{"id":5157,"date":"2016-06-10T16:16:34","date_gmt":"2016-06-10T15:16:34","guid":{"rendered":"https:\/\/www.qualityformations.co.uk\/blog\/?p=5157"},"modified":"2025-04-20T10:35:49","modified_gmt":"2025-04-20T09:35:49","slug":"tax-rates-allowance-limited-company-directors","status":"publish","type":"post","link":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/tax-rates-allowance-limited-company-directors\/","title":{"rendered":"Tax rates and allowances for limited company directors"},"content":{"rendered":"      <div class='post-lastupdated'>\r\n        <strong>Last updated: 20 Apr 2025<\/strong>\r\n      <\/div>\r\n    \n<p>If you are a company director, it is important to be aware of Income Tax and National Insurance rates and thresholds, dividend tax requirements, and how you can pay yourself through a limited company.<\/p>\n<p>Ideally, you should consult an accountant for professional advice and tax-saving strategies, but we\u2019ll provide a brief overview of tax rates and allowances to get you started.<\/p>\n<p>The information stated in this article applies to the 2025\/26 tax year, which runs from 6 April 2025 to 5 April 2026.<\/p>\n<h2 id=\"what-tax-does-a-company-director-pay\">What tax does a company director pay?<\/h2>\n<p>Directors of limited companies are usually also shareholders. In fact, many small startup companies are one-person operations, whereby the only person who owns, manages, and works for the company is the single director-shareholder-employee. Whatever the setup, the following tax rates and allowances may apply:<\/p>\n<h4 id=\"income-tax\">Income Tax<\/h4>\n<p>As a company director, you are normally classed as an employee for tax purposes, so you may need to <a title=\"GOV.UK:Register as an employer\" href=\"https:\/\/www.gov.uk\/register-employer\" target=\"_blank\" rel=\"noopener noreferrer\" data-wpel-link=\"external\">register your company as an employer<\/a> and operate Pay As You Earn (PAYE) as part of your payroll.<\/p>\n<p>You will be liable to pay Income Tax and Class 1 National Insurance contributions (NIC) through PAYE on the wages you receive from the company.<\/p>\n<p>No tax or NIC will be due on the first \u00a312,570 if you&#8217;re entitled to the standard <a href=\"https:\/\/www.gov.uk\/income-tax-rates\" target=\"_blank\" rel=\"noopener noreferrer\" data-wpel-link=\"external\">tax-free Personal Allowance<\/a>. Above that amount, you will start paying Income Tax and National Insurance on your earnings.<\/p>\n<p>If you live in England, Wales, or Northern Ireland, you&#8217;ll pay the following Income Tax rates on your director&#8217;s salary:<\/p>\n<ul>\n<li>20% basic rate &#8211; salary income up to \u00a350, 270<\/li>\n<li>40% higher rate &#8211; between \u00a350,271 and \u00a3125,140<\/li>\n<li>45% additional rate &#8211; from \u00a3125,141<\/li>\n<\/ul>\n<p>If you live in Scotland, you&#8217;ll pay the Scottish Income Tax rates on your director&#8217;s salary:<\/p>\n<ul>\n<li>19% starter rate &#8211; salary income up to \u00a315,397<\/li>\n<li>20% basic rate &#8211; between \u00a315,398 and \u00a327,491<\/li>\n<li>21% intermediate rate &#8211; between \u00a327,492 and \u00a343,662<\/li>\n<li>42% higher rate &#8211; between \u00a343,663 and \u00a375,000<\/li>\n<li>45% advanced rate &#8211; between \u00a375,001 and \u00a3125,140<\/li>\n<li>48% top rate &#8211; from \u00a3125,141<\/li>\n<\/ul>\n<p>The Personal Allowance is the same for everyone in the UK, regardless of which Income Tax rates you pay. However, your allowance will gradually reduce when you start <a href=\"https:\/\/www.gov.uk\/income-tax-rates\/income-over-100000\" data-wpel-link=\"external\" target=\"_blank\" rel=\"noopener noreferrer\">earning more than \u00a3100,000 a year<\/a>, and you won&#8217;t receive any Personal Allowance if you earn over \u00a3125,140 per year.<\/p>\n<h4 id=\"employees-national-insurance\">Employee\u2019s National Insurance<\/h4>\n<p>You will pay 8% <a href=\"https:\/\/www.gov.uk\/government\/publications\/rates-and-allowances-national-insurance-contributions\/rates-and-allowances-national-insurance-contributions\" target=\"_blank\" rel=\"noopener noreferrer\" data-wpel-link=\"external\">Class 1 employee National Insurance<\/a> on wages between the NIC primary threshold (\u00a312,570) and the upper earnings limit (\u00a350,270\/year). Above the upper earnings limit, you will pay 2% NIC. These deductions will be calculated and taken directly from your wages through PAYE.<\/p>\n<h4 id=\"employers-national-insurance\">Employer\u2019s National Insurance<\/h4>\n<div class=\"body\">\n<p>The company will also have to pay 15% employer (secondary) Class 1 National Insurance contributions on your earnings (and the wages of any other employees) above the NIC secondary threshold (currently \u00a35,000 per year).