How much tax does a UK limited company pay in 2025?

Limited companies have different tax responsibilities than sole traders and partnership structures. In the UK, they pay between 19% and 25% Corporation Tax on their business profits. Depending on their circumstances, some companies also have to pay VAT and employers’ National Insurance contributions.

If you’re wondering how much tax you need to pay and when you need to pay it, then this guide is for you. We explain the personal tax you need to pay as a director and shareholder of a UK limited company, to give a better understanding of the overall tax liability associated with running your business.

What to know about Corporation Tax

Corporation Tax is the way that limited companies are taxed. This will apply to all your taxable profits from your trading activities (for example, buying and selling goods or services), investments, and the sale of business assets for more than they originally cost.

‘Taxable profit’ is the income that your company earns, minus all allowable business expenses, such as stock, rent, utilities, and wages.

Depending on how much money your company makes in a year, you will pay between 19% and 25% Corporation Tax on taxable business profits.

Paying Corporation Tax for limited companies

From 1 April 2025 onwards, the following rates of Corporation Tax apply:

Rate	Tax threshold	Rate for Financial Year (1 April 2025)
Small Profits Rate	Below £50,000	19%
Marginal Relief Rate	Between £50,000 and £250,000	25% (minus marginal relief)
Main Rate	Over £250,000	25%

If your company’s taxable business profits for the year are between £50,000 and £250,000, you can claim Marginal Relief. This relief provides a reduction in the rate of Corporation Tax you pay between the small profits rate (19%) and the main rate (25%).

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Essentially, the amount of Corporation Tax your company pays increases proportionally to the level of profit it generates from £50,000 up to £250,000. Essentially, after £50,000, you will pay 25%; however, you’ll be able to benefit from Marginal Relief, which will reduce your overall Corporation Tax.

Here are three examples of Corporation Tax bands with the subsequent amount of Corporation Tax that you would need to pay:

Example 1 (Small Profits Rate) – £50,000 annual profits

Your company has annual taxable profits of £50,000, which means you are within the Small Profits Rate band. You will pay 19% Corporation Tax on the full amount. Your Corporation Tax bill will be £9,500.

Example 2 – £140,000 annual profits

Your company has annual taxable profits of £140,000, which means you are over the Small Profits Rate band, but under £250,000. Your official rate will be 25%; however, you will be eligible for Marginal Relief, so you’ll pay an effective rate of 23.8% Corporation Tax on all profits. Your Corporation Tax bill will be £33,350.

Example 3 (Main Rate) – £251,000

Your company has annual taxable profits of £251,000. You will pay 25% Corporation Tax (the main rate) on the full amount. Your Corporation Tax bill will be £62,750.

Marginal Relief explained

Marginal Relief has been added so that businesses do not suddenly jump from 19% to 25%, but instead, Corporation Tax gradually increases from 19% to 25% from £50,000 to £250,000.

Here is an example of how marginal relief works:

• Corporation Tax before Marginal Relief: 25% of £150,000 = £37,500.
• HMRC’s Marginal Relief calculation: (3/200) x (£250,000 – £150,000) = £1,500.
• Corporation Tax due = £36,000 (£37,500 minus the £1,500 Marginal Relief).

HMRC provides an online Marginal Relief calculator that you can use to check how much relief you may be able to claim on your Corporation Tax profits. You can use this to give you an idea of your effective Corporation Tax rates before and after Marginal Relief, and the total amount of tax your company will pay.

Who cannot claim Marginal Relief?

Not all businesses will qualify for Marginal Relief.

Here is a quick table to show all the businesses that are not eligible:

Cause	Explanation
A limited company earning over £250,000	Threshold of £250,000 passed, therefore no longer eligible.
Augmented profits reaching over £250,000	Augmented profits are earnings such as non-group dividends. This will push you over the limit.
Associated companies reaching over £250,000	Adjusted limits can remove eligibility.
Close Investment-Holding Companies (CIHCs)	CIHCs are not eligible for Marginal Relief, nor the Small Profits rate. This includes certain passive investment companies, property companies with minimal activity, and holding companies with no trading activity.
Non-UK resident companies	Companies that are not resident in the UK and are charged Corporation Tax only on UK property income do not qualify for Marginal Relief.

Does every limited company pay Corporation Tax?

Every limited company must register for Corporation Tax. However, they will only pay Corporation Tax if they turn a profit.

