What Taxes Does a Limited Company Pay in the UK?

Establishing a limited company comes with numerous benefits; however, it also brings tax obligations that all business owners must be aware of. Have you ever wondered: What taxes does a limited company pay? If yes, then you are not alone.

Understanding tax obligations is not just about compliance; it is also about protecting profits, avoiding penalties, and establishing a financially sound organisation. This guide will provide you with the following information:

1. What taxes does a limited company pay?
2. What taxes do limited companies pay in the UK?
3. What tax do I add to my limited company, and many more?

What Taxes Does a Limited Company Pay?

To effectively manage your company’s finances, it is essential to have a comprehensive understanding of the taxes a limited company must pay. Moreover, it is important to understand the impact each tax has on your profits. It is the responsibility of a limited company to pay its own taxes, as it is legally separate from its owners. The taxes typically include:

• Corporation Tax
• Value Added Tax (VAT)
• Pay As You Earn (PAYE) and National Insurance
• Dividend Tax (paid personally by shareholders)

Each of these is crucial in understanding what taxes does a limited company pay, and failure to comply with any of them can result in penalties and financial issues.

What Taxes Do Limited Companies Pay In The UK?

The tax obligations of limited companies are separate from those of sole traders and partnerships. In the UK, they are required to pay Corporation Tax on their business profits at a rate ranging from 19% to 25%. Additionally, certain organisations are required to pay VAT and National Insurance Contributions, depending on their circumstances. The following are the main taxes that a limited company may need to pay in the UK.

• Corporation Tax

The primary tax that limited companies pay on their profits is Corporation Tax. This applies to all taxable profits from trading activities, investments, and the sale of business assets at a price higher than their original cost. For example, this includes income from selling goods or services. The income that your company generates, after subtracting all allowable business expenses, including rent, utilities, stock, and wages, is referred to as “taxable profit.”

Corporation tax is payable on:

• Trading profits are the profits your limited company generates from carrying out business activities or providing services.
• Profits from investments
• Any chargeable gains from selling business assets for more than their cost

From April 1, 2025, onward, the following Corporation Tax rates will be valid:

Rate	Threshold	Tax Rate
Small Profit	£50,000 or less	19%
Marginal Relief Rate	Between £50,000 and £250,000	25%(with marginal relief applied)
Main Rate	Over £250,000	25%

• VAT

VAT is an important component of the taxes a limited company is required to pay and a crucial part of understanding what taxes does a limited company pay. The term Value Added Tax (VAT) refers to a consumption tax applied to most goods and services. Although consumers are responsible for paying the tax, they often fail to recognise that it is already included in the prices of their products.

• There are reduced rates for specific products in the United Kingdom, even though the standard VAT rate is 20%.
• Certain items, such as postage stamps, financial services, and some property transactions, are exempt from VAT.
• Imported products and services are subject to VAT.

VAT Rates for Goods And Services

This table helps you better understand the VAT rate.

Rate	% of VAT	What the rate applies to
Standard rate	20%	Most goods and services
Reduced rate	5%	Some goods and services, for example, children’s car seats and home energy
Zero rate	0%	Zero-rated goods and services, for example, most food and children’s clothes

• PAYE (Pay As You Earn)

PAYE (Pay As You Earn) is the UK system responsible for deducting National Insurance Contributions (NICs) and Income Tax from employees’ pay. Employers are responsible for deducting these payments before paying wages. It pertains to salaries, bonuses, and taxable benefits (such as shares), and it uses Real Time Information (RTI) to submit reports to HMRC.

Income Tax and National Insurance Contributions

Income Tax is a critical factor while understanding what taxes does a limited company pay, particularly for company directors who receive a salary. The Personal Allowance (PA) of £12,570 is tax-free for most individuals, including employees and company directors taking a salary during the 2025/26 tax year. Income Tax is only due on earnings that exceed this amount. If income exceeds £100,000, the PA is reduced by £1 for every £2 of income above £100,000, and it reduces to zero when income reaches £125,140.

The income tax band in England and Wales:

Band	Taxable Income	Tax Rate
Personal Allowance	Up to £12,570	0%
Basic rate	£12,571 to £50,270	20%
Higher rate	£50,271 to £125,140	40%
Additional rate	over £125,140	45%

Employee National Insurance rates are based on thresholds, with the primary rate currently 8% on most earnings.

• Dividend Tax

Shareholders are subject to personal Dividend Tax on the company’s profits distributed to them, with rates determined by their personal income tax brackets. Dividends are distributed from post-tax profits, even though companies are required to pay Corporation Tax. Before paying tax at 8.75%–39.35%, shareholders receive a tax-free dividend allowance (£500 for 2026/27) that depends on their tax band.

Tax Band	Tax Rate on Dividends
Basic rate	8.75%
Higher rate	33.75%
Additional rate	39.35%

• Employers’ NI

From 6 April 2025, Employer National Insurance (NI) will be charged at a rate of 15% on earnings exceeding a secondary threshold of £5,000 per year. This rate is applicable to the salaries of staff and directors, and no NI is due below this threshold. This liability can be reduced by eligible businesses claiming the Employment Allowance (up to £10,500).

What Tax Do I Add To My Limited Company?

When business owners ask what taxes does a limited company pay, they often also wonder, what tax do I add to my limited company? You should be aware that you do not manually “add” tax to your company. Rather, you register for the appropriate taxes, including Corporation Tax, VAT, and PAYE, in accordance with your business activities. It is required to charge VAT on your products or services if your business is VAT-registered. However, this amount is collected on behalf of HMRC rather than being treated as your income. In the same way, PAYE is used to deduct Income Tax and National Insurance from salaries and submit them to HMRC.

Read more: Common Mistakes New Limited Company Owners Make

Are You Ready To Optimise Your Limited Company?

Understanding what taxes does a limited company pay is just the beginning of establishing a successful business. At LimitedCompanyAccountants, we can help you select the right company structure, manage compliance, handle filings, and identify opportunities to legally reduce your tax burden. We also ensure your business is set up for long-term success, meet your tax deadlines, and organise your finances.

Contact our professional accountants to ensure that your company is registered correctly and that your tax structure is working in your favour, rather than against you.

The Bottom Line

So, what taxes does a limited company pay? The answer includes the main tax responsibilities of running a company, including Corporation Tax, VAT, PAYE, and Dividend Tax. By understanding these obligations, you can make well-informed decisions about profitability and growth, avoid costly penalties, and effectively manage cash flow. With this information, you can establish a more efficient and resilient business structure, rather than viewing taxes as a burden.

Disclaimer: All the information provided in this article is general in nature; it does not intend to disregard any of the professional advice.