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Tax for ltd company director — start here

The dominant lever for Ltd director-shareholders is the salary / dividend / pension mix; everything else is second-order.

As a Ltd company director-shareholder you operate two separate tax regimes: the company pays Corporation Tax (19%–25% with marginal relief from £50k–£250k profit), then you extract the after-tax surplus as some combination of salary, dividends, pension contributions, and benefits — each taxed differently on you personally. The dominant question for most owner-managed companies is the salary-dividend mix; the second-largest is whether IR35 applies to your client work.

Key facts

Corporation Tax: 19% small-profits rate to £50,000; marginal relief £50,000–£250,000; 25% main rate above £250,000 (associated-company rules divide these thresholds). (as of 2025-04-01)
Dividend allowance is £500 from 6 April 2024 onwards (down from £1,000 in 2023/24 and £2,000 before). (as of 2024-04-06)
Dividend tax rates (above the allowance): 8.75% basic, 33.75% higher, 39.35% additional — paid by the shareholder, not the company. (as of 2025-04-06)
Director's loan account (DLA) balance overdrawn by more than £10,000 at any point = benefit-in-kind; unpaid 9 months after year-end triggers s.455 CT charge at 33.75%. (as of 2025-04-06)
Business Asset Disposal Relief (BADR) gives a 14% CGT rate on qualifying business disposals up to a £1m lifetime limit from 6 April 2025 (rising to 18% from 6 April 2026). (as of 2025-04-06)

Deadlines that matter for you

9 months + 1 day after year-end
Corporation Tax payment due (e.g. 1 January 2027 for a 31 March 2026 year-end).
If missed: Late-payment interest at HMRC rate (Bank of England base + 4%); no automatic penalty for late payment, but persistent default triggers compliance attention.
12 months after year-end
Corporation Tax return (CT600) filing deadline.
If missed: Late-filing penalties: £100 immediate, £200 at 3 months, then percentage of tax due at 6 + 12 months.
31 January 2027
Director's personal Self Assessment due for 2025/26 — covering salary, dividends, BIK.
If missed: £100 fixed penalty + daily £10 penalties after 3 months + 5% surcharges + interest.
6 July annually
P11D + P11D(b) for benefits-in-kind for prior tax year (so 6 July 2026 for 2025/26).
If missed: £100 per 50 employees per month late + interest on unpaid Class 1A NI.
22nd of the month
PAYE/NI payments to HMRC for the prior tax month (electronic) — 19th if paying by post.
If missed: Default surcharges escalate from 1% to 4% based on number of defaults in the tax year.

What most people in your position get wrong

Paying low salary + high dividends without checking IR35 status on your client work.
If a client engagement is inside IR35 (off-payroll working rules), payments flow as deemed employment income — salary-dividend extraction strategy collapses for that engagement. Status determination is the client's (large/medium) or yours (small).
Typical cost: Mis-categorisation cost: full PAYE + NI on prior payments + interest; HMRC determinations can reach 5–6 figures.
Treating director's loan account drawings as 'just dividends, sorted in the accounts later'.
If the company declared no dividend at the time of drawing, it's a director's loan. Overdrawn DLAs >£10k = BIK; unpaid 9 months after year-end = s.455 CTA 2010 charge at 33.75% (refunded when repaid).
Typical cost: s.455 charge: 33.75% of the unpaid balance; reclaimable 9 months after the loan is repaid.
Forgetting associated-company rules when running two or more Ltd companies.
The £50k small-profits threshold and £250k main-rate threshold are divided by the number of associated companies (companies under common control). Two associates each get £25k / £125k thresholds, not £50k / £250k.
Typical cost: Marginal-relief miscalculation on £150k profit between two associates: ~£3,000–£5,000 in extra CT.
Maxing dividends instead of using the £60k pension annual allowance.
Employer pension contributions are deductible against Corporation Tax + don't trigger personal Income Tax + don't count against your salary cap. For higher-rate director-shareholders the after-tax-of-tax benefit usually beats dividends.
Typical cost: Comparative drag: ~25–30% lifetime tax saved per £ routed through pension vs dividend (until annual / lifetime limits bite).

Who this is for

You operate through a UK Ltd company you control or partly own, and you draw income from it as director and/or shareholder. Includes contractor PSCs, family-owned trading companies, and founder-led startups.

Who this is NOT for

Pure sole traders see /start-here/sole-trader. Employees with side dividends from listed shares see /start-here/employee-extra-income. Founders considering moving abroad should also see /business-owner-moving-abroad.

Start with these guides

Salary-dividend extraction (full methodology) →

The structural decision behind every owner-managed company tax bill.

Corporation Tax — bands, marginal relief, associated companies →

Where the 19%–25% range comes from and why two companies are not 'just two'.

CT marginal relief — full mechanics →

Sliding-scale CT rate between £50k and £250k profit.

Director's loan account + s.455 →

What overdrawn DLAs cost and how to unwind them safely.

IR35 — off-payroll working framework →

Who determines status, what the cost of getting it wrong is.

Business Asset Disposal Relief (BADR) →

14% CGT on the eventual sale of qualifying shares (rising to 18% in 2026/27).

Dividend allowance £500 →

Why the allowance halving to £500 changed extraction strategy.

Useful calculators

Salary-Dividend calculator →

Optimal mix at your profit level for 2025/26.

Corporation Tax calculator →

CT due including marginal relief for the company year.

Dividend Tax calculator →

Personal tax on dividends across bands.

Pension relief calculator →

Effective cost of employer pension contributions vs salary or dividend.

Go deeper

In plain English

The company and you are two separate taxpayers. The company pays Corporation Tax on its profit; you pay Income Tax on whatever you take out (salary, dividend, benefit). Tax-efficient extraction means thinking like both at once — paying just enough salary to keep your NI record + pension allowance, then drawing the rest as dividends or pension contributions depending on rate band, with one eye on the eventual share-sale exit.

Statute reference

Corporation Tax Act 2010 (CTA 2010) Parts 3–4 (rates + marginal relief, associated companies ss.18A–18N); CTA 2010 s.455 (overdrawn DLAs); ITTOIA 2005 Part 4 (dividend taxation); Income Tax (Earnings and Pensions) Act 2003 Part 2 Chapter 8 (off-payroll working, IR35); Taxation of Chargeable Gains Act 1992 s.169H et seq. (BADR).

Worked example

Solo IT contractor PSC, outside IR35, company profit before director remuneration £110,000, 2025/26.

Director salary: £12,570 (Personal Allowance)
Employer pension contribution: £20,000
Remaining profit: £77,430
Corporation Tax (marginal relief band, ~26.5% effective): £20,519
Profit available as dividend: £56,911

Calculation: Personal: £12,570 salary uses Personal Allowance (no IT). Dividends: £500 allowance free; £37,200 within basic-rate band at 8.75% = £3,255; £19,211 at higher-rate 33.75% = £6,484. Total personal tax: £9,739.

Outcome: Net to director: £12,570 salary + £56,911 dividend − £9,739 personal tax = £59,742 cash + £20,000 in pension. Combined company + personal tax: ~£30,258 on £110,000 = ~27.5% effective. Switching the pension to extra dividend would cost ~£2,500 more in tax overall.

Last reviewed: 2026-05-24. Statute references are for orientation, not advice. Always confirm specifics for your situation against current HMRC guidance or a regulated professional.