Setting up a limited company is straightforward at Companies House, registration takes hours and costs £50 online. The complexity begins when you start trading: director salary, PAYE registration, employer National Insurance, corporation tax accounting, dividend declarations and the interaction between all of these. This guide covers every first-year tax obligation with the 2026/27 numbers.
Written by James Whitfield · Updated August 2026 · Checked against 2026/27 HMRC rates · Editorial standards · Methodology
Forming a limited company is quick and cheap: register online with Companies House for £50 and you usually have a company the same day. From then on the company pays corporation tax at 19-25% on its profits, and you extract money as a low salary plus dividends.
Tell HMRC the company is active and register for corporation tax within three months of starting to trade. Most new director-owners take a £12,570 salary (income-tax-free) and top up with dividends.
A limited company is formed at Companies House (companieshouse.gov.uk). Online formation costs £50 and takes a few hours to process. You will need: a company name, a registered address, at least one director, at least one shareholder, and a Memorandum and Articles of Association (standard templates are available).
Once formed, the company must register with HMRC for corporation tax within three months of starting to trade. You will receive a Unique Taxpayer Reference (UTR) from HMRC. If you intend to pay a director salary, you must also register for PAYE (Pay As You Earn) with HMRC. PAYE registration can take up to 15 working days, so set it up before the first payroll date.
If annual taxable turnover exceeds £90,000 (the 2026/27 VAT registration threshold), VAT registration is mandatory. Below £90,000, it is optional. For most new limited company directors, VAT registration and its associated administration is a separate question from the salary and dividend extraction planning covered in this guide.
Corporation tax is charged on the company's taxable profits for the accounting period. The first accounting period runs from the date of incorporation to the end of the chosen accounting year. Many directors choose a year-end of 31 March or 31 January for simplicity, though any date can be chosen.
The corporation tax return (CT600) must be filed with HMRC within 12 months of the end of the accounting period. Payment is due nine months and one day after the period end. For a company with a year-end of 31 March 2027, the CT600 is due by 31 March 2028 and payment is due by 1 January 2028.
For 2026/27, the rates are 19% on taxable profits up to £50,000 and 25% on profits above £250,000, with marginal relief between. Taxable profit is calculated after deducting all allowable expenses: director salary, employer NI, company pension contributions, professional fees, equipment and other genuine business costs.
Before taking any salary from the company, register for PAYE with HMRC and set up a payroll system. Free payroll software is available from HMRC's list of approved providers. The payroll submission (Full Payment Submission, or FPS) must be filed with HMRC on or before each payment date.
For most new limited company directors, £12,570 is the optimal salary (full personal allowance; employer NI of £1,135.50, covered by the Employment Allowance if eligible, otherwise outweighed by the corporation tax saving). A lower £5,000 salary avoids employer NI entirely and suits a sole-director company. Both are legitimate and commonly used. The implications are covered in detail in the director salary guide on this site.
If you decide to take a salary during the accounting year and the PAYE registration is not yet in place, you can arrange for the salary to be paid and reported as soon as registration is complete. Backdating payroll declarations to match the actual payment date is the correct approach, do not try to declare salary before registration was in place.
A dividend can only be lawfully declared from distributable profits, post-corporation-tax profit that exists in the company's reserves. In the first year, before accounts are prepared and corporation tax assessed, this means the director must estimate available distributable profit conservatively. Paying a dividend that exceeds distributable reserves is an unlawful distribution and is treated by HMRC as a director's loan.
The mechanics of declaring a dividend: the company holds a board meeting (even a sole director can hold a board meeting), passes a resolution to declare a dividend, records the resolution in board minutes, and issues a dividend voucher to each shareholder. These administrative steps must be done at the time of the declaration, not backdated after the year-end.
In practice, many directors take regular drawings during the year and declare dividends at the year-end to formally cover those drawings, once the accountant has prepared draft accounts confirming the available reserves. This is common but needs careful management. The DLA (director's loan account) acts as a running balance during the year, cleared by the year-end dividend declaration. If the year-end declaration cannot be supported by sufficient reserves, the DLA remains overdrawn and the S455 tax charge may apply.
As a company director with dividend income, you must file a Self Assessment tax return each year. Register for Self Assessment with HMRC if you have not already done so. The deadline for online Self Assessment filing is 31 January following the end of the relevant tax year. For the 2026/27 tax year (April 2026 to April 2027), the filing deadline is 31 January 2028.
On your Self Assessment return, you declare all personal income: director salary (shown on your P60 from the company payroll), dividends received from the company (total dividends declared, shown on dividend vouchers), and any other income. Dividend tax is calculated on the return based on your total income and applicable dividend tax rates.
Corporation tax and personal income tax are two separate calculations. Paying corporation tax does not satisfy your personal dividend tax liability. They are separate obligations with separate deadlines. First-year directors who are not already familiar with Self Assessment often miss this distinction, your accountant can set up both correctly.
Nine months and one day after the end of the first accounting period. For a company with a first year-end of 31 March 2027, corporation tax is due by 1 January 2028. The corporation tax return (CT600) must be filed by 31 March 2028.
Only if you intend to pay a salary. If you take no salary in the first year (taking only dividends), PAYE registration is not required immediately. Register before the first salary payment, allowing up to 15 working days for HMRC to set up your employer reference.
Yes, but you must be confident the company has sufficient distributable profits to support the dividend. An unlawful dividend is treated as a director's loan by HMRC, attracting the S455 charge if not repaid within nine months of year-end.
Corporation tax is paid by the company on its profits. Personal income tax (via Self Assessment) is paid by the director on salary and dividend income personally. These are separate taxes with separate calculations and separate payment deadlines. Paying one does not offset the other.
The rates and rules on this page are drawn from the official UK government sources below, using the confirmed 2026/27 figures. Each link opens the relevant HMRC, GOV.UK or Companies House page in a new tab.
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.