How much tax does a limited company pay? (2026/27)

A limited company's tax bill happens in two stages. First the company pays Corporation Tax on its profit. Then you pay personal tax when you take money out, usually as a small salary plus dividends. To know what a company really costs in tax, you have to add both together. This guide shows the rates for 2026/27, works through a full example, and compares the total with being a sole trader, which gives a less clear-cut answer than it used to.

Stage 1: Corporation Tax on the company's profit

Profit is calculated after the director's salary and employer's National Insurance, which are business costs. Dividends are not a cost: they're paid out of profit that has already been taxed. The £50,000 and £250,000 limits are divided between associated companies. The Corporation Tax guide explains marginal relief, and the Corporation Tax calculator works out the bill for any profit.

Stage 2: tax when you take the money out

Salary. Taxed like any job: Income Tax, employee's National Insurance (8% above £12,570) and, for the company, employer's National Insurance of 15% above £5,000 a year. Many companies can claim the Employment Allowance (up to £10,500 a year off the employer's NI bill), but not if the only employee paid above the threshold is a sole director.

Dividends. No National Insurance at all. The first £500 is tax-free (the dividend allowance), then:

The basic and higher dividend rates went up by 2 percentage points from April 2026 (they were 8.75% and 33.75%). That's one reason the numbers below look less favourable than older guides suggest.

The usual way to pay yourself

Most owner-directors take a salary of about £12,570 (the Personal Allowance) and the rest as dividends. At that level there's no Income Tax or employee's NI on the salary, and it counts towards your State Pension. For a sole director with no Employment Allowance, it does cost the company £1,136 in employer's NI. But the salary and that NI both reduce Corporation Tax, so in 2026/27 it still usually works out slightly better than a £5,000 salary. With the Employment Allowance, the case for £12,570 is clearer still.

Worked example: £60,000 profit, everything taken out

A one-director company makes £60,000 profit before paying the director. The director has no other income and takes everything out as a £12,570 salary plus dividends.

In other words, almost exactly the same, and that's before the company's higher accountancy costs.

Limited company vs sole trader at different profits

Same assumptions: one director, no Employment Allowance, £12,570 salary, all remaining profit paid out as dividends in the same year, no other income, England. The sole trader column uses the figures from our sole trader tax rates guide.

If you take everything out every year, a one-person company doesn't save tax in 2026/27. The higher dividend rates, 15% employer's NI and 25% Corporation Tax above £50,000 have removed most of the old advantage.

When a limited company does come out ahead

When you leave profit in the company. Profit you don't take out is only taxed at the Corporation Tax rate for now. At £80,000 profit, a director who takes just £50,270 (salary plus dividends up to the top of the basic rate band) pays about £18,950 in total tax this year and leaves about £14,780 in the company, compared with £22,289 for a sole trader on the whole £80,000. That money can be taken out in a later year when your income is lower, or used for the business. The tax is postponed, not cancelled, but the flexibility is valuable.

When the company pays into your pension. Employer pension contributions are usually a deductible business cost, with no NI and no dividend tax. For many directors this is the most tax-efficient way to extract profit.

When the Employment Allowance applies. If the company employs someone else, such as a partner on the payroll who does real work, the allowance can cover the employer's NI. At £60,000 profit that alone tips the balance about £600 a year in the company's favour.

For reasons other than tax. Limited liability, how customers see you, and bringing in co-owners can all matter more than a few hundred pounds of tax.

Costs that aren't tax

• Accountancy: usually noticeably more than for a sole trader, because you need company accounts, a Corporation Tax return (CT600), payroll and your own Self Assessment.
• Admin: a confirmation statement to Companies House every year, public accounts, and separate business banking. See Corporation Tax deadlines for the key dates.
• Less freedom with the money: it belongs to the company, not you. Taking cash without it being salary, dividends or expenses creates a director's loan, which has its own tax rules.

Common mistakes

Comparing only Corporation Tax with Income Tax. 19% looks much lower than 40%, but it's only the first stage. Always add dividend tax and employer's NI before comparing.

Using old dividend rates. Calculators and articles written before April 2026 use 8.75% and 33.75%, which overstate the saving.

Paying dividends the company can't afford. Dividends can only come from profits left after tax. Paying more than that is an unlawful dividend.

Forgetting IR35. Contractors working like employees for one client may have to pay tax as if employed, which removes the dividend route for that income.

This guide is general information, not advice. The right set-up depends on your income, plans and family situation, so speak to an accountant before incorporating.

Related guides and calculators

• How UK Corporation Tax works: rates, marginal relief and associated companies.
• Corporation Tax deadlines: when to pay and file, with a deadline calculator.
• Sole trader tax rates 2026/27: the other side of the comparison.
• Corporation Tax calculator and self-employed tax calculator.

Frequently asked questions