Retained profit is the post-corporation-tax company cash that has not been distributed as dividends or used for other purposes. It shows up as a company asset on the balance sheet. For owner-managers, it is not money lost. It is money that stays in the business, available for future use.
Written by James Whitfield · Updated August 2026 · Checked against 2026/27 HMRC rates · Editorial standards · Methodology
Retained profit is what stays in the company after corporation tax and any dividends - money that has been taxed at 19-25% but not yet drawn, so no personal dividend tax has been paid on it.
That deferral is the quiet advantage of a company. You choose when to extract it: in a lower-income year, spread across two tax years to stay in the basic-rate band, or routed into a pension from pre-tax profit. A sole trader has no such lever - all profit is taxed as it is earned.
The sole trader mental model does not translate directly to a limited company. Earn money, pay tax, keep the rest. In a company, profit pays corporation tax first. The after-tax amount can then be distributed to shareholders or retained. What is retained is still real money, just held by the company rather than by you personally.
This creates planning flexibility sole traders do not have. A sole trader pays income tax on all profit in the year it is earned, whether or not they spend it. You can choose to extract less than the full post-tax profit and let the surplus accumulate in the company, deferring personal income tax on that retained amount until you eventually distribute it.
The value of that deferral depends on your current and future tax rates. If you expect to be in a lower rate band in future years, approaching retirement, reducing hours, or planning significant deductible expenditure, retaining now and extracting later may improve your overall position.
The retained company cash figure in this calculator is company profit after director salary, employer NI, pension contributions, corporation tax and chosen dividends. If you set dividends lower than available distributable profit, the difference shows as retained cash.
This figure is the current period's modelling only. It does not include accumulated reserves from previous periods, directors' loan balances or any other balance sheet items not captured in the annual profit inputs.
To see the effect of retaining more, reduce the dividends figure and watch the retained cash increase. Your personal take-home falls, but the company balance grows, and the dividend tax on those amounts is deferred.
Retained company cash can be extracted in several ways: as dividends in a future year when you are in a lower band; as salary in a future lower-income year; via a company pension contribution; or as part of a company sale, which may attract Business Asset Disposal Relief at 10% on qualifying gains.
The right route depends heavily on your future plans. A director planning to sell the business treats retained profit very differently from one planning to draw it as income over many years. A director expecting a lower-income year in future can plan to extract retained profit at basic-rate dividend rates in that year.
None of these strategies can be fully modelled in a single-year calculator. But recognising retained profit as a planning variable, not just a leftover, is where better decisions start.
Not all retained profit is available for future personal distribution. Some is needed as working capital: the cash the company needs to meet operating obligations, fund client projects or cover seasonal gaps. Treating all retained profit as future dividends in waiting can create cashflow problems.
Before deciding how much to retain, think about realistic working capital requirements, any planned capital expenditure, and whether a pension contribution in the current period is more efficient than retaining and distributing later.
The pension route is often particularly effective in the marginal relief band (profits between £50,000 and £250,000). A company pension contribution saves 26.5% in corporation tax at the margin and removes the amount entirely from personal income rather than just deferring it.
No. Retained profit is a company asset. It can be extracted later as dividends, salary, pension contributions or via a business sale. It is deferred income, not lost income.
The company pays corporation tax on profit in the year it is earned, regardless of whether it is distributed. Personal income tax and dividend tax only apply when you extract the profit personally.
You can take a director's loan, but it must be repaid within nine months of the accounting year-end or a 35.75% S455 tax charge applies to the company. Persistent unpaid director's loans attract additional scrutiny from HMRC.
Accumulated retained profits can increase the company's value when sold. If the sale qualifies for Business Asset Disposal Relief, gains may be taxed at 10% rather than the standard capital gains rate. Building retained profit can be more efficient than extracting it all as dividends.
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.