Running a UK limited company in 2026 means working with a tax landscape that has shifted noticeably since the Autumn Budget 2025. Corporation Tax thresholds remain in place, but dividend tax rates have gone up, capital allowance rules have changed, and HMRC has closed its free online filing portal. For company directors, knowing how to save tax legally is more valuable than ever.

This guide walks through the practical, HMRC-compliant ways UK limited company directors can reduce their tax bill in the 2026/27 tax year, keep more profit in the business, and stay on the right side of the rules.

How Limited Company Tax Works in 2026/27

Before looking at savings, it helps to understand what your company actually pays.

A UK limited company pays Corporation Tax on its taxable profits. For the 2026/27 financial year, the rates are:

• 19% small profits rate on profits up to £50,000
• 25% main rate on profits above £250,000
• Marginal Relief for profits between £50,000 and £250,000, giving an effective rate of around 26.5% on each pound earned within that band

These thresholds are split between associated companies, so if you control more than one trading company, the £50,000 and £250,000 limits are divided accordingly.

Once Corporation Tax has been paid, any remaining profit can be drawn out as dividends, taken as salary, or reinvested in the business. The mix you choose has a direct impact on your personal tax bill.

1. Pay Yourself Through a Tax Efficient Salary and Dividend Mix

For most owner managed limited companies, the most effective way to extract profit is still a low salary topped up with dividends. The logic has not changed, but the numbers have.

A typical 2026/27 setup looks like this:

• A salary at the Personal Allowance of £12,570, which uses up your tax free allowance and counts as a qualifying year for the State Pension
• The first £500 of dividends falls within the dividend allowance and is tax free
• Further dividends are taxed at 10.75% (basic rate), 35.75% (higher rate), or 39.35% (additional rate) for 2026/27

The basic and higher dividend rates rose by two percentage points in April 2026, so the gap between salary and dividends has narrowed. Even so, dividends remain more tax efficient than salary alone for most directors because they avoid National Insurance.

Some directors now find that paying a slightly higher salary, particularly above the Secondary NI Threshold of £5,000, can be more tax efficient overall once Employer NI relief through Corporation Tax is factored in. It is worth modelling both scenarios with an accountant before the tax year ends.

2. Use Your Spouse or Civil Partner’s Allowances

If your spouse or civil partner has unused Personal Allowance or sits in a lower tax band, sharing dividend income through shareholding can reduce the household’s combined tax bill. This works best when the partner is genuinely involved in the business or holds a genuine ordinary share.

HMRC scrutinises arrangements that look artificial, so structure share allocations properly. The Marriage Allowance is also worth checking: it can transfer £1,260 of Personal Allowance and save up to £252 a year, with backdated claims possible for up to four tax years.

3. Make Employer Pension Contributions

Pension contributions paid by the company on behalf of directors and employees are one of the most powerful tax planning tools available.

• Contributions are an allowable business expense, reducing Corporation Tax
• They are not subject to National Insurance for either employer or employee
• They build long term retirement income outside the dividend tax net

For directors taking a low salary, employer contributions can be a more efficient way to build wealth than drawing extra dividends. The Annual Allowance for most people is £60,000 (subject to tapering for high earners), and unused allowance from the previous three tax years can sometimes be carried forward.

4. Claim Every Allowable Business Expense

Any cost incurred wholly and exclusively for business purposes reduces your taxable profit. Common examples include:

• Office rent, utilities, and use of home costs
• Travel and mileage for business journeys
• Software, subscriptions, and online tools
• Professional fees for accountants, solicitors, and consultants
• Training and development that maintains existing skills
• Business insurance and bank charges
• Mobile phone and broadband (where used for business)

Keep receipts, invoices, and clear records. HMRC can request evidence years after the event, and digital bookkeeping makes this easier.

5. Use Capital Allowances and Full Expensing

Buying equipment, machinery, or commercial vehicles can deliver significant tax relief. For 2026/27:

• Full Expensing allows companies to deduct 100% of qualifying main rate plant and machinery in the year of purchase
• The Annual Investment Allowance of £1 million remains available
• The Writing Down Allowance for the main pool dropped to 14% from April 2026, making timing decisions on larger purchases more important
• A new 40% First Year Allowance was introduced for certain assets

If your company is planning a significant capital purchase, the timing of that spend can directly affect this year’s tax bill.

6. Time Dividend Declarations Strategically

Dividends are taxed in the year they are declared and paid, not when the work was done. This gives directors a useful planning lever.

