Home / Guides / How Much Tax Does a Limited Company Pay? 2026/27
When people ask how much tax a limited company pays, the honest answer is that there is no single number, there are several tax layers that interact, and the total depends on profit level, extraction strategy and the director's personal income from all sources. This guide breaks down every tax layer for 2026/27 and shows the combined effective rate across three different profit levels.
Last updated May 2026. Written by the LimitedCompanyTaxCalculator.co.uk editorial team and reviewed against current GOV.UK and HMRC guidance. Results are estimates for planning only and are not tax, accounting or financial advice.
The first and most fundamental tax a limited company pays is corporation tax on its taxable profits. For 2026/27, the rates are: 19% (small profits rate) on profits up to £50,000; 25% (main rate) on profits above £250,000; and marginal relief between £50,000 and £250,000, producing an effective rate between 19% and 25%.
Taxable profit is not the same as gross income. It is gross income minus all allowable deductions: director salary, employer NI, company pension contributions, professional fees, rent, software, travel, equipment (via capital allowances) and all other genuinely business-related expenses. The lower the taxable profit after legitimate deductions, the lower the corporation tax bill.
Corporation tax is paid to HMRC nine months and one day after the accounting year-end. It must be estimated and paid even before the formal corporation tax return (CT600) is filed. Interest applies to underpayments.
When a limited company pays a director salary, employer National Insurance applies at 15% on salary above the secondary threshold of £5,000 per year. This is a company cost, it reduces the company's post-tax cash alongside the salary itself.
On a £12,570 director salary, employer NI is 15% × (£12,570 − £5,000) = £1,139. This £1,139 is a genuine tax cost of the limited company structure, it does not exist for a sole trader (who pays Class 4 NI instead), and it does not exist on dividends. The employer NI is deductible from company profit before corporation tax, so it partially offsets itself, but it is still a net cost.
The employer NI secondary threshold for 2026/27 is £5,000. There was a significant change from April 2025 when the secondary threshold was reduced from £9,100 to £5,000 and the rate was increased from 13.8% to 15%. This means employer NI now starts triggering on lower salary levels than before 2025, and at a higher rate. For directors who previously took £9,100 salary to avoid all employer NI, the threshold is now £5,000, so a £9,100 salary triggers 15% employer NI on £4,100 = £615.
Dividends are paid from post-corporation-tax profit. They are not an expense of the company, the company has already paid corporation tax, and dividends are distributions of what remains. At the personal level, dividend income is taxed at: 8.75% (basic rate, on dividends within the basic rate band above the £500 allowance); 33.75% (higher rate, on dividends in the higher rate band above £50,270 total income); 39.35% (additional rate, on dividends above £125,140).
Dividends are not subject to National Insurance. This is the structural tax advantage of the limited company, National Insurance does not apply to dividend income, whereas salary is subject to both employee NI (8% on earnings between £12,570 and £50,270) and employer NI (15% above £5,000).
The dividend allowance of £500 per year means the first £500 of dividend income above the personal allowance is tax-free. This is modest but applies automatically, every director with any dividend income benefits without any planning required.
At £50,000 company profit, director taking £12,570 salary and all available dividends (England/Wales, 2026/27): corporation tax approximately £6,895; employer NI £1,139; dividend tax approximately £2,528. Total tax: approximately £10,562. Total personal income: approximately £41,966. Combined effective rate on original £50,000 profit: approximately 21.1%. Compare: sole trader at £50,000, total tax approximately £10,879, effective rate 21.8%. The limited company is slightly more efficient.
At £75,000 company profit, director taking £12,570 salary and £37,200 basic-rate dividends: corporation tax approximately £15,148; employer NI £1,139; dividend tax approximately £3,211. Total tax: approximately £19,498. Combined effective rate on original £75,000: approximately 26.0%. Company retains approximately £8,943 (after all taxes and chosen dividends).
At £150,000 company profit, director taking £12,570 salary and £37,200 basic-rate dividends: corporation tax approximately £36,000 (marginal relief at £124,291 taxable); employer NI £1,139; dividend tax approximately £3,211. Total tax: approximately £40,350. Retained in company: approximately £73,741 (largely untouched beyond corporation tax). If full extraction: higher-rate dividends on approximately £73,741 at 33.75% = £24,887 additional dividend tax. Combined effective rate on full extraction: approximately 43.8%.
The main tools for reducing the combined tax rate across all layers are: (1) Optimising director salary, either £9,100 (lower employer NI) or £12,570 (full personal allowance used). (2) Company pension contributions, reduce corporation tax at 19–26.5% with no NI cost, building retirement savings. (3) Staying within the basic rate band for dividends, the jump from 8.75% to 33.75% dividend tax at the £50,270 threshold is the most significant marginal rate jump in the system. (4) Retaining profit, not extracting everything immediately allows tax deferral and potentially extraction at basic-rate dividend rates in lower-income years.
The combination of salary at £12,570 and dividends up to the basic rate threshold (approximately £37,200 in dividends, total income £49,770) is the most commonly optimal strategy for directors with profits between £50,000 and £150,000. It produces take-home of approximately £46,500 with total combined tax of approximately £20,000–£25,000 depending on profit level.
Above £150,000 in profit, the retained-profit strategy becomes increasingly important. Directors at this level should model the pension option carefully, a large company pension contribution can save 26.5% corporation tax while also building a retirement fund. The pension contribution is often the most valuable planning tool available for directors with consistently high profits.
It depends on profit and extraction. At £50,000 profit with full extraction, the combined rate is approximately 21%. At £75,000 with basic-rate dividends, approximately 26%. At £150,000 with full extraction, approximately 44%. Staying within the basic rate band and using pension contributions reduces the effective rate significantly.
At lower profits (under £50,000), the difference is small and the extra admin cost can outweigh any saving. Above £60,000–£70,000, the limited company structure typically saves £2,000–£6,000 per year in total tax versus sole trader, more at higher profit levels, particularly when profit is not fully extracted.
15% on salary above £5,000 (the secondary threshold). This rate and threshold changed from April 2025, the rate increased from 13.8% to 15% and the threshold fell from £9,100 to £5,000.
8.75% on dividends above the £500 annual allowance, where total personal income is within the basic rate band (up to £50,270). Higher rate is 33.75% on dividends in the higher rate band.
The limited company tax calculator turns this guidance into a concrete estimate for corporation tax, dividends and personal take-home, based on 2026/27 HMRC rates.