Limited companies must register for Corporation Tax with HMRC no later than three months after starting to do business (e.g. trading). You can complete this registration online.

Every year, you will need to prepare a Company Tax Return (including full annual accounts) to work out and report how much Corporation Tax you owe on your business profits.

The deadline for filing the tax return is 12 months after the end of your company’s Corporation Tax accounting period. The deadline for paying your Corporation Tax bill is 9 months and 1 day after the end of this accounting period.

If you do not make a profit, then your tax will effectively be zero.

Key tax deadlines and reporting requirements

As a director of a limited company, you will face several deadlines. Here are the main ones to be aware of:

• Annual Accounts must be filed with Companies House, typically nine months after the financial year end.
• Corporation Tax must be paid within nine months and one day, and the CT600 return must be submitted within 12 months.
• VAT-registered companies must meet quarterly VAT return deadlines, while employers must operate PAYE in real time and file Full Payment Submissions each time employees, including directors, are paid.
• Directors with personal income outside payroll must complete a Self Assessment tax return by 31 January each year.

This is why it’s advisable to have an accountant, as they can keep track of these dates, giving you peace of mind.

VAT obligations for UK limited companies

Value Added Tax (VAT) differs from Corporation Tax. This is a tax that is charged on most goods and services. Your company will pay VAT on most things it buys and uses (such as stock, equipment and machinery, gas and electricity, internet, etc.), regardless of whether it’s a VAT-registered business.

You must register for VAT if:

• Your company’s total VAT-taxable turnover for the last 12 months is more than £90,000 (the VAT registration threshold).
• You expect your company’s turnover to exceed £90,000 in the next 30 days.

VAT registration is also compulsory (regardless of VAT-taxable turnover) if your company is based outside of the UK and supplies any goods or services to the UK (or expects to do so in the next 30 days).

If your company’s VAT-taxable turnover is below the threshold, you can choose to voluntarily register for VAT. By doing so, your business can charge VAT to customers and reclaim the VAT it pays on the goods or services it buys.

Different rates for VAT

There are different rates of VAT, depending on the goods or services you buy and sell. The standard rate of VAT in the UK is currently 20%. This applies to most goods and services. Certain goods and services attract a reduced rate of 5%, whilst others are set at a zero rate (0%).

Even if your company is very small, it’s worthwhile checking if voluntary VAT registration could save you money and benefit your business.

How to register for VAT

Most businesses can register for VAT online. If registration is compulsory, the deadline for doing so depends on when you exceeded, or expect to exceed, the £90,000 annual VAT-taxable threshold:

• If your company’s turnover exceeded the threshold in the last 12 months, you must register within 30 days of the end of the month in which you exceeded the threshold.
• If your company’s turnover is going to exceed the registration threshold in the next 30 days, you must register by the end of that 30-day period.

Once you have registered, you’ll need to submit a VAT Return to HMRC at the end of each VAT accounting period, which is usually every three months. The filing deadline is one month and seven days after the end of the VAT accounting period. You’ll typically pay your VAT bill at the same time.

Employers’ National Insurance: What your company must pay

Your company will have to pay employer (secondary) Class 1 National Insurance contributions (NICs) on the wages of any employee (or director) who earns above the NIC Secondary Threshold.

For the 2025/26 tax year, the rate of employer National Insurance is 15%, and the Secondary Threshold is £5,000 a year.

For example, if you were to pay an employee or director £25,000 a year, your company would be liable to pay employer NICs of £3,000 (15% of the portion of wages between £5,000 and £25,000).

As an employer, you also have to pay 15% Class 1A or Class 1B NICs on any taxable benefits or expenses you provide to employees or directors.

How to pay Employers’ National Insurance

You pay employer National Insurance contributions to HMRC through PAYE (Pay As You Earn). To do so, you need to register your company as an employer, enroll for PAYE Online, and operate it as part of your payroll.

However, like wages and salaries, your company’s NIC liability is a tax-deductible business expense. This means that you can deduct the cost from your profits to reduce your Corporation Tax bill.

If eligible, your company can also claim Employment Allowance to reduce its annual National Insurance liability by up to £10,500.

Tax responsibilities for company directors and shareholders

If you are a director and shareholder of a UK limited company, you may also have to pay tax on the money you receive from the business. This includes Income Tax and National Insurance on your directors’ salary, as well as dividend tax on any dividends you receive as a shareholder.

Whilst these are personal taxes, rather than business taxes payable by your company, it’s worthwhile having the full picture of all tax liabilities you’ll face when running a business as a limited company.

