Limited company tax in the UK: A practical guide to Corporation Tax, VAT and PAYE

Understanding limited company tax helps directors set prices, budget for staff and decide how much money the business can afford to distribute. Corporation Tax, Value Added Tax (VAT) and Pay As You Earn (PAYE) operate separately, so meeting one obligation does not satisfy the others.

This guide explains the main rules for UK business owners, with figures checked as at 21 October 2026. Payroll figures relate to the 2026/27 tax year, running from 6 April 2026 to 5 April 2027.

1 How limited company tax works

A limited company is legally separate from its directors and shareholders. Its bank balance belongs to the company, and money taken out must be recorded appropriately, for example as salary, dividends, an expense reimbursement or a loan.

• Imposta sulle società applies to taxable company profits, including trading profits, investment income and chargeable gains. It is not calculated on sales alone.
• IVA applies to taxable supplies under the relevant VAT rules. Registration usually depends on taxable turnover, rather than profit.
• PAGAMENTI IN BUSTA PAGA is the system for collecting employment Income Tax and National Insurance through payroll. Employer National Insurance is an additional company cost.

There is no general tax-free profit allowance for a trading company equivalent to an individual’s Personal Allowance. A business can also owe VAT or payroll liabilities while making a trading loss. Keeping these calculations separate is the starting point for reliable limited company tax planning.

2 Corporation Tax rates and taxable profits

The following Corporation Tax bands assume a UK-resident trading company, a 12-month accounting period and no associated companies. They also assume that no exempt dividends received need to be added to taxable profits when testing the limits.

Taxable profits	Corporation Tax treatment
Up to and including £50,000	19% small profits rate
Over £50,000 but below £250,000	25%, reduced by Marginal Relief
£250,000 and above	25% main rate

The limits are reduced for accounting periods shorter than 12 months and divided between associated companies. For example, two associated companies normally have limits of £25,000 and £125,000 each for a full year. Overseas companies can count, and ownership and control need to be reviewed. Close investment-holding companies do not qualify for the small profits rate or Marginal Relief.

Worked example: with £100,000 taxable profits and the assumptions above, tax at 25% is £25,000. Marginal Relief is £2,250, giving a Corporation Tax bill of £22,750, an effective rate of 22.75%. Applying 19% to the first £50,000 and 25% to the balance would give the wrong result.

The underlying rates are set out in HMRC’s Corporation Tax guidance. For a broader explanation, see WellTax’s guide to UK Corporation Tax.

Expenses and capital allowances

The profit shown in the accounts is the starting point for the tax calculation. Revenue costs incurred wholly and exclusively for the trade may be deductible, but paying an expense from the business account does not automatically make it allowable. Client entertainment, for example, is generally disallowed.

Accounting depreciation on equipment normally needs to be added back, with eligible capital allowances claimed separately. The Annual Investment Allowance can provide immediate relief for qualifying plant and machinery, subject to a £1 million annual limit and the relevant conditions. Cars are excluded from that allowance, and related businesses may need to share the limit.

Trading losses may also provide relief, subject to the applicable rules and claims. Review these adjustments before estimating the bill. HMRC must normally be told within three months when a company becomes active for Corporation Tax; incorporation alone should not be treated as completing every tax registration.

3 VAT registration and returns

For a business established in the UK, compulsory registration normally arises when VAT-taxable turnover exceeds £90,000 over the previous 12 months, checked at each month end. A separate test applies where turnover is expected to exceed £90,000 in the next 30 days alone. The rolling test does not restart at the company’s financial year end.

Taxable turnover includes zero-rated sales as well as supplies taxed at 5% or 20%. Exempt supplies are different from zero-rated supplies. Services purchased from overseas that fall under the reverse charge can also count towards the registration test, so sales income alone may not provide the full answer.

If the historical test is breached, the company normally has 30 days after that month end to notify HMRC, with registration effective from the first day of the second following month. For example, a first breach in July normally means notification by 30 August and registration from 1 September. Under the forward-looking test, registration takes effect when the expectation arises.

Businesses without a UK establishment cannot generally rely on the £90,000 threshold for taxable supplies made in the UK, although exceptions can apply, including some supplies accounted for by the customer under the reverse charge. Overseas transactions also require a place-of-supply assessment. WellTax’s article on the UK VAT threshold explains why total income is not always the correct measure.

VAT rates and recovery

The standard VAT rate is 20%, with 5% and 0% applying to qualifying supplies. Companies below the registration threshold can consider voluntary registration, weighing potential VAT recovery against administration and the effect on customer pricing, particularly where customers cannot reclaim VAT.