<\/p>\n<p>However, you may be eligible to claim up to \u00a310,5000 <a href=\"https:\/\/www.gov.uk\/claim-employment-allowance\" target=\"_blank\" rel=\"noopener noreferrer\" data-wpel-link=\"external\">Employment Allowance<\/a> on your employer NIC liability if your company has more than one director and\/or employee earning above the secondary threshold.<\/p>\n<\/div>\n<h4 id=\"dividend-tax\">Dividend tax<\/h4>\n<p>Dividends are paid from profits after the deduction of Corporation Tax. This means that companies pay tax on this income before it is distributed to shareholders. The rules on dividend tax changed on 6th April 2016. Previously, there was no personal tax liability on dividend income for basic-rate taxpayers.<\/p>\n<p>          <li class=\"marker:!text-primary\">\r\n            <a href=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/what-are-dividends\/\" class=\"font-semibold\" data-wpel-link=\"internal\"><span>What are dividends?<\/span><\/a>\r\n          <\/li>\r\n                            <li class=\"marker:!text-primary\">\r\n            <a href=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/issue-dividends\/\" class=\"font-semibold\" data-wpel-link=\"internal\"><span>How to issue dividends in a company limited by shares<\/span><\/a>\r\n          <\/li>\r\n                            <li class=\"marker:!text-primary\">\r\n            <a href=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/what-are-the-dividend-tax-rates-in-the-uk\/\" class=\"font-semibold\" data-wpel-link=\"internal\"><span>What are the dividend tax rates in the UK?<\/span><\/a>\r\n          <\/li>\r\n                  <\/p>\n<p>As a result of these new rules, it\u2019s not quite as tax-efficient to take a low salary and higher dividend payments through a limited company as it once was, though it is a far simpler system. The notional 10% dividend tax credit (which most people struggled to understand anyway) was abolished and replaced with a tax-free dividend allowance, which is currently \u00a3500 per year.<\/p>\n<p>Above the \u00a3500 allowance, you will pay the following rates of <a href=\"https:\/\/www.gov.uk\/tax-on-dividends\" target=\"_blank\" rel=\"noopener noreferrer\" data-wpel-link=\"external\">tax on dividend income<\/a> you receive from your company:<\/p>\n<ul>\n<li>8.75% on income within the basic-rate tax band (up \u00a350,270)<\/li>\n<li>33.75% on income within the higher-rate tax band (\u00a350,271 to \u00a3125,140)<\/li>\n<li>39.35% on income within the additional rate tax band (above \u00a3125,140)<\/li>\n<\/ul>\n<p>Dividend income is still distributed from post-tax profits, so your company will continue to pay Corporation Tax on these profits before you pay yourself dividends. The idea behind the changes was to discourage people from setting up a company simply to pay less tax &#8211; i.e. by taking most or all of their income as dividends rather than as a wage.<\/p>\n<p>          <li class=\"marker:!text-primary\">\r\n            <a href=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/self-assessment-guidance-for-company-directors-and-shareholders\/\" class=\"font-semibold\" data-wpel-link=\"internal\"><span>Self Assessment guidance for company directors and shareholders<\/span><\/a>\r\n          <\/li>\r\n                            <li class=\"marker:!text-primary\">\r\n            <a href=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/pay-yourself-through-limited-company\/\" class=\"font-semibold\" data-wpel-link=\"internal\"><span>How to pay yourself through a limited company<\/span><\/a>\r\n          <\/li>\r\n                            <li class=\"marker:!text-primary\">\r\n            <a href=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/reasons-you-need-accountant-for-limited-company\/\" class=\"font-semibold\" data-wpel-link=\"internal\"><span>15 reasons you need an accountant for a limited company<\/span><\/a>\r\n          <\/li>\r\n                  <\/p>\n<p>Regardless, trading through a limited company is often more tax-efficient than operating as a sole trader (depending on your level of profits). An accountant or tax advisor can help you structure your income in the most tax-efficient way.<\/p>\n<h4 id=\"class-4-national-insurance-contributions\">Class 4 National Insurance contributions<\/h4>\n<p>Whilst not applicable to directors unless they receive untaxed income from self-employed activities (e.g. rental income from privately owned property), it\u2019s worth mentioning this type of National Insurance for clarity.<\/p>\n<p>Class 4 National Insurance is paid through Self Assessment by certain people, including:<\/p>\n<ul>\n<li>self-employed sole traders and members of partnerships<\/li>\n<li>people who receive certain types of income not taxed through PAYE (e.g. rental income or freelance work)<\/li>\n<\/ul>\n<p>These NICs apply when earnings from self-employment exceed the NIC lower profits limit of \u00a312,570. Class 4 National Insurance is charged at 6% on income between \u00a312,571 and \u00a350,270, then 2% on anything over \u00a350,270.