The four main taxes
- Corporation Tax — on company profits
- PAYE / NIC — on director and employee salaries
- Dividend Tax — on distributions paid out of post-tax profits
- VAT — on sales, if registered
Corporation tax rates (2024/25)
- 19% small profits rate — profits up to £50,000
- 25% main rate — profits over £250,000
- Marginal relief between £50k and £250k (effective ~26.5% on profits in that band)
Thresholds are divided between associated companies.
Director's salary — the £12,570 trick
Pay yourself a salary equal to the personal allowance (£12,570 for 2024/25):
- No income tax (under personal allowance)
- Tiny employee NIC (over £12,570 threshold only)
- Employer NIC kicks in over £9,100 — but if you have other employees and qualify for the £5,000 Employment Allowance, it can offset this
- Salary is a corporation tax deduction (saves 19–25% on the cost)
Dividends in 2024/25
- £500 dividend allowance (down from £1,000 in 2023/24)
- After that: 8.75% (basic rate), 33.75% (higher), 39.35% (additional)
- Only payable from retained distributable profits
- Must be properly minuted — board minutes and dividend vouchers
Tax-efficient extraction example
A typical owner-director taking £50k from a profitable company:
- £12,570 salary (no income tax)
- £500 dividend allowance (tax-free)
- £36,930 dividends at 8.75% = £3,231 dividend tax
- Plus corporation tax already paid on the underlying profit
Compare to a £50k all-salary route which incurs PAYE, employee NIC and employer NIC — usually £2–4k worse off.
Other allowances worth using
- Trivial benefits — up to £50/gift, max £300/year for directors, no tax
- Annual event — £150/head for staff parties
- Mileage — 45p/mile first 10,000, 25p after, in your own car
- Home office — £6/week flat rate or actual costs
When to incorporate
Roughly: once profits exceed £40–50k, a limited company typically saves tax versus sole trader status. But there's admin overhead — Companies House filings, statutory accounts, payroll. Run the numbers with an accountant first.
Book a free consultation and we'll model your specific situation.