On a normal VAT return, VAT charged on sales is offset by recoverable VAT on purchases. For example, £6,000 output VAT less £2,000 recoverable input VAT produces a £4,000 payment, assuming no other adjustments. Recovery requires supporting evidence and compliance with the rules; private use, exempt activities and blocked expenditure can restrict a claim.

VAT-registered businesses generally need digital VAT records and compatible software under Making Tax Digital, unless exempt. Returns are normally quarterly and remain required even for periods with no VAT payable. VAT collected should be included in cash-flow forecasts as a liability, rather than treated as freely available income.

4 PAYE and National Insurance obligations

A company paying directors or employees must assess whether PAYE registration is required. This can apply even where no Income Tax is deducted. Registration should be arranged before the first payday where required, and payroll submissions under Real Time Information are generally due on or before payment.

For 2026/27, the standard employer National Insurance rate is 15% above the secondary threshold of £5,000 a year. Weekly and monthly thresholds apply to ordinary payroll calculations, and different treatment can apply to certain employees. The £12,570 standard Personal Allowance is not an exemption from employer National Insurance.

Eligible employers can claim up to £10,500 Employment Allowance against employer Class 1 National Insurance. Eligibility is not automatic: a company cannot claim where a single director is its only employee liable for employer National Insurance. Connected employers also face restrictions on multiple claims.

For a director in office throughout the tax year, National Insurance is assessed on an annual basis, even where an alternative method is used during the year. A £12,570 salary would generate £1,135.50 employer National Insurance at the standard rate, before any valid Employment Allowance claim. This illustrates why salary decisions should consider the company’s cost as well as the director’s deductions.

Salaries dividends and other employment costs

A qualifying salary and associated employer costs can reduce taxable company profits. Dividends cannot: they must be supported by available distributable profits after providing for Corporation Tax. Directors should keep the necessary approval records and dividend vouchers.

Dividends are not normally subject to National Insurance, but shareholders may owe personal dividend tax. The appropriate salary and dividend mix depends on individual circumstances, other income and available reliefs. Personal withdrawals should not simply be labelled dividends retrospectively without checking the supporting profits and records.

Staff budgets should also allow for workplace pension obligations and any taxable benefits. Benefits may require separate reporting and employer National Insurance. These costs sit alongside ordinary monthly payroll and need to be captured in the compliance calendar.

5 Limited company tax deadlines

Tax payment and return filing are different obligations. The following timetable covers the usual position for a private limited company; special schemes, changed accounting dates and other exceptions can alter the deadlines.

Obligation	Usual deadline
Corporation Tax payment	9 months and 1 day after the tax accounting period ends
Company Tax Return	12 months after the tax accounting period ends
Annual accounts at Companies House	9 months after the financial year end
First accounts at Companies House	Normally 21 months after incorporation
VAT return and payment	1 calendar month and 7 days after the VAT period ends
PAYE Full Payment Submission	On or before payday
PAYE and NI payment	22nd of the following tax month electronically; 19th if paying by post

For an established company with a 31 March 2026 year end and matching 12-month tax period, accounts are normally due on 31 December 2026, Corporation Tax on 1 January 2027 and the tax return on 31 March 2027. The later return deadline does not extend the payment deadline. Allow sufficient time for funds to reach HMRC.

A Corporation Tax accounting period cannot exceed 12 months. First accounts covering a longer trading period may therefore require two Company Tax Returns and separate payment calculations. Larger companies may need to pay Corporation Tax by instalments, while eligible smaller employers may arrange quarterly PAYE payments.

The Company Tax Return is filed with HMRC, separately from accounts filed at Companies House. Commercial software is now needed for HMRC filing, with accounts and tax computations normally submitted in iXBRL format. Arranging the appropriate software or adviser early avoids a last-minute filing problem.

6 Managing limited company tax throughout the year

Keep the accounts reconciled each month and review expected tax liabilities alongside cash available. A profitable company can still struggle to pay its tax if customers pay late or cash has been committed to stock, equipment or dividends.

Before the year end, review major expenditure, capital allowances, remuneration and any available losses. Before taking on staff or entering a new market, check the effect on payroll, VAT and company tax. International sales, overseas management or group arrangements may require analysis beyond the domestic rules covered here.

WellTax can bring the bookkeeping, Corporation Tax calculation, VAT position and payroll forecasts together, so that directors can assess decisions using a consistent set of figures. For businesses operating across the UK and UAE, this can also involve coordinating the UK compliance position with the relevant international tax advice.

A practical next step is to maintain one calendar for filing and payment dates, supported by a tax reserve reviewed against current figures. Limited company tax is easier to manage when those estimates are updated during the year, before payments become due.

Written by Michele Ammirati, Managing Partner, Chartered Accountant, WellTax.