Income Tax and National Insurance on your director’s salary

The amount of Income Tax and National Insurance contributions you’ll pay on your director’s salary depends on how much you choose to pay yourself and whether you’re entitled to the standard Personal Allowance of £12,570 per year.

Income Tax rates and thresholds (England, Wales, and Northern Ireland) for 2025/26 are as follows:

• 0% – the Personal Allowance – on earnings up to £12,570*
• 20% – the basic rate – on earnings between £12,571* and £50,270
• 40% – the higher rate – on earnings between £50,271 and £125,140
• 45% – the additional rate – on earnings over £125,140

Scottish Income Tax rates and thresholds for 2025/26 are as follows:

• 0% – the Personal Allowance – on earnings up to £12,570*
• 19% – the starter rate – on earnings between £12,571* and £15,397
• 20% – the basic rate – on earnings between £15,398 and £27,491
• 21% – the intermediate rate – on earnings between £27,492 and £43,662
• 42% – the higher rate – on earnings between £43,663 and £75,000
• 45% – the advanced rate – on earnings between £75,001 and £125,140
• 48% – the additional rate – on earnings over £125,140

*Assuming you are entitled to the standard tax-free Personal Allowance of £12,570 per year.

You will also be liable to employee Class 1 National Insurance contributions of 8% on any salary income above the NIC Primary Threshold. This is currently £12,570 for 2025/26 – the same as the standard Personal Allowance.

Therefore, if you take a director’s salary up to £12,570, you won’t pay any Income Tax or employee NICs on it because it’s within your annual Personal Allowance and the Primary Threshold.

Tax on dividends

You won’t pay Income Tax or NICs on any dividend income you receive as a shareholder. Dividend income is taxed at the following rates (including if you live in Scotland), depending on the tax band you fall into when your total annual income from all sources is taken into account:

• 8.75% – basic rate – income up to £50,270
• 33.75% – higher rate – income between £50,271 and £125,140
• 39.35% – additional rate – income over £125,140

Regardless of your tax band, you’ll receive a tax-free dividend allowance of £500. This means that you won’t have to pay dividend tax on the first £500 of dividend income you receive from your company.

To ensure that you don’t end up paying more business and personal tax than you need to, we would recommend seeking guidance from a reputable accountant or tax advisor.

Common tax mistakes limited companies should avoid

Here are some common mistakes you should avoid when paying tax as a limited company.

1. Missing deadlines

The late submission of a Company Tax Return will lead to penalties. Any delays from this point increase the risk of estimated assessments from HMRC.

Make sure that you know when your accounting period starts and ends (the day you set up your limited company).

2. Poor record-keeping and filing

Incorrect filing can cost you as a limited company director, so ensure you keep the correct records of everything to avoid submitting the wrong details.

Incomplete or disorganised records can cause errors in returns, result in missed deductions, and lead to potential HMRC scrutiny. Records must be kept for a minimum of six years.

If you are also using the company account for personal purchases without proper documentation, this can trigger tax issues and create unexpected director’s loan charges.

Many companies either over-claim (risking penalties) or under-claim (paying more tax than necessary). Typical blind spots include home-office use, subscriptions, software, and pre-trading expenses.

3. Not preparing for your Corporation Tax bill

Failing to set aside funds throughout the year can lead you to scramble for extra cash when your bill arrives. You should budget for Corporation Tax monthly or quarterly to ensure you aren’t left without savings for your year-end bill.

4. Forgetting VAT obligations

Limited companies often exceed the VAT threshold without being aware of it. Remember that if you are earning over £90,000 per year, or think you might go over this threshold, you must register for VAT.

Other common mistakes include filing late returns or claiming VAT on ineligible expenses. Errors can incur surcharges and interest.

5. Not seeking professional advice

Many limited company directors will try to take on everything themselves, but this can lead to many of the mistakes listed above. DIY tax can lead to missed reliefs, non-compliance, and inefficient structures, particularly when a business grows rapidly and its operations become more complex.

Forming your limited company

The tax liabilities and responsibilities of limited companies are more complex than other types of business structures. However, there’s generally a greater opportunity for tax efficiency, particularly if you have an accountant who can assist you with your tax affairs.

Interested in setting up your own limited company? At Rapid Formations, we have a Full Company Secretary Service, which alleviates the pressure of secretarial requirements and has everything you need to get started right away.