If you are close to a higher rate threshold, splitting dividends across two tax years can keep more of your income in the basic rate band. The opposite is also true: if you expect rates to rise further, bringing dividends forward can sometimes lock in the current rates.

This kind of planning needs care. Always check your year to date personal income before declaring a dividend, and make sure board minutes and dividend vouchers are properly documented.

7. Choose the Right VAT Scheme

If your company is VAT registered, the scheme you use affects cash flow and admin time:

• The Cash Accounting Scheme lets you pay VAT only when customers pay you, which helps if clients are slow to settle invoices
• The Flat Rate Scheme simplifies VAT calculations for smaller businesses, though it is less attractive than it once was
• The Annual Accounting Scheme spreads VAT into fixed payments across the year

The right choice depends on your turnover, customer payment patterns, and how much VAT you reclaim on purchases.

8. Claim R&D Tax Relief if You Qualify

Companies investing in genuine research and development can claim R&D tax relief, which either reduces Corporation Tax or generates a payable credit. The rules tightened significantly from April 2024, so claims now need stronger evidence of scientific or technological advance and clear records of qualifying activity.

If your business develops software, processes, products, or technical solutions, it is worth speaking to a specialist. HMRC has increased compliance checks on R&D claims, so the supporting documentation matters as much as the work itself.

9. Stay Ahead of HMRC and Companies House Deadlines

Late filing penalties are avoidable money straight out of your business. Key 2026/27 deadlines include:

• Corporation Tax payment: 9 months and 1 day after your accounting period ends
• CT600 filing: 12 months after your accounting period ends
• Confirmation Statement and annual accounts: filed with Companies House on time
• VAT returns: typically every quarter, filed through Making Tax Digital compatible software
• Self Assessment: 31 January following the end of the tax year

From 1 April 2026, HMRC’s free online Corporation Tax filing portal closed. Companies must now use commercial software or work through an accountant to file. Making Tax Digital for Income Tax also became mandatory in April 2026 for sole traders and landlords with combined gross income above £50,000, which affects directors who run other income streams alongside their company.

10. Work With a Specialist Accountant

The 2026/27 tax year contains more moving parts than any in recent memory: higher dividend rates, frozen Personal Allowance until 2031, new BADR rates, the closure of HMRC’s filing portal, and stricter R&D rules. A specialist limited company accountant pays for themselves several times over by spotting reliefs you might miss and keeping you compliant when the rules change.

Frequently Asked Questions

How can a UK limited company save tax in 2026/27?

Through a tax efficient salary and dividend mix, employer pension contributions, claiming all allowable expenses, using capital allowances, timing dividend declarations carefully, and claiming reliefs such as R&D tax credits where you qualify.

What are the Corporation Tax rates for 2026/27?

The small profits rate is 19% on profits up to £50,000, the main rate is 25% on profits above £250,000, and Marginal Relief applies between those thresholds with an effective marginal rate of around 26.5%.

What are the new dividend tax rates from April 2026?

The basic rate rose from 8.75% to 10.75%, and the higher rate rose from 33.75% to 35.75%. The additional rate is unchanged at 39.35%. The £500 dividend allowance also remains in place.

Are dividends still more tax efficient than salary?

Yes, in most cases. Dividends avoid National Insurance, and the combined Corporation Tax and dividend tax burden is still lower than the income tax plus NI cost of an equivalent salary, especially for basic rate taxpayers. The advantage has narrowed since April 2026, so the optimal mix is worth reviewing each year.

How do pension contributions reduce Corporation Tax?

Employer pension contributions are an allowable business expense, so they reduce taxable profit. They also avoid National Insurance and grow tax free inside the pension wrapper.

Can my limited company claim R&D tax relief?

Possibly. If your company carries out qualifying research or technological development, you may claim relief that reduces Corporation Tax or produces a payable credit. The rules tightened in 2024, and HMRC scrutinises claims closely, so professional advice is worth the investment.

What changed for limited company filing in April 2026?

HMRC’s free online Corporation Tax filing service closed on 1 April 2026. Companies must now file through commercial software or an accountant. Making Tax Digital for Income Tax also became mandatory for sole traders and landlords with combined income above £50,000.

Plan Your Tax Position With Target Accounting UK

Tax rules in 2026 reward businesses that plan ahead and punish those that drift. Whether you are a contractor, a property landlord, or running a growing limited company, the right structure and timing can save thousands each year.