<\/p>\n<h2 id=\"registering-for-self-assessment\">Registering for Self Assessment<\/h2>\n<p>If you receive dividends, you&#8217;ll need to <a href=\"https:\/\/www.gov.uk\/register-for-self-assessment\" data-wpel-link=\"external\" target=\"_blank\" rel=\"noopener noreferrer\">register for Self Assessment<\/a>. You will then report your dividend income on an annual Self Assessment tax return and pay any dividend tax you owe directly to HMRC.<\/p>\n<p>          <li class=\"marker:!text-primary\">\r\n            <a href=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/self-assessment-tax-return-mistakes\/\" class=\"font-semibold\" data-wpel-link=\"internal\"><span>6 common Self Assessment tax return mistakes and how to avoid them<\/span><\/a>\r\n          <\/li>\r\n                            <li class=\"marker:!text-primary\">\r\n            <a href=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/remember-to-file-your-self-assessment-tax-return-by-31st-january\/\" class=\"font-semibold\" data-wpel-link=\"internal\"><span>Remember to file your Self Assessment tax return by 31 January<\/span><\/a>\r\n          <\/li>\r\n                            <li class=\"marker:!text-primary\">\r\n            <a href=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/side-hustle-tax\/\" class=\"font-semibold\" data-wpel-link=\"internal\"><span>Side hustle tax &#8211; what you need to know<\/span><\/a>\r\n          <\/li>\r\n                  <\/p>\n<p>Likewise, if you receive any other forms of untaxed income from your limited company or elsewhere (e.g. expenses and benefits, a <a href=\"https:\/\/www.qualityformationsblog.co.uk\/wp-admin\/post.php?post=7944&amp;action=edit&amp;classic-editor\" data-wpel-link=\"external\" target=\"_blank\" rel=\"noopener noreferrer\">director\u2019s loan<\/a>, income from property, side hustle earnings), you must register for Self Assessment, file a tax return each year, and pay any Income Tax and NIC that you owe.<\/p>\n      <div class=\"shortcode shortcode-image\">\r\n        <a href=\"https:\/\/www.qualitycompanyformations.co.uk\/fully-inclusive-package\/\" data-wpel-link=\"internal\">\r\n          <img decoding=\"async\"\r\n            src=\"https:\/\/cdn-quality.s3.eu-central-1.amazonaws.com\/assets\/custom\/images\/blog\/qcf-blog_sidebar.png?v=4\"\r\n            alt=\"Fully Inclusive Package\"\r\n            class=\"md:hidden\"\r\n            loading=\"lazy\"\r\n          \/>\r\n          <img decoding=\"async\"\r\n            src=\"https:\/\/cdn-quality.s3.eu-central-1.amazonaws.com\/assets\/custom\/images\/blog\/qcf-blog_banner.png?v=4\"\r\n            alt=\"Fully Inclusive Package\"\r\n            class=\"hidden md:block\"\r\n            loading=\"lazy\"\r\n          \/>\r\n        <\/a>\r\n      <\/div>\r\n    \n"},"excerpt":{"rendered":"<p>If you are a company director, it is important to be aware of Income Tax and National Insurance rates and thresholds, dividend tax requirements, and how you can pay yourself through a limited company. Ideally, you should consult an accountant for professional advice and tax-saving strategies, but we\u2019ll provide a brief overview of tax rates [&hellip;]<\/p>\n","protected":false},"author":10,"featured_media":6063,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[1239],"tags":[],"class_list":["post-5157","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-tax-accounting-finance"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v25.0 (Yoast SEO v25.0) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Tax rates and allowances for limited company directors<\/title>\n<meta name=\"description\" content=\"Comprehensive guide for company directors on tax rates and allowances, including Income Tax, National Insurance, and dividend tax.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/tax-rates-allowance-limited-company-directors\/\" \/>\n<meta property=\"og:locale\" content=\"en_GB\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Tax rates and allowances for limited company directors\" \/>\n<meta property=\"og:description\" content=\"Comprehensive guide for company directors on tax rates and allowances, including Income Tax, National Insurance, and dividend tax.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.qualitycompanyformations.co.uk\/blog\/tax-rates-allowance-limited-company-directors\/\" \/>\n<meta property=\"og:site_name\" content=\"Quality Formations Blog\" \/>\n<meta property=\"article:published_time\" content=\"2016-06-10T15:16:34+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2025-04-20T09:35:49+00:00\" \/>\n<meta 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