Corporation Tax

Corporation Tax for Limited Companies

Corporation tax is paid by UK limited companies on their taxable profits. The main rate for 2025/26 is 25% for profits over £250,000, with a small profits rate of 19% for profits up to £50,000. Marginal relief applies for profits between these thresholds.

For contractors and freelancers operating through a limited company, corporation tax is a key part of the overall tax picture. Combined with personal tax on dividends and salary drawn from the company, the total tax burden can be comparable to employment, especially for those inside IR35.

Corporation tax is paid 9 months and 1 day after the end of your company’s accounting period. The return must be filed within 12 months. Many small company directors pay themselves a small salary (around £12,570) plus dividends to minimise overall tax. See our dividend tax calculator.

How Corporation Tax Works in Practice

Corporation tax is paid by UK limited companies on their profits. The main rate is 25% for companies with profits over £250,000. A small profits rate of 19% applies to companies with profits under £50,000, with marginal relief for profits between £50,000 and £250,000. This makes company structure decisions important for contractors and small business owners.

Practical Tips

For limited company contractors, corporation tax interacts with dividend planning. The most tax-efficient strategy typically involves paying yourself a small salary (around £12,570 to use the Personal Allowance) and taking the rest as dividends. However, IR35 rules may prevent this structure for contractors deemed to be employees. The corporation tax rate increase from 19% to 25% in 2023 significantly changed the calculation for many small company owners.

Related Topics

Limited company owners should consider the combined tax burden of corporation tax plus dividend tax when planning their remuneration strategy. See dividend tax calculator for how dividends are taxed personally.