income Level | Tax Rate |
|---|---|
| First £1,000 allowance | 0% |
| Basic Rate | 8.75% |
| Higher Rate | 33.75% |
| Additional Rate | 39.35% |
Salary vs Dividends Strategy
Why Directors Use Salary + Dividends
- Salary reduces corporation tax (deductible expense)
- Dividends are taxed at lower rates and have no NICs
Typical Approach
- Pay a small salary (at or below NIC threshold)
- Take remainder of income as dividends
However, taking only dividends can reduce entitlement to pension and some benefits — balance is key.
Non-Resident Directors and Tax Considerations
Non-UK residents may not pay UK tax on dividends depending on their tax residency and double-tax treaties.
However, Corporation Tax is still payable in the UK if the company is UK-based.
Always seek cross-border tax advice to avoid double taxation.
Legal Tax Reduction Strategies
Common HMRC-Compliant Methods
- Claim all allowable business expenses
- Use a tax-efficient director salary
- Pay dividends strategically
- Make employer pension contributions
- Claim capital allowances on equipment
- Apply for R&D tax relief (if eligible)
Avoid artificial tax schemes — HMRC penalties are severe.
Conclusion
UK limited companies pay 19% to 25% Corporation Tax, depending on profit.
Directors can receive income through a tax-efficient salary and dividends, while reducing taxable profit using allowable expenses and compliant planning strategies.
Understanding how tax works enables business owners to maximise take-home earnings while staying fully compliant with UK tax law.
Frequently Asked Questions
Do non-residents pay UK tax on dividends?
Depends on tax residency and double-tax treaties.
Is it legal to pay myself only dividends?
Yes, but combining salary + dividends is usually more tax-efficient.
When must a company register for VAT?
When turnover exceeds the VAT threshold (or voluntarily for credibility or VAT reclaim).
Do I need a UK accountant?
Yes, to ensure compliance and efficient tax planning.
