In one paragraph: a UK Limited company pays Corporation Tax at 19% on profits up to £50,000, 25% above £250,000, and an effective 26.5% marginal rate in between (with marginal relief). Director-shareholders typically extract via small salary (£12,570) + dividends (taxed at 8.75/33.75/39.35%) + employer pension contributions (most tax-efficient at higher profit levels). Closure via MVL with Business Asset Disposal Relief gives the lowest exit tax — 14% (rising to 18% from April 2026) on lifetime gains up to £1m.
Corporation Tax for 2026/27
| Profit band | Rate |
|---|---|
| £0 - £50,000 (small profits) | 19% |
| £50,001 - £250,000 (marginal relief) | ~26.5% effective |
| £250,001+ (main rate) | 25% |
Associated companies share the bands. Two companies = each gets £25k SP limit and £125k upper limit. Associated companies explained.
Close Investment Companies (mostly-investment small companies) pay 25% on all profits regardless of size. CIC explained.
The director extraction decision
For most owner-directors, the optimal 2026/27 extraction structure is:
- Salary £12,570: uses the full Personal Allowance, builds State Pension NI credits. Employer NI cost £1,136. Net cost after CT deduction: ~£11,100.
- Dividends up to the basic-rate threshold (£37,700 above PA = £50,270 total income): taxed at 8.75% after £500 dividend allowance. Cheap and efficient.
- Above £100,000 personal income: STOP. PA taper (60% effective rate) kicks in. Switch to pension contributions.
- Above £125,140: stop dividends; switch entirely to employer pension contributions. Additional-rate dividend tax at 39.35% combined with CT means ~50%+ total tax leakage.
Full mechanics: Optimal extraction by profit level.
Employer pension contributions — the highest-leverage extraction
A pension contribution from your own company is:
- Deductible against Corporation Tax (saves 19-25%)
- No Income Tax to you
- No National Insurance to either you or the company
- Subject to the £60,000 annual allowance (with carry-forward of 3 prior years' unused)
Net cost of getting £100 into your pension via the company: about £75. Compare to extracting via dividend (~£55-60 net of CT and dividend tax for higher-rate payers) or salary (~£40-50 net of all taxes).
Full mechanics: Employer pension contributions explained.
Director's Loan Accounts (DLAs)
Any money flowing between you and the company outside formal salary, dividend, or expense reimbursement goes through the DLA. Get it overdrawn (you owe company) and three rules apply:
- Section 455 tax at 33.75% if not repaid within 9 months 1 day of year-end (refundable when repaid)
- Beneficial loan benefit-in-kind above £10,000 outstanding, taxed at HMRC official rate (3.75% in 2026/27)
- 30-day bed-and-breakfast rule blocks tax avoidance via short repayment/re-borrowing cycles
Full mechanics: DLAs explained.
Closing the company — BADR and MVL
Two routes to close:
- Voluntary strike-off (DS01): £44 fee plus accountant costs. Capital distribution capped at £25,000 — above that, all distributions reclassified as dividends.
- Members' Voluntary Liquidation (MVL): £2,000-£5,000 cost. Unlimited capital distribution. With BADR, taxed at 14% (rising to 18% from April 2026), up to £1m lifetime cap.
Crossover: above ~£35-40k of retained reserves, MVL becomes cheaper despite the higher fees.
Anti-avoidance: continuing a "similar trade" within 2 years can claw back the MVL tax savings under the phoenixing TAAR.
Full mechanics: Strike-off vs MVL and Business Asset Disposal Relief.
Anti-avoidance traps to be aware of
- Settlements legislation: dividend waivers in favour of spouse or family can be reclassified as the waiver-giver's income. Dividend waivers explained.
- Close Investment Company (CIC): a company that ceases trading and holds investments pays 25% CT on everything, no marginal relief.
- Associated companies: two or more companies under common control share the CT bands.
- Phoenixing TAAR: winding up to extract tax-efficient capital and re-starting the same trade triggers re-classification.
- S455 on overdrawn DLAs: 33.75% tax payable if not repaid within 9 months 1 day of year-end.
Practical timing for the tax year
| Date | Action |
|---|---|
| April (start of tax year) | Set salary for the new year (most directors keep at £12,570) |
| Pre-March year-end | Final dividend decisions; clear overdrawn DLA if possible |
| End of accounting period | Finalise pension contributions (deductible against current CT) |
| 9 months after year-end | CT due date; S455 due date if any overdrawn DLA |
| End of January | Personal Self Assessment payment deadline |
Tools and deeper guides
- Salary vs dividend calculator
- Dividend tax calculator
- Optimal extraction by profit level
- Employer pension contributions
- Director's Loan Accounts
- Close Investment Companies
- Associated companies and CT bands
- Strike-off vs MVL on closure
- Business Asset Disposal Relief
- Dividend waivers and anti-avoidance
Sources
How UK Tax Drag holds itself to account
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